Finance Bill, 1993: Second Stage (Resumed).

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

Mr. S. Kenny

I should like to thank the Chair, for allowing me to avail of the remainder of Deputy Broughan's time. I will now address a number of issues that stem from this year's Bill and I will concentrate on the measures that will lead to further job creation.

It has to be said that this year's Bill has to be seen against the background of the difficult economic circumstances, currency speculation and the devaluation of our pound, and has to be judged in that context. At present we are witnessing a return to strong economic fundamentals. The Government has successfully kept a tight grip on inflation to ensure we reap the benefits of low inflation. In addition, interest rates are falling to an acceptable level and, indeed, there has been another announcement of an expected drop in interest rates. I am determined that the various strands of Government policy will be knit together in such a way as to create the right economic climate for further job creation.

There has been a great deal of criticism about the introduction of the 1 per cent levy on income and the Opposition has claimed that this is a further tax on PAYE workers. However, in the explanatory memorandum to the Bill, the position in regard to this levy is stated clearly. The Taoiseach has indicated that the levy is temporary. As the recession begins to lift and interest rates fall further and our inflation rate drops, I believe that by next year's budget the 1 per cent levy will be a thing of the past.

The Bill has introduced a number of new measures, all of which are designed to stimulate job creation and enterprise. In the Programme for Government it is quite clear that unemployment is the single biggest issue facing us; more importantly, it is the issue on which the electorate will judge us in the future. Newspaper owners should be happy that newspaper advertising is to be taxed at the 10 per cent manufacturing business rate instead of the 40 per cent corporation tax rate. One hopes this will bring an end to the bellyaching we have had from the newspaper industry and the cries for a level playing pitch for RTE and newspapers.

One aspect of the Bill that deserves special mention is the measure which will benefit the Irish film industry. Previously, any company wishing to avail of the tax scheme for film investment had to guarantee that 75 per cent of the production work was carried out in Ireland. This restriction acted as a barrier to many foreign companies who genuinely wished to participate in co-productions. This meant Irish companies had to turn down offers of co-productions because prospective overseas parties were unhappy with this restriction. The Finance Bill allows for the waiving of this 75 per cent rule under certain circumstances, with the approval of the Minister for Arts, Culture and the Gaeltacht, Deputy Michael D. Higgins.

The Bill introduces a novel scheme intended to encourage people away from secure employment to start their own businesses. An entrepreneur will be allowed claw back money invested in a new business by way of an income tax refund. It will be possible to offset up to £75,000 against taxes paid. The Minister for Finance, Deputy Bertie Ahern, proclaimed that this scheme will be of advantage not only to those currently in employment but also to the unemployed, including those who have been made redundant.

Mr. J. O'Keeffe

At this stage it is very clear that utter incompetence has been the hallmark of this Fianna Fáil-Labour Government in its mismanagement of the business and financial affairs of the country. It is proper in making a broad statement of that kind to provide some examples, and there are incontrovertible examples even in the very short time this Government has been in office. Already the Government has scored a hat-trick of own goals on the three crucial issues it has encountered to date. In the devaluation debacle the dithering and delays cost the taxpayer tens of millions of pounds. That is clear from the extra borrowing that was indulged in, the increased cost of repaying that borrowing and, indeed, the cost of the extra protection measures allegedly introduced to maintain jobs and a strong economy.

It is interesting that the one person in this House who had the courage to stand up and say stop was Deputy John Bruton. However, he was met with abuse and criticism and claims that he was betraying the national economy. He was the one person who shouted stop, and rightly so. Having been criticised initially, he ultimately ended up as the person who persuaded the Government to turn matters around. The consequence of devaluation is lower interest rates, and we now have the joke of this Government claiming it is responsible for that.

The second own goal is the Greencore saga. Were ADM approached to purchase the Government shareholding the company could have become a vehicle for European expansion in one of the biggest food companies in the world. The furore over the share placement by Davy Stockbrokers in no way obscures the fact that the shares should never have been available for placing on the market; rather they should have been sold to ADM. That would have set Greencore on the path to expansion in business and in jobs. Instead it is now condemned by this Government for ideological, emotional or other reasons to a no-growth future.

This Finance Bill fits neatly into the same pattern of Government incompetence which has caused it to blithely ignore the fact that we have the highest level of unemployment in Europe. The measures in this Bill will increase rather than reduce unemployment. It is worse still that, despite this trilogy of failure, the Taoiseach and Cabinet Members do not seem to appreciate the enormity of the damage done or the foolishness of their actions. As a consequence there is no justification for any hope for the future under the present administration.

The level of unemployment in Ireland is such that it is like a cancer affecting the entire country. In the past unemployment was limited in many cases to deprived areas and to the unskilled, to people without a profession, a vocation or a trade. Now it is all-pervasive, affecting virtually every household. Practically everybody has a sister, cousin, aunt or child who is affected by unemployment. It is very clear that the great national priority is to solve this problem. It is supposed to be the national priority of the Government, but it has not the vision to plan for a society where everybody has a chance of getting a job. More importantly, it has not the courage to take the necessary measures, some of which will be unpopular, to even begin to turn the tide on unemployment. The only way to encourage enterprise is to create an environment where enterprise flourishes and to ensure that entrepreneurs know this. That is why the introduction of the much heralded tax scheme, which is supposed to provide attractive incentives by way of tax rebates to people to become entrepreneurs, is a dead duck. It is very clear that the proposed scheme will be an administrative nightmare.

As usual, what appeared initially to be a bright idea has become so shrouded in bureaucratic limitations that it is unworkable. It appears that IDA approval for a manufacturing operation will be a necessary precondition to qualify for this scheme. The problem is that the IDA will rightly want to be convinced of the financial viability of the project, but the banks will not approve the financing arrangements without confirmation of the availability of finance. Without financing from the banks it is very unlikely that the promoter will find his way through the bureaucratic maze and end up with a tax refund from the Revenue Commissioners. The end result is that the unfortunate prospective entrepreneur will be faced with an unresolvable problem and will never get off the ground.

As regards service companies, this measure applies only to those serving the overseas market. Everybody involved in enterprise knows that the only way for a small company to get off the ground is to test the market and cut their teeth in the domestic market first. There are much higher risk factors in going into the foreign market in the first instance. Furthermore, if the staff gain the necessary experience in dealing with the domestic market, the project can be operated at less cost. Therefore this measure is another dead duck. New tax schemes will not work unless they are characterised by simplicity, uniformity and clarity. The proposals in the Finance Bill fail on all counts.

It is appropriate to look at the leading article in today's Irish Independent, which gives its reaction to schemes of this kind. It states:

In Ireland work is taxed. Enterprise is taxed. Those who have money are positively discouraged from investing it productively. Those without it are hampered in their efforts to better themselves.

Despite a flood of expert advice, popular concern and warnings from intellectual leaders, the Government persists with revenue-driven measures and a plethora of ad hoc palliatives. That is the simple fact as outlined by an objective observer. The problem is that warnings and advice of this kind are ignored by the Government.

The Finance Bill effectively means substantially increased taxation. An additional £575 million will be collected this year. For every one pound paid last year the unfortunate taxpayer will pay £1.06 this year. It is obvious that this approach penalises enterprise, stifles initiative and makes us more uncompetitive. A further by-product of this tax and spend approach is that it reverses the encouraging signs in recent times in relation to the downward direction of taxes. That reversal, coupled with a recessionary environment, will drive high wage earners from the country. I am aware of people who had hoped for a reasonable tax environment who are looking overseas. They have been given a clear signal from the Government that the longer they stay the more they will pay. That is the wrong message to transmit. The lunacy of a policy which deliberately discourages enterprise is beyond belief in a country with such enormous unemployment.

The burden of tax must be lighter if enterprise is to be encouraged and jobs created but that message is lost on the Government. It is lunacy to tax work and to simultaneously pay lip service to job creation as a top priority. There are complicated schemes which might encourage one or two enterpreneurs, if they can find their way through the maze, but they are not the answer. The answer is obvious but the Government does not have the will to confront the challenge. The real problem is that it has not faced up to the challenge of tax reform.

Taxation is among the most wide-ranging forms of Government intervention in modern society. The potential of a perverse system to cause economic and social damage is correspondingly large. That remark applies more to this country than to any other. In most countries the tax system is developed more as an accident than through a thought-out economic policy. We are no exception. Income tax was devised in about 1806 by Pitt as a temporary tax to pay for the Napoleonic wars. We have inherited that temporary tax and year by year we pile on additions, exemptions and complications under the system. We need a root and branch re-examination of our approach to tax and expenditure. We should be clear about our objectives, we want an ongoing sustainable increase in productive employment and an ongoing sustainable increase in living standards for all our citizens. We will not and cannot achieve that under our present system. The only way to achieve it is through an innovative, competitively efficient market orientated growth economy.

It is clear that tax does not exist in isolation but to fund Government spending. We must start by asking how the money is being spent and whether it is efficiently serving the medium and long term objective of the country. At the moment we are suffering disastrous effects on efficiency of resource allocation by having one distortion piled on another. The result is that in many cases people are making more from capital gains and from investment in non-productive special investment schemes than from productive investment. The consequence is that more and more people are sent down the blind alley of permanent dependence on the State. We must subject Government expenditure to the closest scrutiny and reduce it to the lowest possible level. We must reverse the tax and spend approach of this Government. The more Government expenditure there is the less chance we have of resolving our unemployment crisis.

The other side of the coin is to put in place a radical and fundamental reform of our tax system. We have never faced up to the fact that we either have concessions combined with high rates or fewer concessions combined with low rates. Given the choice taxpayers would prefer the second option because they trust themselves more than the Government to make the best use of their own money. The fundamental principle of tax reform should result in people retaining as much as possible of their money to encourage initiative and innovation at every level. Coupled with that there must be a parallel system of protection for low income families which is designed to widen the opportunity and incentive for them to improve their positions by personal effort without depending on the State.

The fact that this Government evaded and avoided the main recommendations in the Culliton report on tax reform clearly showed that it does not have the will to face up to the admittedly major task of redesigning our expenditure and tax system to encourage initiative.

The return of death duties is a very unwelcome feature of the Finance Bill. They were abolished by the Fine Gael led Government 20 years ago because they were unfair and led to exceptional hardship in many instances. No justification has been made by this Government for their reintroduction.

Many years ago the famous guru, Adam Smith, talked about tax and a fair and proper tax system. He said that the first principle of such a system would be that taxes were levied according to ability to pay. This probate tax ignores that fundamental principle. It will place a very special burden in cases of family assets being transferred. These assets, admittedly, may have a paper value but they are not convertible to money. This tax will impact to a huge degree on succession to land, farms, family businesses and homes. These assets could have a substantial value on the open market but the problem is that the income from them may not be great. Furthermore, many such farms and family businesses operate on an overdraft and there is no cash flow to satisfy this "grab-all" Government looking for more tax. In some instances the family farms and family businesses will have to be sold to satisfy the voracious appetite of this high taxing, high spending Government. That is not in the interest of the country. The Government must rethink its position on this tax. While the tax at the moment is 2 per cent, there is no guarantee that it will remain at that figure. A Government which had no problem about introducing a 1 per cent income tax on work and enterprise — the lack of which is supposed to be the greatest problem confronting the country — will find it very difficult to resist the temptation to increase the level of probate tax in the years ahead. The principle is bad and this tax should now be withdrawn.

Fine Gael wants to see an approach which will encourage enterprise, self-reliance and self-sufficiency. We must change the systems that penalise initiative and enterprise. That reformist approach is utterly absent from this year's Finance Bill and on that basis alone the Bill must be opposed.

Mr. R. Burke

I would like to take this opportunity to welcome the Finance Bill. I believe that it sets out a number of goals and sends out a positive message which helps to create an atmosphere in which we can make a start to tackle the considerable problems which plague us as a nation.

This is most certainly a time of crisis, and the greatest crisis we have is a crisis of confidence. We are ill served by those who seek to contribute to that crisis by their pessimism and cynicism. Rather we should be emphasising our strengths, talents and adaptability of our people, the comparative beauty and peacefulness of our country for tourism and, from a positive approach of confidence and hope, go forward to resolve our current problems. There is too much begrudgery and negativeness around, both inside this House and in the wider public media. Certain sections of our media seem to have an inability to report anything positive. Indeed, I grow more and more angered and more and more disgusted with those in our society who sit in their protected ivory towers and tell us what a desperate and hopeless country we are living in — the cosy economists and commentators who have the luxury of dishing out widespread comment and offering solutions while ignoring to fill the gap between how to achieve the solutions.

I do not question the democratic right of comment, rather I appeal to these people who are inside and outside the House to be more positive, not to knock for the sake of knocking. I accept the ultimate responsibilities lie with politicians. However, it would be to everyone's benefit if we all work together for a more positive climate. Get rid of the begrudgers and bring back hope and confidence in our political system, in our politicians and in our peoples' minds.

Achievements must be recognised. This Finance Bill is an achievement, considering our position just five months ago. Without the initial budgeted strategy, any response to Culliton, or son of Culliton, Moriarty, in any form would have been impossible. The positive innovations set out in the Finance Bill were only made possible by the effects of the clear signals sent to the market in January 1993.

We have an unemployment crisis which needs an urgent solution. High currency values and high interest rates, if they had been allowed to continue, would have substantially increased our unemployment levels. Having tackled the currency and interest rate crisis successfully, the Minister for Finance, Deputy Ahern, has given us a Finance Bill with several innovative measures, such as tax rebates for start-up businesses, the renewal and expansion of the BES, capital gains tax changes, and I for one wholeheartedly and sincerely congratulate the Minister on his achievements.

It is no surprise to me to find a Fianna Fáil Minister delivering a finance policy which has job creation as its primary goal. As a party, it has always been one of our primary goals, although we may not have been as successful as our ambitions wanted us to be in the past. Employment for our people has always been integral to the Fianna Fáil philosophy. As early as 1928. Eamon de Valera committed our party's economic policy to work towards the fullest level of employment possible. Taking and updating his words in our own style, I remind the House of that commitment: "We believe there ought to be available for every person in the country employment which will bring enough recompense to enable them to maintain their families, and the whole organisation of the State ought to be to that end".

Government policy is now focusing on that principle. Therefore, the philosophy of employment through enterprise, and reorganising State support bodies so that they are primarily organised to work together to tackle unemployment, is a very welcome and positive move.

I have to admit my irritation and anger when I hear public representatives, mostly from the Opposition benches, casually admit their resignation to the view that we will never achieve full employment. This is now the cop out which will be used to argue away our ghastly unemployment statistics. Rather we should recall de Valera's resolve that, whatever the level of unemployment, it is grossly unacceptable and we must work constantly to bring it to its lowest possible figure.

All politicians should bear the responsibility and be ashamed if one family is allowed to live in poverty. We all lose out if the talents of any Irishman or woman are left unused in idleness and waste. The futures of all our children are threatened if one child cannot look forward to a life of hope and fulfilment. Our people deserve this. It is time all the begrudgery, negativeness, backbiting, political gains, scandals and all the other attention diversions stopped and that we all focus our attention on working together fully committed to solving unemployment and giving back our people confidence and hope.

We should remember that we have worked to solve many problems which stalked us and seemed insurmountable only a few short years ago. No one has told us it will be easy and I do not believe any of us are naive enough to believe it will. But we are well placed to do so. Through the efforts of previous Fianna Fáil led Governments we have achieved a level of social consensus which has never been seen in this State before. I urge the Government to build on the strength of that social consensus, to seek co-operation from the social partners to renew their efforts. It would, in my view, be a serious backward step if this consensus is lost.

I urge the business community, to adopt policies for growth and expanison. I call on our Irish public companies to contribute to the long term prosperity of our economy by investing in the long term future of our people rather than concern themselves with quick and immediate return on investment in markets outside Ireland. Irish management of multinational companies already based here should not lose any opportunity to seek further investments in Ireland from their parent companies, particularly with regard to R & D activities.

As our interest rates continue to fall, I would call on our financial institutions to give encourgement to the innovator and the entrepreneur. All the reports, and the reports on reports, and all the response reports on the reports and the response reports on the response reports based on the original reports, will create no enterprise and no employment unless the circumstances are right for the business community.

The majority of our business community are not high profile public companies with Stock Exchange quotes, but rather small worker owner businesses. Reports will not fill the gap to enable these people to trade successfully, make profits, and provide employment. The fundamentals must be right. This does not include just interest rates and currency rates, but also the level of bureaucracy, taxation regulations and company law requirements. These are areas that take a small business man away from concentrating on and developing his business and have too much prominence and importance in business dealings in our country. We have now adopted a European law framework suitable for the economies of Germany and France but which does not suit and is not viable for the majority of small business enterprises and only serves to create more bureaucracy and paperwork.

Our taxation system, its high level of bureaucratic concentration and its high generation of paperwork, is completely out of touch with job creation. Comment today mostly focuses on the need for tax reform, and this is a very valid argument. However, just as important is the need for reform and simplification of many of the rules, regulations and bureacratic requirements of our tax system.

Self-assessment was sold to the business community as a way of removing the burden of paperwork from the system and simplifying the tax code, but it has in fact developed in the reverse way. The extent of paperwork now being demanded from business, including third party returns, where you must disclose payments of over £1,500 to certain types of services, and other similar returns is bad for business. Let our Revenue officials — Lord knows we have enough of them — do their job of checking compliance and the accuracy of returns as was set out as a fundamental principle of self-assessment. This burden should not be passed over onto business, which has clearly been the case in Revenue policy in recent times.

Another example of this is the ridiculous rules that apply to a construction industry where a company must nominate a particular individual to hold the company's construction cert and which allows payments to be made by principal contractors gross. Ridiculous new arrangements brought in by Revenue insist that each company should have a nominated individual who must visit every such company he deals with and present an identity card. Revenue will not allow the identity card to be posted, or any employee of the company other than the nominated individual to deliver the cert. In fact you have a situation where the individual has to leave his business, get into his car and visit his various customers to produce the card in person. Is this the type of regulation that is good for business and conducive to creating employment? To my mind, construction regulations and the various returns which businesses are now obliged to send into the tax office in addition to their yearly accounts and tax returns are bad for business because they take the businessman's mind off expanding and developing his business and thus providing employment. There is also a need for a culture change in the Civil Service, particularly in the Revenue service. Officials need to appreciate that they are there to serve and co-operate with business, not present obstacles and barriers.

The business community are the Revenue's customers; if there was no business or the number of business was to reduce, then there would be no need for a Revenue service. As unemployment and the number of business liquidations have increased, more and more people are working in Revenue services. There is a definite need for a change of attitude in the Revenue Commissioners to business. It is clear that the substantial powers given to the Revenue in recent years, in good faith, have not had the positive effect that was intended.

Self-assessment has failed to relieve the bureaucratic burden on our business. It has substantially increased it, as demonstrated in the policies of the Revenue in dealing with business in recent times. We need tax reform as a separate measure and it would cost us nothing to reorganise Revenue policy and procedures, and encourage our civil servants to be pro-business.

One of the areas that Revenue and inspectors are now concentrating on is that of mileage payments and expenses. Let me recall a recent case. The individual involved, a company director, was concerned that he might in the future be subject to a Revenue audit and that the Revenue Commissioners might be dissatisfied with the amount of reimbursement. There are approved mileage reimbursement rates in place for all civil servants, depending on engine size and official mileage in the mileage year, and these rates run on a sliding rate from a maximum of 66.5p per mile. Many businesses have adopted the Civil Service approved rates as a guideline when reimbursing persons providing their own transport. In the case I mention, the individual set about getting an approved mileage rate on the basis that the Revenue auditors would not accept Civil Service mileage rates in the case of business. On submitting details of the type of vehicle, vehicle value, expenditure on tyres, repairs, insurance, fuel, services and average annual business and private mileage, he was approved by the Revenue on the basis of a lower mileage rate than if he was a civil servant. On querying this he was informed by the Revenue Commissioners that the formula used to calculate his mileage rate is per the Taxes Act and that he was not entitled to the Civil Service rate except where the rate achieved under their own formula is greater than the Civil Service rate. Is this a good approach to business? After all, it will be through this business that jobs will be created, not through the Revenue services.

The example I have outlined demonstrates an overall problem in the attitude of the Revenue services and in other parts of the Civil Service to business. We need efficient service of the highest standard in terms of competitiveness and positive attitude from all Government Departments, agencies and semi-State bodies. Anything less will undermine the efforts of this House and the Government to implement the provisions of this Finance Bill. It is no solution to transfer problems from one sector to another. We need real, long term solutions. If there is one fundamental weakness in the various reports it is that they do not fully address this area. Are business people expected to fall into line out of a sense of national pride or for the benefit of Northern Ireland? Incentives and financial rewards must be put in place. The days of Stalin and Lenin are long gone.

I would also comment on the need, in making policy, not just to approach it from the point of view of start up business. Our greatest hope for short to medium term expansion in the economy is to expand our existing business. While it is positive and worth while to put incentives in place for new business, it is vital to help expand existing business, and I refer the House to the provisions of the Finance Bill in this area. Subsidies and grants will only keep new business alive for a limited time. Urgent and positive action is necessary to deal with the more fundamental problem of developing existing business and stopping its decline. Let us not set about creating enterprise for the sake of enterprise or enterprise where we will see the least return. Our priorities must be existing business. I suggest that the Government focus on the problems of existing small business because therein lies our greatest hope of immediate and rapid change in our economic development.

There is a need for large scale tax reform. Our workforce is one of the most demotivated in the free world. How could it be otherwise? After many workers pay tax of 48 per cent, they see another 7.25 per cent of PRSI disappear and then they pay the new 1 per cent levy which amounts to over 56p in every £ of their wage packets. The Government should gear our taxation machine to be more pro-domestic business. The argument that radical tax reform is not affordable or possible does not stand up to scrutiny when one examines the real cost of existing policies. There must be sufficient incentive to encourage a healthy entrepreneurial spirit and promote business success and there must be incentives for all our workers.

I would ask the trade unions and the farming community to continue the consensus we have had. I call on the Government to give serious consideration to innovative proposals relating to offshore banking and an amnesty for repatriated funds. These will serve to keep our interest rates down and encourage investment in Irish enterprise. We must also build on our tourism infrastructure and provide state of the art conference facilities, sports facilities and anything which attracts people and business and which plays to our strengths and advantages.

I urge the Government to exercise the greatest care in its use of the European resources at our disposal. We must develop an industrial policy which is not based on a well-intentioned subsidy grant mentality which provides only temporary employment for as long as the subsidy is there. There must rather be a long term view taken which not only creates lasting employment but addresses the causes of the failure of existing businesses with the loss of jobs that inevitably follows.

The opening of the European market is both a testing time and a time of promise. Nobody thought it would be otherwise. We must use the resources which Europe provides for the greatest benefit of our people. We must find our niche in the European market. I am confident that we shall.

I am also concerned about our role in Europe and I am troubled that we have, in a matter of months, seen our pride as Europeans turning sour. Our peripherality to the mainland of Europe is a serious problem that faces us in the European context. We will soon be the only island nation in Europe without any land connection to our fellow EC partners. In a united states of Europe we would be like Alaska, but without the oil. This, combined with our relatively small population, should give us cause for concern about our future. While it is true that European funding is designed to help us overcome this problem, we must ensure that when these funds have been spent the problems have been minimised.

Great play has been made of the £8 billion of Cohesion Fund money which the Community is dedicating to Irish infrastructure. Although I welcome the provision of this money and look forward to its effect of improving the quality of Irish life, in view of our most recent experience in Europe I feel compelled to ask if this £8 billion is really designed to bring Ireland to a competitive standard equal to that of the European giants, or if it is simply conscience money?

Will an Irish businessman really be able to compete on an equal basis with his counterpart in Germany or the Benelux countries after this £8 billion is spent? Is £8 billion actually enough to put our infrastructure on an equal footing? How can we be sure whether it is or not? Roads and motorways on their own are not enough to solve long term unemployment. We cannot be sure, but I believe there are additional guarantees which we must negotiate to ensure that we have the means to overcome our remote location and small population base. It is important that we get an early commitment from the Government in relation to an adequate injection of equity into Aer Lingus for the purpose of giving us secure access to Europe and our markets around the world.

In summation I welcome this Bill as a start — a very good start to fulfilling one of the original tenets of Fianna Fáil economic policy, namely, adequate employment for our people. Let us be realistic as to what this Finance Bill can achieve. Politicians cannot legislate specifically to solve the unemployment crisis. We can get the climate, the environment and the economic fundamentals right for business to provide employment. One does not manufacture jobs like a product. One creates the right climate for doing business, and jobs follow jobs. Policies based on grants and subsidies generally do not work because when the grants and subsidies finish the jobs finish up as well.

This Finance Bill represents a step in the right direction. It is an encouraging and positive start for this new Government and sets out a solid foundation for effective Government over the next few years.

Mr. Gilmore

I would like to share my time with Deputy McManus.

Acting Chairman (Mr. Leonard)

Is that agreed? Agreed.

Mr. Gilmore

There is a number of points I would like to raise in regard to this Bill. My first point relates to a matter which my party colleagues and I have raised here on a number of occasions during debates on previous Finance Bills. We attempted to table amendments on previous Finance Bills on this matter but they were ruled out of order on the grounds that they involved a charge on the Exchequer. I am raising this matter on Second Stage to persuade the Minister to consider introducing an amendment on Committee Stage to deal with the discrimination that exists at present in regard to people in relationships other than marriage, what are commonly regarded as co-habiting couples.

The Department of Social Welfare and most other Government Departments treat couples living together as if they were married, but the tax system treats them as single people. In regard to social welfare and other benefits one is deemed to be a dependant of the other, but they are not entitled to the tax allowances that normally relate to such people.

I will give a number of examples which illustrate the point I am making, but for obvious reasons I will not use real names. The first case I wish to refer to is that of a couple, Paul and Brenda. Paul was separated in 1987 and started to live with Brenda at the end of 1988. In 1990 they bought a house together and took out a joint mortgage. Around that time Brenda lost her job and went on unemployment benefit. When the unemployment benefit ceased and Brenda claimed unemployment assistance she found that because she was means tested on Paul's earnings she did not qualify and was refused unemployment assistance. Some time later they had a child. This couple have a child, a joint mortgage and, to all intents and purposes, are in a married relationship. She cannot claim an allowance as a single parent because she is living with Paul. She cannot claim unemployment assistance because it is means tested on Paul's earnings and, therefore, she will not qualify. She has no income of her own and is dependent on her partner's income for her means. However, her partner cannot claim any tax allowance for her. He continues to be taxed as if he were a single person.

My second case involves a person working for a State company on a lower income, whom I will call Peter. He had been legally separated, was paying child maintenance and was entitled to claim a single parent's tax allowance. He entered a relationship with a person I will call Elaine. When they started to live together he immediately lost the tax allowance. Again, the same pattern ensued. She lost her job and there was no problem while she was on unemployment benefit. She applied for unemployment assistance and qualified for a sum of £7 or £8 per week, considerably less than she would receive if she was regarded as a single person. The social welfare people treated them as if they were married, one a dependant of the other but, again, the tax system refused to treat them in that way and penalised them for their position.

The third case involves somebody on a very low income. The couple are living together and the man receives £104 unemployment assistance for himself, his partner and a child. He has the option of going on a social employment scheme — a caretaker in a local school — for which he will be paid £120 a week. He will be taxed on that as a single person and his take home pay after tax will be £103.95 per week. He will end up worse off working on the social employment scheme than on unemployment assistance because the tax system will treat him as a single person whereas the social welfare system treats him as a married man.

My final case refers to a woman who was previously married and had got a Church annulment. She remarried in the Church, but in this case the tax people will not regard such a couple as being married because they do not have a State marriage. This couple also have a child and the man is unemployed and regarded as dependent on his wife but the tax system will not regard them as such.

There are tens of thousands of couples in that position here and the problem is becoming more acute as more people lose their jobs and claim social welfare benefits. I ask the Minister to put down an amendment on Committee Stage to address this serious anomaly. I have given four examples that have been brought to my attention in my constituency in the past few weeks. There are thousands of couples living together who, to all intents and purposes, are in permanent relationships, treated by the Department of Social Welfare as married couples, but by the tax office as single people. That anomaly cannot be allowed to continue and should be addressed by the Minister and the House on Committee Stage.

Some Members referred to the question of incentives. There are two areas with which I wish to deal in this regard. The first is the business expansion scheme. The trend in recent years has been to limit the role of the BES whereas in the Finance Bill the Minister is again headed in the opposite direction. Two documents should be recommended to the Minister, one the audit report of the Office of the Comptroller and Auditor General on the operation of the BES in Ireland and the second a study entitled The Business Expansion Scheme in Ieland by Dr. J. C. Stewart of Trinity College published in Irish Business and Administrative Research, Volume 13. Essentially this paper examines the operation of the BES which was largely copied from the UK scheme but with some important differences. In the introduction to his paper Dr. Stewart says that “it seeks to show how the BES, hailed as a major benefit to small business, spawned several major tax avoidance schemes and secondly it provides a preliminary assessment of the effectiveness of the BES in Ireland in its non-tax avoidance role”.

He admits the scope of his assessment was restricted because of limited information relating to firms that received BES finance. Apparently information provided by the Revenue Commissioners shows the number and type of company receiving BES funds and the total cost in terms of tax foregone but not, for example, names of individual firms receiving BES funds. Over the years successive Chancellors of the Exchequer have made changes to the BES in the UK to exclude certain activities and to improve targeting. The announced intention was to counter incentives to invest in low risk activities, property and house ownership, life assurance and pension entitlements and to encourage investment in small and new companies operating in high risk areas.

The Financial Times, for example, on 11 September 1990 showed that non-property BES investments in the UK were, at that time, negligible. When in Ireland it was acknowledged that the BES did not work as intended, various changes were introduced, especially in the 1989 Finance Act, designed to restrict the use of the BES as a tax avoidance scheme. The celebrated incident of Shannon International Leasing and others is well known. The 1990 Finance Act in Ireland withdrew tax relief for interest on funds borrowed for new BES investments and stipulated that tax relief would not be granted where “it could reasonably be considered that all risk has been eliminated”.

Finally, the 1991 budget pledged that the BES would no longer apply to shipping, hotels, guest houses and self-catering accommodation, that the total amount which would be raised would be limited to £0.5 million per firm and that any one individual taxpayer could invest a maximum of £50,000. The 1991 Finance Act effectively implemented these changes, except that the lifetime ceiling was raised to £75,000. In addition, restrictions were introduced on multiple company structures designed to circumvent the half million limit and BES funds must be used to purchase shares rather than for lending on.

In his assessment of the effectiveness of the BES, Dr. Stewart notes that there are considerable costs to both investors and recipient firms in raising funds via the BES. There are also considerable costs to the State in terms of tax foregone. In addition, if investments turn out to have zero value, the amount invested by individuals net of tax relief can be offset against any other capital gains tax due. An examination of BES proposals relating to individual firms also shows considerable "tax efficiency." Of the 190 BES investments identified in Dr. Stewart's report, 55 received grant assistance from the IDA and-or SFADCo. It was also interesting to note that ten of the 55 BES schemes received grant assistance during or prior to 1980. In terms of grant paid per employee, the BES figures compare well with IDA data.

Data provided by the Revenue Commissioners and given as Table 6 in Dr. Stewart's report shows costs per job on an incremental basis comparing total employment for 50 BES firms for the year 1988 with 1989 — that is total tax foregone due to BES relief divided by the change in employment, and I propose to distribute the table concerned. The data shown in the table is valuable in confirming that there are considerable costs in terms of tax foregone. If it is assumed that firms in the manufacturing and computer software sector received average IDA grants per employee, then the cost per job approximately doubles for BES firms. Because BES relief is restricted to manufacturing companies and companies producing computer software, it is not surprising that most of the BES firms identified also received grant aid. What Dr. Stewart finds surprising is the extent of the grant aid. The BES, rather than acting as a substitute for grant aid, appeared to be more of a supplement to grant aid. The typical BES firm benefits from a 10 per cent tax rate, grants and lower finance charges via BES financing. When Deputy John Bruton, as Minister for Finance, introduced the BES legislation he stated at the time that it was intended as a substitute for State grants. I can see merit in the concept of a business expansion scheme, however this presumes that the BES scheme can be operated in a way that encourages investment in risk enterprise. So far, unfortunately, there have been too few examples of that objective having been achieved.

Ms McManus

Generally most people are agreed that the budget was a disappointment in relation to job creation. Many people expected a new initiative targeting the whole area of job creation and development of our resources to create wealth. In some respects the budget and indeed the Finance Bill will have a negative effect on certain areas where jobs are affected, in particular the clothing industry, which ran a very strong campaign in this regard. Unfortunately, it was not a very effective campaign in that the Minister did not seem to understand the seriousness of their cause.

The clothing industry is labour intensive, demands great skills and is also developed from the creative talents of many Irish people, which has been proved here and abroad. The arguments in relation to the clothing industry also apply — or at least potentially apply — to the film industry. There must be a greater understanding by the Minister in relation to how these industries work, how risky they are and their sensitivity to outside forces. I hope he does not adopt the same leech-like approach to the film industry which he applied to the clothing industry.

I welcome the moves in regard to setting up the National Film Board and indeed in encouraging independent film making. These are welcome developments but we must be clear that at the end of the day they will be successful, when we can judge the number of jobs created or developed from these initiatives. The Finance Bill includes encouragement of investment in the film industry but it is not the first time there were incentives to encourage film making, some of which have not always been successful. Last year the incentives had little or no effect because by the end of the year it was more attractive to an investor to put money in the bank than into a risky business such as film making. The effect was that film making was starved of investment. At the time the Minister insisted on prolonging the agony when the bank rates went up following the British devaluation. Indeed, even as late as the end of January his Department issued a statement as follows which is worth pondering now, when it was defending the decision of the Minister not to make any move towards an Irish devaluation.

The disadvantages of devaluation far outweigh the short term advantages. ...there is no guarantee that a devaluation will be fully accepted by the markets ... no guarantee that the Irish pound would not come under pressure again.

Inflation will pick up quickly ... loss of confidence in Irish pound investment ...price increases for the consumer ... reduced competitiveness, adverse impact on investment and jobs ... to devalue now would be to throw away the hard work since 1987 and reduce our future benefits in return for short term gains.

The realisation that that was not the case came too late. I am aware of businesses that were badly hit by the high interest rates, indeed some have gone out of business and good friends of mine are now contemplating a very sad future because they could not continue with their businesses.

I am here to argue the case for the film industry. In my home town of Bray there is a long tradition of film making at Ardmore Studios. A litany of films has been made in Bray of which we can be proud. The facility there has managed to survive all the lean years and is still ticking over at a modest rate. That facility can be exploited to develop the film-making industry. The Minister for Arts, Culture and the Gaeltacht stated in reply to a question I tabled that technical facilities at Ardmore Studios were satisfactory, but I would like an assessment carried out. There is goodwill on the part of shareholders to develop those facilities. We cannot be smug in our assumption that the technology is there to meet the changes in film-making. At the end of the day we need to invest in infrastructure if we are to receive the returns.

Despite incentives in the previous Finance Bill for the film industry, when Neil Jordan sought money from Irish investors to make a modest low budget film he was unable to obtain any investment here. He had a proven track record and was a major talent, but he was unable to obtain funding here for his film and had to go elsewhere. He went on to make the most profitable low budget film ever made. I am sure there are many investors around Dublin who regret not taking up his offer when it was presented to them. That in itself is a lesson which must be taken on board when the issue of film making is addressed. The Government must put its money where its mouth is. If we do not avail of the opportunity in the film-making industry we will fail to develop that industry in which we have already a base — a network of directors, producers and technicians. Those people argue the case that up to 1,000 jobs could be created in Ireland if we were to develop the industry. I feel strongly that Ardmore Studios in Bray has a powerful part to play in that development.

Mr. Jacob

I wish to share my time with Deputy Michael Ahern. It saddens me to hear colleagues from all sides of this House running down this Finance Bill. A positive message should come from this House in relation to the economy. It is very important that confidence should be raised inside the country, in the business sector and throughout the economy. The perception of our country should be a perception of confidence. The underlying strength of our economy should be portrayed rather than the negative politics of running down rather than promoting what we have to offer and what is the true position.

The main thrust of this Bill is to create jobs. The Minister has set out to channel investment into the area of job creation. I welcome the many positive measures towards that end. In my constituency of Wicklow there are three schemes operating in relation to job creation. We are fortunate that the Leader programme is operating. I do not know how successful it is but it is working along the lines of creating jobs in rural areas of the county. The county enterprise boards are due to get off the ground. I understand instructions are issuing to county managers around the country to get those boards up and running forthwith. It is time to stop talking and to put those boards in place. There is a level of expectation abroad at present in respect of the county enterprise boards. The boards have been allocated money and they will have decision-making powers. The bureaucratic malaise that has affected other schemes and other State agencies geared towards job creation will, we are promised, be absent from those new boards and they will not involve referral. I appeal to the Minister and to those concerned to ensure that the red tape and levels of bureaucracy that existed in the past will be removed and that decisions will be taken speedily. Business people who are interested in getting projects up and running do not want to be bogged down in bureaucracy. Those people are committed to risking life and limb and investing their financial resources in projects and they should be allowed to do so. If financial and other assistance is available it should be given to them, but they should not be bogged down in red tape.

I wish to refer to the 1 per cent levy, a provision in the Bill with which I am not enamoured. I appreciate that the Minister for Finance prepared the budget in the midst of a recession which had world-wide implications. I hope the 1 per cent levy is a short term ploy and that this year will see the end of it. It is an undesirable method of raising revenue and I understand the Minister for Finance holds this view also. I have an aversion to the aspect of the 1 per cent levy which affects our pensioners and I appeal to the Minister to examine that. I received a letter from the chairman of the Guinness staff retirement association. That company has served this country well for many years, as have its employees. The chairman of the association, Mr. William Broe, asked me to raise the issue of the 1 per cent levy being imposed on the total income of pensioners who receive £173 per week or over. This affects older people to whom this country owes much. They have worked hard and may have disposed of their property by passing it on to their sons or daughters and have budgeted for their retirement on what they had planned and worked for, their pension. Their pension income may be eroded by this 1 per cent levy, something which they did not take account of when they made their plans for retirement. This is something to which I have a major aversion and I would ask the Minister to make some provision in this Bill in regard to the interests of our senior citizens. It would be most desirable if this could be achieved.

I refer briefly to the urban renewal improvements which the Minister has included in the Bill. They are very welcome. The designated areas that are fortunate enough to be included will have additional scope. Would the Minister consider deeming further areas and plans as being eligible for this scheme? Many towns and villages would benefit enormously from inclusion in the scheme. I am thinking in particular of projects in Wicklow and Arklow in my constituency which are crying out for assistance from such a scheme.

I wish to refer briefly to the early retirement scheme for farmers. I understand that the Minister has submitted the plans for this scheme to Brussels for sanction. Anything which can be done to expedite the introduction of this scheme should be done. I hope when we have an opportunity to examine it that the scheme will live up to all we expect of it, that it will enable older farmers to retire with an income and hand over their farms to well educated young farmers who know their job and want to get on with it before they are much older.

I very much welcome the Bill and commend the Minister for the courage he has shown in the preparation of it.

Mr. M. Ahern

The overriding concern of all Members of this House and, in particular, the Government is our unacceptable unemployment level and the need to counter this by the creation of jobs. This Bill underpins the Government's objectives in this regard in two ways: first, by securing financial stability and continuing the Government's commitment to sound economic and budgetary management — a process first begun by Fianna Fáil in 1987 — and, second, by providing new investment incentives and extending the scope of three very important existing schemes.

The raising of seed capital has been a problem for most new companies. The Government, under the tax refund scheme, has used an innovative method to help solve that problem by encouraging employees to start their own businesses. However, in order to qualify for this relief an individual must, in addition to meeting other criteria, invest in an incorporated company. I ask the Minister to look again at this provision as many people who would like to set up businesses would not necessarily wish to invest in an incorporated company. A person does not have to be a limited company in order to set up and run a successful business. Many successful businesses are operated on a sole trader basis. I ask the Minister to look at this provision with a view to extending the scheme to those people who operate on a sole trader basis.

Having spent 11 months in the Department of Industry and Commerce with responsibility for science and technology, I am convinced that research and development is of critical importance to the development of Irish industry and job creation. Tremendous strides have been made in the research and development area over the past four to five years. This success has mainly been due to increased funding from the European Community. The decision to allow projects to qualify for inclusion under the business expansion scheme is a wise, rational and long overdue decision. This will ensure that more and more of our highly qualified graduates stay at home and help develop Irish industry rather than emigrate and thus help to develop German, French, Dutch, American and Japanese industries, which has been the case for the past number of years.

One of the shackles which prevented people in the past from changing from one type of business or industry to another was the capital gains tax. The Minister has seen the light of day in this Bill and has proposed that the full time employees of trading companies should be allowed to defer payment of capital gains tax provided they invest in a qualifying trade for BES purposes, that is, a manufacturing trade or an internationally traded service. This important relief will be of benefit to many shareholders in private companies. I ask the Minister in his reply to explain why this relief is not available to most indigenous service companies, many of which have the capacity to create employment at levels equal to those achieved by manufacturing companies and internationally traded services.

Under the Bill BES companies will be able to raise capital of up to £1 million — the previous limit was £500,000 — and employees will be able to obtain tax relief for investments of up to £3,000 — the previous limit was £750 — in their employer companies. There will also be a relaxation in the 30 per cent shareholding rule in a BES company. These decisions will have a very positive impact on job creation. By and large, the business expansion scheme has been successful but in some cases — this applies in particular to the hotel industry — the possibility of abuse must be examined. I believe an indepth analysis of the business expansion scheme would make most interesting reading.

I believe the announcement in relation to stock relief will receive a mixed reaction from farmers. I do not think the decision to reduce the stock relief limit from 110 per cent to 25 per cent will be universally welcomed by farmers. However, on the other side of the coin, the elimination of the stock clawback will be of great relief to many farmers who are tied into a stock position as a result of stock relief claimed in previous years. These farmers will be placed in a more flexible position by being able to sell their stock as they wish. The elimination of the stock clawback means they will not be liable to the payment of tax on increased profits.

I welcome the VAT provision which will require farmers to register only for goods and services imported from the EC. This provision will not apply to many Irish farmers. I ask the Minister to look again at the VAT threshold limits of £32,000 for a retail business and £15,000 for a service industry. These limits, which have remained at their present limits for many years, should be increased.

I wish to refer to the potato industry. Imports in the frozen potato area amounted to approximately £16 million in 1988, £18 million in 1989, £19 million in 1990, £18 million in 1991 and approximately £15 million in 1992. In a country which is ideally suited to the growing of potatoes — my constituency of Cork East is particularly suitable for such production — we have an opportunity, in the age of set-aside and quotas, to make a concerted effort to develop our potato industry. I believe many farmers would willingly set aside ten to 15 acres of their land for potato growing. However, such a scheme would have to be properly controlled to ensure continuity of supply. Similar schemes have been set up in the sugar industry by Greencore, previously the Sugar Company, and in the pea and vegetable industry by Campbell Foods of Midleton. If there is no continuity of supply, any efforts in this regard will not be successful. I believe there is great potential for job creation and import substitution in the potato industry.

Since Fianna Fáil came into power in 1987 it has reduced considerably the income tax burden on taxpayers by widening the tax bands, increasing tax free allowances, reducing the tax rates and, most importantly, taking more and more people on low pay out of the tax net. For example, in 1987-88 a married couple were exempt from paying income tax if their income was £5,500 or less. This income limit has been increased to £7,200 for the 1993-94 period. In addition, recognition has been given to the importance of the family. Parents, with children, on low incomes receive a special income tax allowance of £350 for the first two dependent children and £550 for each subsequent child. As a consequence the exemption limit has been increased. The improvements made in the tax regime have led to increased job creation during the past five years.

Further increases in the personal allowances have been granted while the tax bands have been widened further in this Bill. On this occasion the rates of tax have not been reduced, but even when we take the 1 per cent levy into account for those earning over £9,000 per annum or £173 per week, the income tax take for the majority will remain constant or be reduced. This is a considerable achievement in these difficult times.

Deputy Cullen of the Progressive Democrats claimed that his party in Government were responsible for the reduction in the tax burden. This claim is not sustainable because the facts show that Fianna Fáil had begun to make tax reductions before the Progressive Democrats tagged on. I can assure the Deputy that we intend to continue along that road but not at the expense of the less well off in society.

Mr. Durkan

The Deputy's party is running out of partners.

Mr. M. Ahern

The Deputy's party is next.

Mrs. O'Rourke

The Deputy's party would never find one.

Mr. M. Ahern

When the smooth veneer is wiped away from the smarmy, pious unctuousness of the Progressive Democrats it is patently clear that their reaction to the Government's proposals in the Finance Bill is no different to that of any of the other Opposition parties. Their aim is to attack the Government at all costs where it hurts most.

The high interest rates in the recent past have placed an intolerable burden on many mortgage holders and the Government has taken this into account by granting additional interest relief in respect of mortgages and in conjunction with the reduction in interest rates recently — for which we, in our humility, will not claim responsibility — the burden on mortgage holders has been reduced. Credit must be given to the Government for taking this positive action.

In conclusion, the Minister in this Finance Bill has faced up to the realities of the economy and the problems which face all sectors in society and has achieved a balance which is both fair and equitable.

Mr. Durkan

Since I became a Member of this House some years ago the contributions made by Members of the Government parties on the Finance Bill can give rise to jocularity and merriment. Having said that, I compliment the previous speaker on making a good speech, but I would ask him: who was responsible for governing this country between 1989 and 1991? The way things are going the major partner in Government, which has courted most of the eligible partners in the House, is fast running out of partners and, given the way in which it has despatched its partners, it will be very difficult to achieve a new partnership.

In debating this Finance Bill I am reminded of the "do-it-yourself" expert who discovers that his dining room table is not level, decides to cut a quarter of an inch off one of the legs, only to discover that it is still not level. The result is that he decides to cut a quarter of an inch off one of the other legs and continues in this way until such time as the legs of the table are reduced to six inches, when it is no longer of much use. The Finance Bill has been chopped and changed during the years and there has been no continuity. No firm, employer, employee or investor can honestly say with any degree of certainty that they could set their sights on a particular programme over a period of ten years on the basis of established precedents in the area of taxation without running into difficulty somewhere along the line.

Taken in isolation, some of the measures contained in the Bill are useful and constructive; but they are completely overshadowed and will be outlasted by many others, some of which have been revamped and others outdated. In the final analysis the Bill will be almost unworkable because its stated objectives are not achievable.

I would like to deal with a number of the measures which will have a negative impact on what the Minister is trying to achieve at present, that is, to encourage investment in order to create more employment. This is not going to happen. We should face the fact that we tax employment. As several other speakers mentioned, one of these taxes is the famous 1 per cent income levy. Hard pressed workers felt that they had been coping fairly well in difficult circumstances and that there was a possibility, when interest rates fell, that they would be able to use their initiative to improve their position. But, lo and behold, the Minister imposed a 1 per cent income levy right across the board, including those living in local authority housing, just in case they might use their initiative or benefit from the lower interest rates. The Minister and the Government decided in their wisdom that the time had come to put a stop to that nonsense.

As we are all aware, the purpose of introducing this levy is to raise funds. I have often said that when the sole objective is to raise funds one must raise serious questions about the damage that may be caused in the economy. We are all aware that the sole purpose in regard to excise duties is to raise revenue, but one eventually reaches the point where it is counter-productive to raise taxes further. That point has now been reached in regard to the clothing sector. During the course of the general election campaign last November, when we knocked on doors with such high expectations, when we were bright-eyed and bushy-tailed and told the electorate what we would do for them, we were informed by sources in the clothing industry that they were barely able to keep the door open. I have great pity and sympathy for those people now. When the two parties in Government sat down to set their targets they decided they would introduce a 1 per cent income levy and clobber the clothing industry. I could not contemplate a more outrageous step being taken——

Mr. McGahon

It is a wind of change, but it is blowing in the wrong direction.

Mr. Durkan

When the ideologists in both parties met they decided that in order to fund their proposals they would have to extract resources from some quarter. I mean no disrespect to either of the two Government parties when I say I am somewhat worried about the number of flowery, enticing weekly announcements on the part of Ministers, all made outside this House, all requiring fairly substantial expenditure. Against that type of background I do not wonder at all that the Minister for Finance, in his budget and now in this Bill, had to make provision for extorting extra taxes from people because there are no other means of funding the types of proposals about which I speak. It would appear also that Ministers in both parties opposite are eyeing with envy the possible £8 billion we are told is wending its way towards us even as I speak. The combined taxation proposals of the budget and Finance Bill, and the possible benefits that may accrue to the two Government parties — or they might perceive as accruing to them as a result of some Structural Funds being expended in one way or another — worries me. I am quite sure it worries many of our electorate also.

Far from there being any attempt on the part of the Government to be constructive in the long term, the greater tendency on the part of the two parties opposite is to jump in quickly, with a big, bright, flashy announcement, ensure that everybody hears about it, then rush on quickly to the next one before the public have had time to recover from the shock of the first.

I presume we will be treated to television shots of the Taoiseach and Tánaiste ringing home from abroad. I presume it was one of our own we saw calling home, that it was not somebody auditioning for the part of Kid Shelene in the film entitled "Cat Balou", as was suggested by one of my constituents. I am informed reliably that it was one of our own who was on the telephone. I am sure there will be more of them. Certainly we should like to see and hear from them. However, that is a matter I will discuss in greater detail at another time.

To revert to taxation levels, let me move further on. The VAT on the clothing industry has already had its effect and I predict will continue to have a much more serious one. With no disrespect meant, I should say to Fianna Fáil that it is amazing what a few years can do for them. I remember some ten or 12 years ago in this House when a budget came clattering down around everybody's heads because of a major outburst on the part of the Fianna Fáil Party claiming that the then Minister would have been unable to tell the difference between a ten year old, 12 year old and 18 year old in relation to clothing sizes. It is amazing what a few years can do. It is encouraging to note that one thing has been achieved, that they can tell the difference now because it does not appear to matter anyhow.

Still in the area of taxation, let us ascertain what we have discovered over the past few days. There is now a tendency to switch from Ministerial responsibility in relation to taxation, to the indirect type, such as the increased telephone charges. Telephone users are being told they will not notice the difference, the attitude being: why would any consumer want to make telephone calls in excess of three or four minutes anyway? We must remember that this will affect domestic consumers; it is meant to assist business and industry. I question how much assistance it will prove to be. Would there be the same urgency to assist if there was not stiff competition pertaining in the marketplace? I wonder also whether, if there was not competition in the home marketplace, there would have been the same tendency to increase charges for domestic consumers. I hold that these increased charges amount to another taxation imposition, just as we were told a few years ago, when VAT was introduced on telephone charges, it would be absorbed, it would have no immediate impact and so on. If people examine their telephone bills of five or six years ago and compare them with their present ones, they will discover there has been a dramatic change upwards. I suggest that if in two years time they re-examine their bills they will discover a further dramatic change, and it will not be one for the better.

Let me examine another aspect of the taxation on families, since there has been mention of the protection of families. If this is protection of families I should hate to think what the Government might do were they launching an attack on families. I am referring to the increased third level college fees, something that runs right across the board and strikes at the heart of every family, the attitude appearing to be make sure it penalises them in the middle of the summer, the beginning of the next term, or whenever. It is an added indirect taxation on them. Indeed, it appears to be part and parcel of what the Government and Minister for Finance must take into account when preparing their budget and Finance Bill.

Let me proceed now to hospital charges, another little tax imposed, an extra burden and/or charge not included in this Bill, although it will have the same impact as though it had been included. The amazing thing is that these hospital charges have been increased by the very same people who said they were totally and ideologically opposed to any suggestion of increased hospital charges. It is amazing what a couple of hours or weeks in Government can do to people; they can change almost overnight. I worry enormously about those charges.

To cap it all, if the Government do not get people while alive, they will get them once dead through the new probate tax. All of this means that they are rolling back taxation overall by almost 30 years, an amazing decision to have taken. I should think that arose as a result of the two parties, either in the preparation of the Programme for Government, the budget, the drafting of this Bill, or even in the preparation of the various programmes in which the Ministers of both parties are indulging, discovering there simply were not sufficient funds in the kitty to meet their requirements as they saw them. Therefore they plucked a number of ideas off the wall or the ceiling which would allow them raise a certain amount of extra revenue for the Exchequer, which is what they did. Any administration that increases the burden of taxation on people's families or dependants after death deserves to be taught a lesson. Such action is disgraceful, particularly at a time when the emphasis is supposed to be on the recommendations of Culliton, on job creation, on the utilisation of Structural Funds for useful, productive purposes, all of these things are supposed to be positive. Yet, at the same time, the Government decides to put the boot in and cream off the handy few bob they can readily acquire for the Exchequer.

Then I come to another matter, the sale of State assets, about which I worry. While they may not be sitting opposite, I am sure that in spirit they are there. I refer to some people who down the years vehemently opposed any suggestion of the sale of State assets. It became a favourite hobbyhorse, a staple diet. The mere suggestion of the sale of the family silver was decried at any opportunity, contending it was appalling and nobody could tolerate it. Again, all I can say is that a few days or weeks in Government work extraordinary wonders for some people. Not alone can State assets be sold now but they can be polished before sale. They can be sold regularly, with no end to the extent of the sales proposed or projected. I predict we have not heard the half of them yet. In order to fund the Government's own proposals — about some of which we have not yet heard and do not know how wild they might be — without doubt there will be more greater sales of State assets. But the appalling aspect in some of these instances is that the State assets can be sold under the noses of the Government, to unknown parties or, to put it another way, the assets in which the Government has a considerable interest can be sold right under their noses, to a party or parties unknown, for unspecified or unknown sums, but particularly at knock-down prices, at a time when everybody else is paying top dollars for whatever he is interested in. This raises the hackles of the unfortunate electorate. During the next election campaign when the electorate will look out through the peepholes of the front door to see who is calling, I think they will have a good hard look before opening the door. If they find members of the parties who have visited these taxation proposals on them, after all the flowery promises, I have a sneaking suspicion that the callers would be far better off if the door was not opened.

Although I hope I am not correct, I feel that far from seeing the removal of the income levy next year it will be doubled or at least increased. The reason I say this is that various members of the Government have trotted out proposals up and down the country during the first 100 days in office and if they continue for the next 100 days or whatever length of time they are allowed to remain in office, the income levy will not only be doubled but increased five-fold.

Ms Shortall

I wish to share my time with Deputy Brian Fitzgerald.

Acting Chairman

Is that agreed? Agreed.

Ms Shortall

It is undeniable that the appalling level of unemployment and the prolonged slowdown in the international economy present huge problems for any Minister for Finance, particularly in the area of taxation policy. This Government, through the Programme for a Partnership Government, is committed to the process of tax reform and to (1) the removal of the low paid, especially families, from the tax net; (2) the broadening of the standard band so that only high earners pay the higher rate of tax; (3) the maintenance of the basic tax reliefs; and (4) the improvement of collection and enforcement procedures to ensure equity between those who are on PAYE, the self-employed and those with substantial investment incomes.

I will deal in detail with this last point and in particular with the concept of equity. Equity is a fundamental principle in the development of any taxation policy. The principle of fairness in the distribution of the tax burden must be striven for at all times. Not even massive budgetary pressures absolve us from this responsibility. If democracy is government with the consent of the governed, it follows that a system of taxation must meet with the broad consent of those affected. That is not to say, of course, that people will ever like to pay tax, because no one does. It means that if we are to agree, however reluctantly, to co-operate in paying our share, the burden must be seen to be fairly divided. There must be equity in the system and it must be evident to those directly affected, in other words, the pain must be seen to be equally divided.

On Tuesday the Minister told us that because of budgetary pressures there was no alternative to the 1 per cent income levy. This levy which has been justified in terms of the exceptional necessity imposed by our high levels of unemployment, international recession, currency fluctuations, and so forth, is simply not fair in its impact. At first sight a levy of a fixed percentage of income might seem to fall fairly on all. It could be said that its impact is proportionate: the high earner paying a lot and the low earner paying a little, but the reality is that its impact is altogether disproportionate. It takes no account of a person's ability to pay. It affects much more drastically those who are liable for a small amount in absolute terms but have no real discretionary income whatsoever. It takes no account of the number of children or other dependants in a family. Conversely, its effect on the high earner is far less, even though he or she may have to pay much more, because he or she has discretionary income and the flexibility which is completely denied to those at the other end of the scale.

Just how those on low incomes are affected by the levy is illustrated by the fact that the threshold at which it becomes payable, £9,000 per annum, is below the level at which a family with one wage earner and two children would be eligible for family income supplement. We are prepared to impose a 1 per cent levy on families whom we deem already to be earning less than the basic amount necessary for survival with any real dignity. To expect such families to pay more out of the little they have, even for the purposes of job creation and on account of the budgetary pressures, is to fly in the face of the principle of equity to which we should aspire. In my view this levy is altogether too blunt an instrument and it will have to be looked at again very shortly. I call on the Minister for Finance to review the threshold as a matter of urgency.

The question of equity and fairness arises also in the matter of tax collection and enforcement. the last report of the Comptroller and Auditor General showed that a sum in the region of £2.5 billion was owed in outstanding tax at the end of May last year. By any standard that is an astonishing figure. By far the highest amount of unpaid taxes arose in the non-PAYE income tax area, corporation tax, VAT and PRSI payments. The non-PAYE income tax outstanding amounted to £633 million; £382 million was owed in corporation tax and unpaid VAT amounted to £777 million. It could be argued that this figure of £2.5 billion is notional, but the tax inspectors, those who have first hand experience of operating the taxation system, maintain that at least £1 billion of this money is collectable. It is hard to appreciate the magnitude of a figure like that. It is an enormous amount of money. Let us consider the number of hospitals, schools and houses that could be built with it, or the number of remedial teachers who could be employed, if only we had the political will to go after this money. What are we to make of this? More importantly, what is the average PAYE worker whose tax is deducted weekly and in full——

Mr. McGahon

He is lucky.

Ms Shortall

——to make of these figures? How do we explain this to a family on £175 per week, upon whom we are imposing a further levy of 1 per cent to subsidise job creation, a levy that we cannot lift because of "budgetary pressures" and the "protracted slowdown in the international economy"? How can we expect wage earners to react with anything other than cynicism and disbelief when we talk about tax reform and sharing the burden equally if we cannot generate the political will to deal effectively with tax evasion? That political will has not been evident in successive Governments. How is it right to squeeze PAYE workers on low incomes for levies they cannot escape unless we are seen to go vigorously after those who evade responsibility which they can well afford? How can we talk seriously about the restoration of confidence in the democratic process and promoting greater equality throughout society, improving standards of accountability, transparency and trust, while seeming to tolerate the many scams and schemes that lie behind those vast sums of uncollected taxes? In the interests of equity and fair play for all I call on the Minister for Finance to get tough with tax dodgers and make the number one priority in reforming our taxation system the elimination of tax evasion. I further call on the Minister to review the threshold for the 1 per cent levy as a matter of urgency.

Mr. B. Fitzgerald

At the outset I warmly welcome the measures to extend the business expansion scheme, which is essential if we are to increase the level of investment in the indigenous manufacturing sector, tourism and international services. While I accept that this year's budget was somewhat constrained by the currency crisis in Europe, I would have liked to have seen many more innovative measures to promote employment. With the benefit of the Structural Funds which will come on-stream next year and with sufficient time to prepare a comprehensive plan to tackle the jobs crisis, I look forward to next year's Finance Bill containing the innovative thinking necessary to generate more employment.

There have been a few scare stories in the newspapers that the family home might be subject to tax other than the existing residential property tax which applies to homes in excess of £95,000 and to people on substantial incomes. The introduction of such a tax would be a retrograde step. It is not my idea of tax reform and should not be entertained, as is advocated by certain Opposition parties.

Having met a number of representatives from the manufacturing side of the clothing industry, I urge the Minister to respond to their concerns that the recent VAT increase will force them to absorb the additional cost and to reduce already slim margins, thereby requiring job losses. Irish manufacturers sell approximately 50 per cent of their output on the domestic market. In a trading environment where price increases are difficult to secure, clothing manufacturers need some measures to offset the VAT increase. I suggest that the Minister examine the feasibility of a tiered structure of employer's PRSI with a lower rate on earnings up to the average industrial wage in the clothing industry. The import of massive quantities of clothing manufactured in Third World countries by some of our pillars of society is putting out of work many people trying to make a living in the clothing industry.

This year's Exchequer borrowing requirement includes £170 million from the sale of the remaining shares held by the State in Irish Life and Greencore. This will bring to an end a period in which State companies were floated on the market to raise cash, thereby making very rich a small number of people. The Labour Party has never supported this strategy as a means to enhance our economic prospects. While I recognise that in the context of the Single Market changes will have to be made, including the forming of business alliances with companies outside the country, senior management in our remaining State enterprises must work on the basis that they will not be privatised. If that is unacceptable to any individual or executive, or if they have no commitment to State enterprises, they should be facilitated to step aside and allow those who have such a commitment to take up the reins.

A number of views has been expressed on the income levy. As soon as the financial conditions permit the Minister for Finance to relieve the burden of income tax, he should scrap this levy. Furthermore, I ask him to do so in the next budget. My final point relates to focusing taxation and State expenditure on employment. The first thing that needs to be done is to produce an employment audit of all expenditure programmes and tax reliefs so as to enable the Government and the Dáil to see where the best return can be secured in terms of jobs. In line with the Culliton recommendations I would favour the introduction of employment grants as opposed to capital grants. There should be a switch from grants to equity capital.

Mr. McGahon

I propose to share my time with my more intellectual colleague from Kerry, Deputy Deenihan.

Acting Chairman (Mr. T. Foxe)

Is that agreed? Agreed.

Mr. McGahon

I will be blatantly parochial in the few minutes at my disposal. Like all Deputies, I share the conviction that taxation levels are almost unbearable and that something should be done about this matter. However, I do not believe anything can be done while we have to bear a social welfare burden of £71 million every week. I do not know where that money comes from or how long it will last. I admire my friend, Deputy Charlie McCreevy, for having the courage to tell the people that some day the well might run dry. He was immediately set upon and castigated by the party who are prisoners of a failed ideology — the Labour Party — an ideology that has collapsed all over the world. For some obscure reason the Irish people took this party to their bosom last November amid a plethora of promises that have not been fulfilled. The Irish people should be told that there is no chance of equitable taxation in the years to come while we are carrying such a great social welfare burden. It is right that we should have a caring society but it is wrong that so many people are robbing the system.

The Labour Party like to point the finger at the mythical uncollected taxes, chiefly aimed at the self-employed. I do not believe that the figures given by Deputy Shortall are correct. I was a member of the Committee of Public Accounts for nine years and I heard Cathal Ó Domhnaill, chairman of the Revenue Commissioners, state at various meetings that the figures issued each year are guesstimates. They are issued to put pressure on the self-employed, the backbone of this country, and to appease the trade unions and the public service unions. While I accept there are unpaid taxes and I do not condone tax evasion——

Mr. Stagg

Even on bets on horses?

Mr. McGahon

I will leave that to the Deputy's constituency colleague to answer.

Mr. Stagg

They are the Deputy's own words.

Mr. McGahon

I do not believe the figures bandied about by the Revenue Commissioners are correct. I do not condone tax evasion but in many cases the unfortunate self-employed people have a lot to contend with from the Labour Party element of this Government.

Mr. Stagg

They will have more to contend with.

Acting Chairman

The Minister will get his chance.

Mr. McGahon

I do not mind his barracking me. I can always write about him in the Sunday World.

Mr. Stagg

I do not read the rag.

Mr. McGahon

Over one million people do. It is Ireland's biggest selling newspaper.

Mr. Stagg

It is not because the Deputy writes in it.

Mr. McGahon

It has a big circulation in Kildare.

Acting Chairman

Please let Deputy McGahon make his speech.

Mr. McGahon

I would draw the Minister's attention to the Mespil Road apartments. Of all the recent scams that have lowered confidence in Irish business and in Irish financial circles, this is the worst. It cries out to Heaven for an explanation. The people are owed an explanation. If Charlie Haughey had been in power today and his family had been the beneficiaries of apartments in that location, the newspapers would have had a field day. This revelation stinks to high heaven. It stinks that the flagship of the Irish insurance industry and of the Irish financial world can have a selective panel of recipients, all high profile people and, strangely, all supporters of one political party with very definite attachments in many cases, and that Irish Life could allow apartments to be sold at £28,000 to these people. One would not buy a henhouse in Dublin in that area for that amount. It is incredible that they could be so unmindful of the welfare of the tenants that they did not attach any conditions for the tenants' welfare. Of all the scams in recent times, and revelation has followed revelation, that is the one that really sticks in the craw. Is that what the policyholders of Irish Life want, or are they just there to be manipulated by the moguls at the top?

I would draw the attention of the Minister, Deputy Stagg, to the unacceptable and astounding increase of 400 per cent in the cost of the telephone service. It is unbelievable that the Minister, who for the last four years spoke about Irish life as he saw it from the opposite benches, now that he has taken the soup and is being well paid——

Mr. Stagg

The Deputy had a fair time at the table as well.

Mr. McGahon

——like his other colleagues, has dropped a lot of his ideology. There has been a 400 per cent increase in the cost of a telephone which provides a service for so many elderly and lonely people——

Mr. Stagg

The exaggeration sounds like the Sunday World.

Mr. McGahon

The Minister is good at that too, when it suits him. The people who need telephones are essentially ordinary working-class people who really cannot afford it but who need it to keep in touch with a doctor or perhaps a family member in another part of the country. To suggest that the reason these people have to pay more is to help business with international calls is pathetic. It is absolute bull and the Minister knows it, viewed against the background that this company will announce profits of £90 million this year and has the effrontery and the cheek to increase charges at the rate of 400 per cent. It is incredible that the Government approves that. The Labour Party, the party of bleeding hearts who talked about the poor people of Ireland and what they would do when the wind of change blew in their favour, will realise at the next election that the wind has turned decidedly chilly. If the Minister wants to bet on that, with or without tax, I will accommodate him.

Mr. Stagg

We are in front of the Deputy's party in the polls.

Mr. McGahon

Name the bet.

Mr. Stagg

We will pay tax on the bets.

Mr. McGahon

Most of the Labour Deputies will not come back. The Minister will come back in a taxi.

The Border area has been economically decimated. It is the Cinderella area of this country. Recently we had the Digital tragedy in Galway, which I regretted as a loss to the nation, but the same concern was not expressed in regard to the Border areas which for 24 years have suffered almost economic extinction as a result of unacceptable, crazy policies imposed by all Governments in the area of VAT and excise duties. Now it has been decided to increase VAT on footwear and children's clothing. This has opened up a whole new front for exporting money to the Six Counties and to the British Exchequer. There is no doubt about that. Thousands of Southern Irish people will cross the Border to buy, and every purchase will loosen the security on a Twenty-six Counties job. The refusal of the Minister to acknowledge that is a tragedy. In the recent past we saw the loss of revenue accruing from petrol sales, when the Border area was decimated and business after business foundered. I can neither understand nor accept the neglect of the Border areas. Every party in this House has turned a blind eye to the plight of the people in those areas. Will this Government seriously look at Border areas which have been weakened by the tragedy of the Ulster troubles? These areas need and deserve the same attention as Galway, Dublin or anywhere else. Will the Minister view the Border area with a little bit more compassion than some of his colleagues?

Mr. Deenihan

I acknowledge that there are some positive aspects to this Bill regarding employment creation, but I am convinced that the Bill will not solve the problem. The initiatives which were supposed to come in the Finance Bill seem to have been watered down, especially the initiative on the return of income tax for a three-year period to entrepreneurs who created a permanent job by developing an enterprise in a private capacity. The proposal is too restrictive in that it does not relate to service industries but only to manufacturing industries. That is unfortunate because the service industry is the main growth area and it is easy to become involved in such an industry. For that reason it will not have the perceived impact it would have had before the announcement in the Finance Bill. There is no indication that the Finance Bill was drawn up in response to the Culliton report or in response to the Green Paper on Education from the point of view of the creation of an enterprise environment. I regret that there is nothing in the Finance Bill to create an enterprise climate which in turn would create jobs. I hope I am proven wrong in that regard.

As spokesperson for my party on tourism, I shall refer to that industry. First, I should like to refer to the VAT increase on accommodation from 10 per cent to 12.5 per cent. While I realise the Government must get revenue from some place, this VAT increase should have been deferred until January 1994, as those involved in the tourism industry had sent out their promotional literature to the world markets stating certain prices. Much of the business was not fully contracted at the time of the budget with the result that people are returning from our market niches to learn there has been an increase in accommodation charges. That is bad for the credibility both of our tourism industry and individual operators. The Minister responded to pressure from the car hire industry by deferring the proposed VAT increase from 16 per cent to 21 per cent. I see no reason why the increase in accommodation charges should not have been deferred until January because it will cause embarrassment for many hoteliers, guesthouses and holiday homes throughout the country. On Committee Stage we will be tabling an amendment seeking its deferral until January, because by then people will be aware of the increase and it will not result in the loss of credibility to which I have referred.

I welcome the deferral of the VAT increase on car hire. I am glad the Minister responded to the many representations made to him by tourism interests and the car hire sector to defer the increase. As we are all aware, there is a major problem with car hire in this country, both from a cost point of view and from a supply point of view, especially during the peak season. If this increase is applied in September it will add further to the cost of car hire. This deferral will not in itself solve the problem but it will help. I would point out that alongside the Minister's initiative we should consider the temporary importation of cars for the peak period during the tourist season. To satisfy the needs of our customers we need an extra 3,500 cars. As with the VAT increase on accommodation, our credibility as a tourist destination will be damaged if people coming to Ireland are unable to obtain a car irrespective of the cost. If the car is not available it is a further embarrassment. I appeal to the Government to consider the temporary importation option for this tourist season if possible. It could easily be implemented and put in place.

I welcome the deferral of vehicle tax registration. The impression created in the budget was that vehicle tax registration would be deferred until the car was sold following its use for car hire, but this did not happen. The deferral is welcomed by the industry and it should help most operators to save approximately £500 on a car. That should increase profitability prospects for car hire operators.

I regret there is no reference to accelerated capital allowances for tourism investment in the Bill. Investment in tourism is one sure way of creating jobs. If one has extra accommodation it has to be serviced: one has to hire people to clean rooms, dress beds and provide extra food. The owners of hotels and guesthouses must be encouraged to invest as much as possible in their enterprises. If generous accelerated capital allowances were provided it would be a major incentive. I realise some concessions have been made in regard to the BES, however, there is scope for further initiatives in this area.

I regret there was no move, despite pressure from many sources, to introduce some tax relief for expenditure on marketing personnel. If we are to attract people into this country it is important that we go out and sell our product. Tax relief for expenditure on marketing personnel would have been helpful.

I should like to refer briefly to concessions for parents of third level students. In their election manifesto the Labour Party promised that university grants would be based on net rather than gross income. Fianna Fáil, having shortly beforehand introduced rigid means testing for ESF grants, undertook to introduce free higher education for all students at third level from 1994. The Programme for a Partnership Government promised greater equity and access to third level education. For the past four months the Minister for Education has promised a comprehensive review and reform of third level grant funding, but all we get is a crude treble inflationary 8 per cent rise today on top of a similar rise last year. I regret there is no concession whatsoever for middle income families who have to expend large sums of money on educating their children. The Fine Gael Party is committed to the introduction of a tax free allowance equal to the combined value of the fees and grants for all parents of students who do not qualify for higher education grants. In many cases this would mean an equivalent grant saving of £1,600, something which has been promised but unfortunately has not been delivered.

There is deep anger about the probate tax. It is a shameful and insensitive tax, affecting rural and urban families. I know it will yield about £11 million, but it is a tax on vulnerable people who, in many cases, have lost a breadwinner.

There are many disagreeable provisions in the Finance Bill, but some are to be welcomed and built on for the future. In general this Bill will not create the jobs that we all desire so much.

Mr. Haughey

I propose to share my time with Deputy Brendan Smith if that is agreed.

I welcome the Finance Bill, in particular the measures which tackle unemployment. The background to this Bill is the Programme for a Partnership Government and the 1993 budget. The Minister for Finance was constrained when formulating this year's budget as he had only been in office a few weeks and had to confront the currency crisis, the very high public sector pay bill and the expected high levels of social welfare payments because of unemployment. It was, therefore, a conservative budget.

I welcome the provisions which aim to promote investment although I criticise the scope of activity covered by the business expansion scheme and the new schemes mentioned in the Finance Bill. They cover only manufacturing, tourism and international financial services. These schemes, and public policy in general, rely principally on manufacturing. I put it strongly that services should be catered for adequately in any promotion of investment. The schemes should cover activities right across the board. Manufacturing is in decline, and there is great employment potential in services. I have to tell those who come to my clinics that there is no financial assistance for people who want to get involved in car servicing, retail services, hairdressing, etc. The IDA is not in a position to help such people. Sometimes I refer them to the Programme for Economic and Social Progress pilot programme to tackle long term unemployment if they are covered by that or to FÁS to make use of the enterprise and employment allowance scheme. Otherwise there is no financial support for people who want to establish a service type business. The business expansion scheme is a good scheme, but why restrict it? A job is a job. Manufacturing, if it is to be efficient, must shed jobs. The Department of Finance, therefore, should not be conservative in relation to the business expansion scheme. The BES should widen its scope to cover many other types of activity.

Bureaucracy has gone mad and once again we are seeing the creation of a multiplicity of agencies and State bodies, many of which were abolished in 1987. Obviously the financial situation at the time had something to do with it but it went deeper than that. The jobs created in this way are not real, these new State bodies are creating more layers of bureaucracy which are anti-business and anti-employment.

Existing public authorities do not cooperate sufficiently in job creation. Local authorities, An Bord Pleanála, Government Departments, the Revenue Commissioners and the Environmental Protection Agency, all pursue their own brief and do not have a brief to create jobs. They have no underlying orientation towards employment and that needs to be looked at very seriously in the current review of industrial policy. This fundamental issue must be tackled. Anyone wishing to set up a new business is crippled from the start because they are dealing with Government agencies who have no brief for employment generally or for economic activity. Until we grasp the nettle and tackle that we will never deal with unemployment.

Like other speakers I will be blatantly parochial for a few minutes and discuss the impact of the Finance Bill on the Dublin region. Many Dublin politicians have never spoken or defended Dublin as a region. I would like to do that now. Dublin has not been given due priority in the formulation of public policy. Unemployment in Dublin has changed dramatically in recent years and there has been little recognition of this. Dublin is now the poor relation. The following statistics, compiled in 1992, may surprise people. The unemployment figure in Dublin is 92,812; there is a 17 per cent unemployment rate in Dublin and the national average is 15.6 per cent. Unemployment in some areas of Dublin stands at 70 per cent. Industrial employment in Dublin city dropped by 31 per cent in the 1980s, that is, by 24,000 jobs, and nationally the decline was only one-third of the rate experienced in Dublin. The decline in Dublin was 31 per cent while in Cork it was only 18 per cent. In 1975 Dublin accounted for 37 per cent of productive employment nationally; by 1991 this was 26 per cent. In 1979 unemployment in Dublin was similar to the rest of the country. By 1991 this was 15 per cent higher in Dublin. In the period 1981 to 1991 Dublin, with one-third of the labour force, accounted for two-thirds of all jobs lost. Unemployment in the high technology sectors increased by 15 per cent throughout the country in the last decade, yet the numbers employed in such industries in the Dublin region dropped by 600. To hold unemployment at the present level in Dublin up to the year 2001 we need to create 10,000 new jobs each year. This is a serious challenge when one considers that between 1987 and 1991 the average annual jobs increase was only 3,800. Dublin is losing out on incoming foreign investment. In the 17 years up to 1991 only 23 per cent of industrial grants and supports went to Dublin, yet Dublin has 22 per cent of the workforce.

These are startling statistics. Dublin, for example, was allocated only 6 per cent of the public housing programme in the last three years. In the current round of Structural Funds, Dublin's share will only be 26 per cent. I could go on.

This situation is not realised by Government, the IDA or the public in general. This is a new and dramatic change. Dublin has a disproportionate unemployment rate, an acute unemployment problem and the disparity between it and the rest of the country continues to grow. Dublin is now the major regional problem in this country. We need to rebalance national policy and review fundamental regional policies, in particular, the negative attitude towards Dublin by many State institutions must cease. The decentralisation programme must be examined. The Central Statistics Office has been decentralised to Cork and the office dealing with the registration of births, deaths and marriages to Roscommon. Enough is enough, but I am sure the Acting Chairman will not agree with me on that issue. The economic benefits of decentralisation should be examined seriously. An ancestry-related tourism office will be based in Roscommon involving a great deal of cost.

Acting Chairman

A wise choice.

Mr. Haughey

Indeed, although the eminent former Taoiseach, Dr. Garret FitzGerald, in a study on that matter recently showed that 50,000 people will be inconvenienced by the move of that office to Roscommon. The matter of the Shannon stopover does not come under this Bill. We need a convention centre in Dublin and that is being examined at present in the Department of the Taoiseach by Mr. Paddy Teehan. Renewal of the inner city, tax incentives in relation to the Temple Bar and other designated areas are helpful but new incentives are needed for Dublin.

The serious unemployment level in Dublin needs to be examined. I welcome many of the VAT proposals relating to flour, confectionery, the car hire industry, hairdressing services and so on. They are further imaginative responses to the unemployment problem and I wish this Bill a speedy passage through this House.

Mr. B. Smith

I thank my colleague, Deputy Haughey, for sharing his time with me, but I disagree with him in regard to decentralisation. As I am sure my colleague, Deputy Boylan, will agree the implementation of the decentralisation programme was a wise decision by the Fianna Fáil Government in 1987 and our county town was a beneficiary of that programme.

I welcome the Bill which underpins the 1993 budget which was framed in the context of a difficult economic position. The main thrust of that budget is continued in this Bill with much needed emphasis being placed on the creation and maintenance of employment. The public finances are kept in order and specific provision is made for the creation of employment.

I welcome especially the specific taxation measures in this Bill to assist the provision of capital for business and the funding of new business start-ups. Such measures, combined with the £500 million increase in public sector investment in the budget, should provide the impetus required to stimulate substantial job creation. Severe threats to the cohesion of society will exist if our totally unacceptable level of unemployment pertains. Human misery follows from unemployment and has far ranging consequences with more and more people becoming dependent on the State which is being funded by fewer and fewer taxpayers. I am not convinced that successive Governments have given adequate attention to the creation of jobs or to the improvement of our infrastructure when such developments are necessary and often instrumental in achieving faster growth and expansion of employment.

The employment package in this Bill provides for the renewal of the business expansion scheme for a further three years and all of us who are familiar with developments, particularly in the tourism area, will welcome that extension. Business expansion schemes provide a wide range of funding from previously unavailable sources.

The innovative seed capital scheme aims to encourage employees to move from what is regarded as safe employment to start their own businesses. This is most welcome. It affords people with the expertise an opportunity to create their own employment. It encourages mobility and, more important, it will create employment for people without work. We all know people with good ideas who are reluctant to leave safe employment or do not have the necessary capital to start their own businesses. Those two difficulties can be minimised with the operation of this worthwhile seed capital provision.

One of the main impediments facing a first-time business person or the first development phase of most projects is the shortage of seed capital or soft loan finance. Lack of collateral, and the cost of money from conventional financial institutions, impose serious constraints or may prohibit the capacity of a person to raise adequate finance which he or she would have the capacity to repay. Most business enterprises which collapse do so not because the idea was inherently non-commercial, but because it runs out of cash because it started off from an inadequate capital base.

We can all take some comfort from the IDA statistics which suggest that the cost of providing a job is decreasing but this may not be the entire picture. With costs decreasing, are our companies being underfunded? Projects will be sustained only when they commence on a firm footing and when borrowing is entered into at sustainable levels. Projects, no matter how much merit they have, must fulfil all the criteria, namely, have an adequate market, adequate funding from the start and be competitive. Those ingredients are required to create and sustain jobs.

Some years ago the Government changed the methods of financing job creation. That was a correct decision at the time, but in the present climate the Government needs to review that policy. The IDA must have the legislative base to assist with the replacement or upgrading of plant and machinery where technological advances demand such upgrading. If a firm which is providing worthwhile employment is competitive, has established markets and needs to change or upgrade its plant, capital grant assistance should be provided. I appeal to the Government to provide the necessary legislation which will allow the IDA assist such firms. With rapidly advancing technology many of our established firms will need to review their capacity in order to remain competitive.

The Government provides substantial incentives for firms to engage in research and development, but there is a lamentably poor level of research and development being carried out here. Firms in the private and public sectors must realise that by doing nothing they are not standing still, they are, in effect, going backwards. Such firms must be provoked into a worthwhile research and development programme. The higher education colleges, particularly regional technical colleges which are spread throughout the country, should establish themselves as research and development centres of excellence in their regions. Surely there is ample opportunity for regional colleges to engage in research and development and carve out a niche for themselves particularly with the major industries in their own regions, similar to the agri-food based research and development centre in Dundalk for the north east region.

By its nature research and development is an expensive commodity and there is no point in one major firm in a region having a modern research facility which is not being used to its maximum capacity and a college of higher education having a similar facility which is under utilised. There must be an effort to ensure that facilities which are provided at substantial cost do not lie dormant for half or quarter of the year — co-ordination is essential.

The Regional Technical Colleges Act which altered fundamentally the governing board structure of those colleges was a step in the right direction. Those boards must be reminded that it is not just their duty to put so many students through college each year and give them a certificate or a diploma, but that it is also their duty to stimulate and provoke measures which will provide employment in their catchment areas. The funding of such colleges for the future should be altered. Those institutions have the most modern technology and facilities and are in a position to generate revenue. Initially, those colleges should have to obtain a small percentage of funding by providing a service for the manufacturing and services industries.

Mention of regional development inevitably leads to the tourism industry. Since 1987 when tourism was identified by the Fianna Fáil Government as a growth area, a substantial increase in employment in that industry has occurred and substantial investment has taken place in the provision and improvement of our tourist product. The extension of the business expansion scheme is particularly relevant to that industry. I welcome the recent statement by the Minister for the Marine regarding the importance of our inland fisheries and the employment potential of that vital economic resource. I hope the Government will make provision in the national plan for substantial funding for the conservation and improvement of our inland fisheries. The importance of that resource is underlined by the jobs potential outlined in the inland fisheries development programme.

Finally, I appeal to the Minister for Finance to pay particular attention to the applications from towns in the Border counties for inclusion in the urban renewal programme. Those towns have suffered and continue to suffer because of their proximity to the Border and the least we deserve are the incentives for investment which exist elsewhere. No Border town should be deprived of those incentives.

Mr. O'Malley

The Taoiseach's remark last weekend that tax reform was what he called a quack cure for unemployment sadly betrays the fact that he appears oblivious to the incontrovertible fact that employers throughout this country baulk at the prospect of employing extra workers because of the sheer cost of employing them. This of course applies even when the wages that are actually paid to the employee are relatively low. The worker naturally, tends to consider the cost of employment purely in terms of what he or she gets in their pocket at the end of the week. The employer must come up with the gross cost, which now includes no fewer than five different taxes — income tax, employer's and employee's PRSI, a health contribution, a training levy and now the latest, the so-called "temporary" 1 per cent income levy. Indeed, if we subdivide the employer's and employee's PRSI, as is often done, we have in fact six different forms of taxation on employment, taxation on labour, taxation on the one area where our needs are greatest in this country. It is taxation on the area which we should be most loath to penalise but which this Government chooses above all else to penalise.

This growing discrepancy between the cost of employing a worker and what the worker gets into his or her hand is the notorious tax wedge, which is driven by the Government between employment and workers and is now such a serious problem that it is perhaps the greatest single cause of the current unemployment crisis here. Stating as much does not mean that either I or the Progressive Democrats fail to realise that there are many other factors inhibiting the creation of a totally employment friendly environment here. I refer to factors such as the excessive cost of transport, energy, communications and so many vital input costs to industry in either manufacturing goods or exporting them to our foreign marketplace.

There is no doubt, to paraphrase the Culliton report, that our tax system and how we choose to adapt it represents the single most effective tool at the disposal of Government if it wishes to create an enterprise society in this country and optimise employment creation. That is why the actions of this Government are so perverse. The Government protests that greater employment creation is its top priority and talks about a pro-jobs budget, but its rhetoric is totally confounded by its actions, as is sadly confirmed now in the provisions of this Finance Bill.

I can give an example of the extent of the tax wedge here, which is now estimated in excess of £2.60 on every additional marginal £1 an employee will get into his or her pocket if he or she is on the average industrial wage and earns even a small amount of overtime, and of the damage that this inflicts. I received a letter recently from a lady who has two sons, both of whom are graduates, both of whom had good jobs here, both of whom were leaving this country and going to Britain to take up very similar jobs there at a lower gross wage but who in each case would be significantly better off in terms of money in their pocket. She had sought to dissuade them because they were her only two children and she would have no family here if they were to leave. She failed to dissuade them and indicated in her letter that the straw that broke the camel's back and which finally drove her sons out of this country was this year's budget. They had felt over the last three or four years that there was some light at the end of the tunnel and that there were at least some people trying to rectify the tax situation here. Although they were making only slow progress, at least they were trying to do the right thing. Those two young men became convinced at the end of February this year that there no longer was light at the end of the tunnel and that they should abandon any hope of equitable treatment in this country so far as their salaries were concerned and that they would leave.

There is an example of the talented people who have left this country. Tens of thousands of pounds of taxpayers' money was put into educating those young men right throughout their school career and particularly in their university career when they both successfully obtained degrees. Those degrees could have been put to good use in this country and those two young men would be anxious to put them to good use. They are now in Britain working for less but taking home more money. That example must be followed by people all over the country who have low and high paid jobs and by people right across the employment spectrum. It is a tragedy for this country that that type of situation occurs and it is a particular tragedy for all of us in the context of this Bill that the budget on which this Bill is based is the one that finally drove those two young men from this country. Over the last number of years they sought to remain here because they thought there was light at the end of the tunnel but, because of this Government's decision, they found only darkness at the end of the tunnel.

When this 1 per cent income levy is referred to almost flippantly by the Minister for Finance and some of his colleagues as something that does not really matter, it is important for us to examine the reality of it. The 1 per cent income levy is, in fact, the equivalent of raising the standard income tax rate of 27 per cent up to 29 per cent. The 5 per cent VAT hike on clothing and footwear contributed directly to the loss of many jobs already as confirmed, for instance, in last week's announced closure of the Beeline clothing company in Dublin and the constant shedding of jobs in the last month or two by clothes and footwear retailers all over the country. These are unspectacular because they are in ones and twos but they all add up to a substantial number of people.

This type of Government action is unforgiveable. My advice to the public at large and to those fortunate enough to have a job is to judge this Government only by what it does and not by what it says or what it promises because there is an enormous discrepancy between what it does on the one hand and what it says and promises on the other. For instance, workers are severely disheartened by the imposition of this additional 1 per cent income levy.

I would also remind them that this is the first budget in five years where the infamous tax wedge driven between the cost of employment and take home pay has actually worsened. It is no coincidence that this has happened directly following the departure of the Progressive Democrats from Government. Last year when we were in Government the then Administration was committed to reducing the standard tax rate to 25 per cent this year; instead it has been effectively increased from 27 per cent to 29 per cent. In other words, anyone earning a wage here is 4 per cent worse off at the standard rate because of the change of Government that took place at the beginning of this year. People should perhaps ponder on that a little more deeply. Workers can draw their own conclusions about the lethal tax cocktail that Fianna Fáil and the Labour Party, together in Government, represent. They can be assured that if the Progressive Democrats were in Government this additional tax on work would not have materialised and that priority would have been given to setting a standard tax rate of 25 per cent, which is the norm in almost all western countries, and that work would begin on an extension of the band to which the standard rate applies. It is a joke that the higher rate of tax here for single people begins at the average industrial wage. People who earn only the average industrial wage find themselves, uniquely in the world, paying income tax at the highest rate, the same rate as somebody who may have an income of £250,000. That is patently ridiculous. The solution is not to increase the higher rate, which is already higher than in many other countries, but to bring in the rate at a reasonable level that is in some accord with the higher rate in other western countries.

Regarding the negative impact on employment of the 5 per cent VAT hike on footwear and clothing, I was staggered to read the reported remarks of the Minister for Finance that he will consider bringing in a special subsidy to alleviate the threat to jobs from this further tax imposition. This is bureaucratic Government gone mad. We have a new tax which is destroying jobs in an already vulnerable but vitally important sector, given that it is so labour intensive. The Minister's response is not to get rid of that tax, of the necessary increase he imposed in that tax but rather to set up yet another scheme to generate more paper work, demand more time of employers and engage the time of more civil servants. The scenario that is painted and represented by that would be laughable if it were not so serious. This is a classic example of what are called circulating payments which are necessary and wasteful. Extra money is raised from taxpayers, the public and companies by increasing this tax. The tax creates severe difficulties for the people on whose business it is imposed. Instead of recognising that, the Minister with the one hand has taken in the money, but because it creates difficulties he will give it out with the other hand. This increases public expenditure and creates more difficulties for business and more bureaucracy. The Minister would not need to make that subsidy payment if he had not increased the tax. In the circumstances of today that is the attitude of mind that the Minister for Finance should exhibit in all matters. If he takes in less he will have to pay out less. I invite him to put it the other way around and to start by paying out less and he will then need to take in less. Many people involved in the administration of our country are obsessed with spending money and because they keep spending money in increasing amounts they keep raising it in increasing amounts, irrespective of its effect on the real economy.

My colleague, Deputy Cox, yesterday dramatically unveiled the income tax social welfare trap that workers who earn more than the average industrial wage encounter. It is a national scandal that a married man with four children earning £15,000 gross per year is worse off than a man in similar family circumstances who only earns £8,000. It is crazy that this is the position. We have accentuated it and made it worse by the provisions of the budget and this Bill. Is there another country in the world where a man is worse off because he doubles his wages? What incentive is there for anyone to work and to retain employment here? If that is the position in respect of a person earning £8,000 how much more is it true for people who derive their income from social welfare? Their loss in taking up relatively well-paid employment is even greater.

Is it any wonder that we have so many people whose instinct and natural wish would be to work, but who voluntarily choose not to because of the crazy position which Deputy Cox dramatically explained yesterday? It is well developed in two articles in the Irish Independent today and tables illustrate that it is correct. As that information, gleaned by Deputy Cox from the Department of Finance through written questions and put together by him, disseminates not just here but around the world, this country will become a laughing stock. The Government will become a laughing stock and it will have no option but to change this nonsense under which we labour at present. I suggest to the Minister for Finance that he should not wait until he is made a laughing stock and that he should avail of the opportunity of the Committee Stage of this Bill to make that change. It must be made because we cannot continue this nonsense. How can any country survive, let alone prosper, if its ridiculous tax laws are such that somebody earning £8,000 a year is better off than somebody earning £15,000 a year in similar family circumstances? Where is the incentive for people to better themselves, to take on a job, or to do overtime when this tax-cum-welfare trap engulfs them? We must rapidly integrate our taxation and welfare system. We must ensure that welfare benefits rightly available to families on low incomes are not abruptly terminated when people are fortunate to obtain better paid employment.

There is another serious matter I wish to refer to. My attention has been drawn to it by our spokesperson on finance, Deputy Cox, who did not advert to it when he was speaking yesterday. I am not surprised that neither he nor anybody else speaking in this debate adverted to it because it is buried in a section that is very long and almost impossible to decipher. It is easier to make sense of it if one refers to the explanatory memorandum rather than the Bill. The two sections in question are sections 83 and 84. Section 83 is extraordinarily long and the new subsection 19 (6) provides that on 1 December 1993 a special advance payment of VAT will be made. It is intended as a measure to help the cash flow loss to the Exchequer arising from the abolition of VAT on EC-sourced goods from 1 January 1993. The section goes on to say that it should be paid not just on 1 December but every subsequent December. It sets out at great length how this thirteenth monthly payment, which is what it amounts to, is calculated, paid and so on.

The explanatory memorandum states that subsection 19 (6) (a) of section 83:

provides that a taxable person whose annual VAT liability exceeds £120,000 must pay to the Collector General one twelfth of his annual liability on the first day of December.

In other words, he must pay for a thirteenth month even though a thirteenth month does not exist. One would imagine that there should be an enormous outcry in that regard but that has not been the case.

Regarding section 84, the explanatory memorandum states:

Section 84 amends section 20 of the VAT Act which concerns repayments. In the event that an advance payment has been made under subsection 19 (6) and the taxable person is in a repayment position in relation to the relevant November/December VAT period, the amount of the repayment for November/December will be increased by the amount of the advance payment.

In other words, having paid——

Acting Chairman (Mr. Browne,

Carlow-Kilkenny): The Deputy has one minute.

Mr. O'Malley

I am just about to finish. I will leave the absent Minister for Finance to mull over this thought. What is he doing taking money from people on 1 December, a fictional thirteenth month, and paying it back to them in January? This illusion is being used for the purpose of cooking the Exchequer books. What benefit will this money be to the Exchequer if it is taken in in December and paid back to people in January? The Bill and the attitude of the Government is redolent of this kind of nonsense — circular payments, illusions which are constantly being created as though they will contribute something to the economy. This provision will have the effect of taking money from people who do not owe the Exchequer money, keeping it for two months to help the Exchequer cash flow and damaging a company's cash flow. Is this supposed to contribute to employment?

Mr. Davern

I compliment the Minister for Finance and his Department on the way they handled the difficulties in the financial area over the past six months. Those six months were difficult not only for them but also for those people in many areas who did not have money. I thank the Minister for extending the urban renewal scheme——

Acting Chairman

I am sorry to interrupt the Deputy, but is he sharing his time with Deputy Eoin Ryan?

Mr. Davern

Yes.

Acting Chairman

Is that agreed? Agreed.

(Interruptions.)

Mr. Davern

I suppose I should propose an extra tax on barristers who are reported to earn £2,500 a day. The Deputy must be missing that money. He is probably annoyed that he did not get the Mespil Road flats——

Mr. Cox

The Deputy should chase another hare.

Mr. Davern

If the Deputy wishes to keep his seat in Munster he should not object to hare coursing. We have a serious unemployment problem. There is more security in unemployment — some people may say that I am abusing the word "security", but I am not — than in low paid employment. A person earning £150-£160 a week — which I consider to be a low paid job — does not have any incentive to stay in employment. In addition to paying tax and PRSI, he has to pay rent increases, water charges, garbage collection charges and the many other charges devised by county councils and the State. A person who remains on the dole is guaranteed the security of unemployment benefit. In addition, he does not have to pay water rates, rent and garbage collection charges. Above all, he is guaranteed a medical card. The fear of losing their medical cards discourages many people from taking up low paid jobs. I appreciate that the Department of Finance is strapped for cash in these difficult times but I ask the Minister to consider increasing the £7,500 threshold for a married man introduced in the 1987-88 budget to approximately £10,000. This would encourage people to take up employment and enable employers to take on employees. People who take up employment after either a long or short period on unemployment benefit should be allowed to keep their medical card for three to four years. People have a genuine fear of losing that benefit.

Having regard to the mobility of our workforce and the necessity for people to travel to work, people earning £10,000 or less, should be given a travelling allowance of £10-£15 per week. We should remember that people do not particularly enjoy travelling to work and that there is no guaranteed security in employment today. People on unemployment benefit are guaranteed a weekly payment and there is no incentive for them to take up low paid work as they will lose all the benefits they receive at present.

Business has suffered badly over the past number of years, particularly from the low cash flow and many people have not been able to get money they are owed. I know of one business which is owed £800,000 to £900,000 at any one time. As we all know, credit terms have got out of hand over the last number of years — instead of the usual monthly payment, people have three to four months to make their payments. Even though the owner of that business does not have any cash coming in, he has to pay his VAT at the end of the month. The bank will not facilitate him by giving him an additional overdraft as it does not wish to expose itself to this sort of risk. When this man finally gets the cash to pay his VAT he finds that he is severely penalised for being two to three weeks late in making the payment. This man has to pay VAT on goods for which he has not been paid. I ask the Minister to urgently consider this matter. Otherwise genuine people involved in business will be forced to close down.

I wish to refer to services for the mentally handicapped. There have been tremendous improvements in services for the mentally handicapped over the past number of years. Thankfully, these people are enjoying the range of services available to them. However, much more money is needed for respite care and sheltered care. I ask the Minister for Finance in the context of the next budget to consider allowing companies a total tax write-off for sponsoring and supporting the mentally handicapped services within their community or in another area. Such an initiative would encourage industry to support those unfortunate enough to be afflicted with a disability.

Over the past two years I have suggested to the Department of Finance that it should introduce a tax amnesty on what is termed "hot" money. The last time I proposed the introduction of a tax amnesty it took the then Minister for Finance, Mr. MacSharry, some months to agree to it. That amnesty brought in a total of £550 million. People who availed of that amnesty kept up their tax payments in the following years as they did not wish to revert to the position where they were in arrears in paying their tax. The Department should stop regarding this money as "hot" money. This money was made at a time when the rate of tax was 70p in the pound. Many people in business were not in a position to pay that money at that time without damaging their businesses.

I estimate that £2 billion is invested outside this country by Irish people. As the Chair knows, every business, shop and farm is for sale if the price is right. An amnesty on that money would yield some £600 million to £700 million in one year. Money would also accrue to the Exchequer through stamp duty on the sale of property. This would encourage other people to pay their taxes during that period. There is no point in attaching conditions to the amnesty which would make it unattractive for people to bring money back into the country. There are people who have huge sums of money, ranging from £50,000 to millions of pounds, placed outside this country but they are prepared to invest it here. The Department of Finance and the Revenue Commissioners should forget about imposing penalties and consider ways by which that money can be attracted here given that the entire country would benefit as a result. I hope therefore that an amnesty will be announced without there being a bonding system because it will not work if it is not attractive.

While I compliment the Minister and the Department for introducing the new return of taxation scheme I would like to refer to another scheme which is being implemented by the county councils and to which the Department of Finance have objected, that is the community and small enterprise scheme. Under this scheme small business people who wish to set up their own workshops but who cannot obtain loan finance from the banks, which demand security, are only allowed to benefit if they are prepared to buy new machinery. I am aware of one case where the person involved can buy secondhand machinery at one-third or even one-eighth of the cost of new machinery and because of this he is not allowed to receive any assistance. The scheme should be extended so that those people who want to set up their own businesses but who have been refused finance by the banks, can benefit. The rates banks charge for lending money over a period of time amounts to extortion and because they are not prepared to offer finance we should extend this scheme and eliminate the clause which states that funds may only be provided in respect of new machinery.

Small one-man operations should be allowed to purchase secondhand machinery which, according to officials of the Department of Finance, may have been grant-aided in the past. I am not talking here about machinery for factories but rather about planes, saws, levels and so on. It should also be remembered that apprentices may be taken on in the craft concerned. I ask the Minister and the Department of Finance not to tie the hands of small business people who want to work and do something for themselves.

I am extremely grateful to the Minister for expanding the urban renewal scheme. Many people own property which is not being developed under the scheme and they now have a once-off opportunity to develop it and they would be foolish not to avail of it.

Once again I thank the Minister and the Department for the initiatives they have taken in the area of taxation but I would ask them to take the position of those with an income of less than £10,000 into account. It would be easier for such a person to do the odd "nixer" and stay out of work having regard to the fact that people on low incomes are penalised. The Minister said that he has no time for those who are not prepared to say from where the money would come. I contend that we would save on dole payments. I am talking here about large numbers: between 15,000 and 20,000 people in any six month period could be put back to work.

Mr. E. Ryan

I welcome this Bill and recognise that the Minister and the Department of Finance have been plagued with difficulties during the past six months or so. It has been an extremely difficult time and no one could have forecast that both he and the Department would have faced such problems. In the past week or so many people suddenly claimed that they had been in favour of devaluation all along but it is my view that if we had devalued the currency earlier we would have had to devalue it on several occasions, which is what happened in several other countries.

It struck me during that period that good, independent advice is available in the markets. The Minister should avail of this advice. As I said at that time, people with expertise should be asked to set up an independent body to advise the Government. I believe that many people would love to have an opportunity to offer advice to the Government to see if it would be prepared to accept it.

Deputy Cox quoted a particular example and argued that it would not be worth that person's while to accept a wage increase. Even though I gather it would be impossible to find somebody who fits into that category, what he said is true for the most part.

This is a major problem. For many people it is not worth their while accepting a raise, to work overtime or even to accept a job. I am glad the Government will, over time, widen the tax bands to make it more attractive for such people to take up a job, to work overtime or to accept a rise.

These changes will have to be made over a period of time because one cannot suddenly announce that they are to take effect immediately. Everyone has quoted the Culliton report but it is also stated in that report that the overriding need for maintaining the progress which has been made in stabilising the Government's finances is a fundamental requirement for industrial development. I have no doubt the reason the Minister and the Government have not made the tax changes which have been proposed, and which would be welcome, is that they do not want them to have a negative impact on the country's finances. We do not want to return to a situation where we have high inflation and high interest rates, not just for a period of six months but for a period of years. It will take many years to complete the process of reform and we should not rush in and upset the fundamentals of our economy.

During the next year I would like the Minister to consider the provisions dealing with capital gains tax, about which I have spoken on a number of occasions. Capital gains tax is essentially a discretionary tax. People will not make a disposal if they perceive the tax charged to be too high. Capital gains tax is only payable by persons resident or ordinarily resident in Ireland. All of the major Irish accountancy firms would confirm that the clients are becoming non-resident specifically to avoid paying capital gains tax at a rate of 40 per cent. Once a person becomes non-resident other taxes suffer, such as VAT, income tax and corporation tax.

Similarly, there are many individuals who will not dispose of shares or land because of the 40 per cent capital gains tax charge. Many of these are elderly who would otherwise pass some of their wealth to their children who either spend or invest to a much higher degree than their parents. The capital gains tax base date was April 1974 and even with indexation, many shares or landholdings, if sold now, will incur significant capital gains charges.

This country is very short of capital. The current capital gains tax regime results in a freezing of a substantial amount of our already scarce capital. Releasing this capital would not only stimulate employment but, undoubtedly, would also increase the tax take substantially. There is no capital gains tax payable on the estate of a deceased person, the assets pass to beneficiaries at their market value at date of death. Therefore, many wealthy individuals are actively discouraged from passing wealth to their higher spending, investing children and in any case, when the parents die, the Revenue Commissioners will not benefit from a capital gains tax.

If the Minister were to examine the possibility of a 20 per cent flat rate capital gains tax, which is not index-linked, it would go a long way to stimulating our economy when, at the end of the day, the Revenue Commissioners probably would pick up just as much. Will the Minister examine that possibility in the coming year because it would be a very important stimulant for our economy?

The Finance Bill should have been more user friendly. One example of what I mean is a paragraph in the explanatory memoranum, on page 2, as follows:

Section 6 provides for the taxation elements of the recommendations on severance arrangements for outgoing Members of the Oireachtas which were made by the Review Body on Higher Remuneration in the Public Sector (Report No. 35, Part II). Similar taxtion treatment for severance payments made to office holders and certain public servants is also being provided for.

I do not think I am stupid but I defy anybody to tell me what that means; it is really incredible that any normal person should be asked to ascertain what it means. If the Minister was present I would give him an example of something that occurred when we served as members of Dublin City Council. I plead with him to make the explanatory memorandum more user friendly.

Mr. Boylan

"User friendly" is a very modern term. Plain English would be just as appropriate.

I welcome the opportunity to contribute to the debate on this year's Finance Bill. Despite the protestations on this side of the House and from back-benchers on the Government side, I have no doubt it will be given a Second Reading in the House because of the prevailing Government majority, just as the very good Private Members' Bill — the Refugee Protection Bill, 1993 — introduced by Deputy Shatter in recent weeks was voted down because of the Government majority.

Before going into the pros and cons and details of the budget and Finance Bill, it is only fair that, after six months, we should pass some comment on Government activities, as is often done with regard to other activities when marks out of ten are awarded. I award this Government five out of ten on their performance to date. People might think I am being very harsh on them but I am not, it has failed miserably in a number of respects, not least the manner in which it set itself up in Government, which will not be forgotten by the electorate. People have been extremely disappointed with its handling of our economy and the currency crisis. Various commentators expressed the view that, if we had devalued sooner, we would have had to do so again, which is not true, if we had devalued sooner, more benefits would have accrued to our economy. In addition, it would have obviated many of the difficulties people encountered over the three or four months while the Government dithered on whether it should devalue, when it was advised solidly from this side of the House that it must and should devalue. Indeed, if that had been done as early as October last there would have been an immediate uplift for the agricultural sector, as happened when it eventually devalued. Its delay in deciding to devalue also resulted in astronomically high interest rates on mortgages and borrowings, which would not have been necessary if the Government had acted sooner. I hear of such difficulties, such as the case of a couple who came to my clinic last weekend and who told me that, at the end of April, they were no better off than they had been at the end of September last having met their monthly payments throughout the winter. That is not good enough.

There was also the spectacle of the various scandals about which we heard so much and for which the Government must accept responsibility; after all, they are the people in charge; it is up to them to ensure that this type of activity is not tolerated. It appears to be deep-rooted and would not have come to light except for the diligence of our national press, whom I compliment, in informing ordinary decent people of what was going on, the majority of whom wonder what we will hear next. We have heard about Carysfort College, Johnston, Mooney and O'Brien, Telecom Éireann, Greencore and the revelations of the tribunal of inquiry into the beef processing industry but the scandal about building societies and their executives is what really hit home. Of course, the scandals affected ordinary people but the chickens really came home to roost when they saw what was taking place in building societies where senior executives received salaries of £150,000 as well as under-the-table payments of £50,000 and £100,000 while ordinary people trying to meet their mortgage repayments were being fleeced, working so hard to purchase a home in which they could take pride and rear their families. They would have been making lower repayments if the activities of the relevant building societies had been properly managed by the executives they had trusted.

Then, last week, we heard about the Mespil flats débâcle, when people's homes were sold over their heads by Irish Life. The Government say it was not responsible. I accept the Ceann Comhairle's ruling that the matter cannot be raised in the House here but, of course, the Government is responsible. It is appalling to think that people's homes could be sold over their heads, without being consulted, to a number of people, close friends of members of the present Government, at half their value. I have been reliably informed that those flats are valued at in excess of £50,000 each but were sold for £28,000 to well-heeled people. They may dress and smell well but they are rotten to the core and people are totally disillusioned with them. I ask this Government for God sake to have an end put to that type of activity because it is not good enough.

Many good people seek guidance and want to take the initiative but are not helped by this budget, which is anti-jobs. The revelations of Deputy Cox in the House yesterday, given great publicity in the national press today, are one example, demonstrating that a worker would be better off earning £8,000 than £15,000. This clearly demonstrates how ridiculous our taxation system is. After all, if our people do not show initiative, want to improve their position in life and earn a higher salary, what will happen? It has been repeated ad nauseam that people are better off not working, remaining on the dole, when they reap more benefits. Obviously, that is true. It is the duty of all Ministers and backbench Deputies of both Government parties to ensure that that position is rectified.

The budget provided for increased taxation on tourism and building. Increased telephone charges have been announced which are an outrageous tax on ordinary decent people, in rural areas in particular, the lonely, the aged, people living in isolation. Has the Government forgotten those people? Does it realise the problems they encounter, and that their only contact with the outside world is by telephone? Yet, a Government Minister — I cannot remember who — stated on radio that those people had free telephones. They have free telephone rentals but must pay their call charges, which will increase by 400 per cent. Telecom Éireann pulled a fast one on the electorate, for example, about 18 months ago, when it announced the extension of the local charge area, we thought that was marvellous. I thought that in my code area — 049 — it would afford me a wider range of dialling but, of course, it was merely setting us up for the kill because, in future, we will pay 400 per cent more, which is not acceptable. We are told its purpose is to create jobs, that it appears the Government will create jobs on the backs of the aged, the lonely and the handicapped, who must have a telephone. I will not dwell on that because it would be wrong to build my case on the backs of such people.

We hear much talk about generating small local businesses, which objective I applaud, but we must remember that they must use the telephone, in the course of their daily business. Calls must be made regularly, taking small orders which will be given over the telephone, entered in their order books and delivered. In excess of 100,000 small businesses nationwide will be asked to subsidise the multinationals. There is an old saying in the country, that every herring should hang by its own tail, which is a good motto for business. It is bad business practice to take from one aspect to prop up another. If A cannot stand on his own feet, he should not be propped up by B, or vice versa, because such a practice cannot last. If multinational companies or export driven businesses are dependent on a decrease in phone charges their business must be on a very weak base and cannot last. I do not accept that to be the case. The changes in telephone charges are a rip off so far as the ordinary decent people of the country are concerned.

Tourism is a major growth industry not only in my area but internationally. Because of changes in working hours people have more free time and they are looking at ways of enjoying their recreation. It is quite simple now to travel right around the world. This country has a unique potential in tourism. Sun holidays were the great draw in previous decades, but it is no longer advisable for health reasons to sit in the sun and get a tan. People are now looking to countries which offer a clean environment. We have a clean environment and beautiful scenery and can offer a range of holidays. What do we do to develop our tourism product? We tax it. We tax accommodation. Surely that is not the way to encourage people to invest in tourism. Fishing holidays are very big business in my area and we have a great deal to offer in the region. I can cite cases where a family started out keeping two or three guests and now have developed to the stage of being registered as a small hotel. They will now have to pay this increase in VAT. That is not good enough. Where is the encouragement for people to develop their business? In order to develop you have to build, but what does this Government do? It increases the VAT on building materials such as blocks and concrete from 10 per cent to 21 per cent. That is unbelievable. Then we call this a pro-jobs budget.

I have to make the case for Cavan-Monaghan. I am being parochial in raising matters that affect my region in particular. I heard the Dublin Deputies make the case for Dublin and indeed they can do it well. Because of the increase in VAT on building materials I believe people will travel North to buy building materials. This will affect a great many businesses along the Border.

This will also apply to clothing and footwear. We have raised this time and time again with the Minister but he has decided not to lower the rate of VAT. This will have a devastating effect on small shops in the Border region. The Ben Dunnes and other large retailers will succeed because they buy in bulk, but small family businesses have to compete with them already and they will now suffer a further blow. The increased VAT is applicable to clothing and footwear for boys and girls from 11 years of age. I believe people will travel to Enniskillen and other areas to kit out the family and I am sure when they are shopping they will also buy the weekly groceries. I am not against cross-Border trade — in fact I want to see two-way traffic, people going North and the northern people coming South. The northern people are very shrewd and they will not come South unless they will get value for money. Because disposable income is limited, people have to get the best value for money. I understand the rate of VAT in Northern Ireland is 16 per cent and I cannot understand why we do not have the same rate of VAT. Why not level the playing field instead of losing the initiative and penalising our people who are trying so hard to do business?

The effects of the increase in VAT on newspapers are very serious. The rate has increased from 10 to 12.5 per cent. The cap on advertising in RTE has been lifted and as a result advertising on television will increase. Needless to say, this will have an impact on the provincial papers. The local provincial press has a major role to play in our democracy. Although we have local radio and the television service, the provincial paper, as the Minister well knows, is read from cover to cover, and people get from them their information on Government announcements, the proceedings of council meetings and other items of local interest. These newspapers cannot survive without revenue and the price of a newspaper does not cover the cost of printing. Newspapers are dependent on advertising revenue. With business contracting and people looking at ways to save money many businesses are cutting back on advertising in the print media and newspapers suffer as a consequence. In the interests of democracy and the right of people to full information, I believe it is wrong to increase VAT at a time when many provincial papers are finding it difficult to survive. Will the Minister consider reducing the rate of VAT because this would be more than welcome?

The Government has decided to introduce a "death tax". That is the greatest insult of all. People are asking me about this probate tax. It means that when you close your eyes for the last time the Government is going to tax you. This will result in many small farms and businesses changing hands because the family member inheriting the property will not be able to meet this "death tax". Earlier the fancy phrases now in use were mentioned, but in plain English this probate tax is a "death tax". A person may die suddenly, whether in an accident or from a heart attack, and his wife will inherit the business. Needless to say, if she has a young family she would not have cash to pay the 2 per cent probate tax and she may have to borrow from a bank or building society to pay it, because whether you can afford it or not you have to pay. When the money is borrowed interest accrues immediately and even though she has paid the "death tax" to the Government the sum borrowed from the bank keeps increasing, sometimes to the extent that people are driven out of their homes and businesses. This also applies to a son or a daughter inheriting the farm or business. We are talking about encouraging young people to work hard in their business or farm, but surely when they inherit a farm or business as a result of a tragic death we are not encouraging them by imposing the liability of a 2 per cent tax. It is not encouraging that the Government must take its pound of flesh, irrespective of the situation. I appeal to the Minister to withdraw that serious imposition on small businesses and farms. That would be a step in the right direction.

Debate adjourned.

Dáil Éireann debate - Thursday, 13 May 1993