Finance Bill, 1995: Second Stage.

I move: "That the Bill be now read a Second Time."

This Finance Bill is my first and the first for a Labour Minister for Finance. It gives legislative shape to the measures announced in the budget on 8 February. I hope the House can have a constructive exchange of views on the measures in the Bill and on how best we should shape the tax system to meet the needs of this country.

The Bill will facilitate the confirmation of income tax and corporation tax reliefs announced in the budget; the extension of various capital gains tax and capital acquisitions tax reliefs to assist business; the introduction of a number of new and specially focused reliefs to assist those in rented accommodation, to provide tax relief on local authority service charges, to encourage donations to Third World charities and to afford the opportunity for our cultural institutions to build up the national collection of cultural items; the provision of additional powers to Revenue to counter tax evasion and, in the light of a recent court ruling, to secure the position of the Revenue in the application of its traditional powers in the excise area. The Bill also places a duty on auditors and tax advisers generally to report tax evasion. This provision honours the commitment made unanimously by the Oireachtas to implement the recommendations of the beef tribunal report.

It will also facilitate the refocusing, on the other hand, of certain anti-evasion measures such as the VAT monthly control statement and the easing of penalties for late filing under self-assessment; the introduction of a range of reliefs in the business sphere to promote enterprise and the renewal and upgrading of particular urban areas and tourist resorts; and the introduction of new VAT rules for dealings in second-hand goods agreed by the European Union and the removal of competitive distortions in the application of VAT to certain sporting facilities.

I will deal with the main features of the Bill in my speech. In the Bill we are taking further major steps to reduce the tax burden on employment, on low incomes and on the cost of employing labour. Tax reform is an ongoing process. We are seeking to widen the tax base, to confine reliefs to the standard rate and to lessen the burden on business in general. We have seen tax rates reduced substantially over the past ten years. However, we need to do more as resources allow.

Turning to particular sections of the Bill, sections 1 to 4 provide for the major improvements in income tax announced in the budget. The personal allowance is being increased by £300 for a married couple and £150 for a single person, with comparable increases in the widowed, single parent and widowed parent allowances. The standard rate tax band is being extended substantially from £16,400 to £17,800 for a married couple and from £8,200 to £8,900 for a single person. The existing PRSI income tax allowance available to higher rate contributors is being renewed at £140 rather than £286, in order to part finance a new PRSI allowance of £50 per week introduced this year for such workers. Together with the improvement in personal allowances, this means that the thresholds for the higher tax rate in the case of most employees will be increased from £22,186 to £23,740 for a married couple, and from £11,636 to £12,340 for single persons.

The general under 65 income exemption limits are being increased by £200 to £7,400 for married couples and by £100 to £3,700 for single persons. To provide greater assistance to the elderly, exemption limits for those aged 65 or over are being raised by £400 for married couples and £200 for single persons.

Section 5 provides, further to the budget announcement, for the introduction of a tax allowance for all tenants in private rented accommodation to be effective from 6 April 1995. This new relief is essentially a broadening of the relief currently available to the over 55s in such accommodation. The main differences are that the new relief will be at 27 per cent and the annual allowances will be £500 for a single person, £750 for a widowed person and £1,000 for a married couple. The over 55s will continue to enjoy their existing level of relief and allowances, which are £1,000 for a single person, £1,500 for a widowed person and £2,000 for a married couple.

While the relief for the over 55s operates on a previous calendar year basis the Bill provides that this new relief and the over 55s relief will, from the 1995-96 tax year, operate on a current tax year basis.

I announced in the budget that as part of the refocusing of State support for third level education, I would provide a tax relief for fees in certain private colleges. This is done in section 6 of the Bill. Tax relief will be available for tuition fees paid to private colleges in respect of approved courses. The Minister for Education will approve the colleges, courses and the level of fees eligible for tax relief. Only full-time undergraduate courses of at least two years duration will be eligible for approval. The tax relief will be available for fees paid from the academic year 1996-97 and will be at the standard rate of tax.

In the budget I announced a tax allowance in respect of local authority service charges which are paid in full and on time. The allowance will be given at the standard rate of tax up to a maximum of £150. Section 7 provides for this allowance and extends it to certain payments in respect of privately operated refuse collections, at a flat rate of £50 per annum, and to payments for domestic water supplies by members of voluntary group water schemes.

Section 8 relates to tax relief for donations to designated Irish Third World charities. These charities will qualify for tax relief in respect of certain donations by individuals in the range of £200 to £750. This will be topped up by Revenue remitting to the charity the tax associated with the contributions at the standard rate. Thus, a donation of £750 will be worth an extra £277 to the charity. The figure of £750 represents the maximum qualifying contributions that an individual can make to all designated charities in a year. Relief will also be available where the qualifying contribution is made by instalments.

Section 10 provides for a number of special measures aimed at improving the position of those most adversely affected by the taxation of short term social welfare benefits. First, to assist families, the child dependant allowances payable with unemployment benefit and disability benefit are being exempted from tax. Second, the special relief for systematic short-time workers introduced in the Finance Act, 1994 is being extended for a further year and broadened to include all such workers. Finally, the first £10 per week of unemployment benefit is also being exempted from tax from 6 April 1995.

Section 11 provides for an increase in the deposit interest retention tax rate on special savings accounts from 10 per cent to 15 per cent, as announced in this year's budget. This measure is designed to strike a more appropriate balance in the tax treatment of deposit income and income from other sources — especially riskier equity investment in Irish business — and has, therefore, been welcomed by business representatives. However, I should emphasise that these accounts still provide attractive tax benefits for small and medium-sized depositors. A final-liability tax of 15 per cent on such interest income compares very favourably with the standard 27 per cent rate for deposit interest generally.

Section 12 and 13 provide for the changes which I already announced in the tax treatment of covenants made by individuals. These changes are being made as part of the overall changes in the financing of third level education and to reduce an area of tax expenditure which has been growing significantly over the past few years. The changes being brought in this year will apply to new covenants from Budget Day and existing covenants from 6 April. This year's changes are as follows. First, tax relief is abolished on covenants in favour of minor children, except in the case of a covenant in favour of an incapacitated minor child who is not the child of the covenantor. Second, tax relief on all covenants made by individuals, other than those in favour of the incapacitated, will be subject to an overall limit of 5 per cent of the covenantor's income.

From 6 April 1996 tax relief will no longer be available generally for covenants made by individuals. Tax relief will continue to be available in the following four cases. First, tax relief will continue to be available, on an unrestricted basis, to covenants in favour of incapacitated adults and those in favour of incapacitated children, provided the covenantor is not the child's parent. The other three categories of covenants will be allowed tax relief subject to an overall limit of 5 per cent of the covenantor's income. These are covenants in favour of those aged 65 or over, covenants for the purposes of research or the teaching of the natural sciences, and covenants to certain bodies established for the promotion of human rights. Covenants made by companies are not affected by these changes.

Section 16 increases the existing limit of £2,000 on the value of shares which can be allocated each year to employees under approved profit sharing schemes to £10,000.

Section 17 gives effect to a number of changes in the seed capital scheme announced in the budget. These proposals, which will make the scheme more effective as an incentive to new business start-ups, will: increase the level of investment that qualifies for relief from £75,000 to £125,000 by extending the "look back" period to five years; allow two qualifying ivestments in the one company to be made over a three year period; increase to £15,000 from £10,000 per annum the level of the maximum amount of non-PAYE income which an individual may receive and permit greater time flexibility in taking up employment in the new company by allowing employment to commence up to six months after the end of the tax year in which the first investment is made.

Section 17 also extends the scheme to trading activities on the Dublin exchange facility. Currently, FINEX is the only operation located there. This change was also announced in the budget.

In addition, this section makes a number of technical and drafting amendments to simplify the scheme making it more easily understood and thereby helping to stimulate interest in it. There has been a significant increase in interest in this scheme in the past few months and the changes in the Bill will give it a further boost.

The Black Economy Monitoring Group, which was set up by the Central Review Committee of theProgramme for Economic and Social Progress, carried out a thorough review of the operation of the C45 system in 1994. The group made recommendations which were endorsed by the Central Review Committee on action to curb any abuses. Most of the recommendations are being implemented on an administrative basis and several of these involve closer contact between Revenue and Social Welfare in monitoring abuses. Arising out of these recommendations a provision is being introduced in section 18 permitting the Revenue Commissioners to make regulations in relation to making declarations to be signed by both parties at the commencement of a contract confirming they are satisfied that the C45 system is applicable. The purpose of this provision is to seek to ensure that the C45 system is used in genuine self-employed cases and not in employee PAYE. Section 18 also provides for making regulations on information to be provided by subcontractors to principal contractors. This will ensure that information is available to Revenue on payments made under the “gang system”.

Section 20 amends the public access requirements set out in section 19 of the Finance Act, 1982, which provides for relief from income or corporation tax, as appropriate, for owners of approved buildings of significant scientific, historical, architectural or aesthetic interest. Buildings approved by the Commissioners of Public Works will now be able to qualify either by being open to the public on a bed and breakfast basis for at least six months of the year, of which four months must be in the period 1 May to 30 September, or by complying with the existing public access requirements, which require them to be open to the general public for 60 days, of which at least 40 must be in the period referred to above.

Section 21 provides for the continuation of stock relief for farmers at 25 per cent for a further two years to 5 April 1997. The section also provides for stock relief at a rate of 100 per cent for four years for young farmers who first become chargeable to income tax in respect of profits or gains from farming for the year 1993-94 or any subsequent year of assessment up to 1997-98. To qualify for this 100 per cent relief, the individual must be under 35 at the start of such a year, and have met specific training requirements. This is in part a relaxation of the qualifying criteria announced in the budget where it was stated that the 100 per cent stock relief would be available only to young trained farmers who qualified for the scheme of installation aid operated by the Department of Agriculture, Food and Forestry.

Section 22 provides for particular tax treatment for farmers in respect of profits arising where cattle herds must be disposed of because of statutory disease eradication measures. The treatment operates by allowing deferral of the profits for tax purposes over two years and the application of 100 per cent stock relief to the profits so deferred.

Section 29 provides for the introduction of a significant new scheme aimed at attracting to Ireland certain major multinational corporations. Where the qualifying conditions are met, such companies will be exempt from Irish tax on the profits of their foreign branches.

Changes are being made to the self-assessment system in recognition of the improvement in voluntary compliance. The changes in the Bill follow a recent review of the system involving the Tax Administration Liaison Committee and are as follows: A direct debit facility for the payment of preliminary tax; a fixed date of 30 April each year for the payment of the balance of tax due. This measure is designed to encourage earlier filing of returns and will be subject to review; the surcharge for late filing of returns is reduced to 5 per cent for a delay in filing up to two months, with a maximum cap of a £10,000 surcharge and remains at 10 per cent for a delay of two months or more, but with a maximum cap of a £50,000 surcharge; the restriction of certain reliefs for companies failing to file returns on time will be reduced to 25 per cent of the relief where the delay in filing is less than two months and will remain at 50 per cent of the relief where the delay in filing is two months or more. Maximum caps have been introduced in each case; for new businessess the surcharge provisions for late filing of returns will apply only to delays with effect from the second filing date; for short-lived businesses the profits subject to tax will not be in excess of actual profits earned and, finally, a loophole is closed which had allowed married couples, who alternated as assessable persons, to avoid paying preliminary tax.

These provisions are contained in sections 19, 30, 31 and 63.

The Bill contains a number of measures dealing with the urban renewal scheme which is aimed at revitalising certain urban areas and assisting employment in the construction industry. Section 32 provides for a two years' extension up to 24 January 1999 to the deadlines for the urban renewal tax incentives for the Custom House Docks area.

Section 34 extends by two years to 5 April 1998, the period for the availability of the tax incentives in the Temple Bar area. Section 35 provides for a scheme of tax reliefs for six enterprise areas located in Dublin, Cork and Galway. The incentives available are capital allowances of 100 per cent for the construction or refurbishment of premises in these enterprise areas which are used by qualifying companies carrying on trading operations, that is, manufacturing or internationally traded services. The allowances consist of free depreciation of up to 50 per cent in the first year in the case of owner occupiers only, or an initial allowance of 25 per cent available to both owner-occupiers and lessors, with an allowance of 4 per cent per annum on the balance up to 100 per cent. Double rent allowances for qualifying traders will be available for ten years as will rates relief.

The capital allowances will apply in respect of either industrial buildings or commercial buildings, including offices. Projects wishing to set up in the enterprise areas must first receive certification from the Minister for Enterprise and Employment, following consultation with the Minister for Finance.

In addition section 35 provides for offices to be allowed as qualifying buildings for the purposes of the 1994 urban renewal scheme in the designated areas outside the five county boroughs of Dublin, Cork, Limerick, Galway and Waterford. This measure is retrospective to 1 August 1994, when the new scheme commenced. The section also provides that the 13 year clawback period for capital allowances will apply to industrial buildings in designated areas on the same basis as is currently applied to commercial buildings in these areas.

Finally, I should mention that sections 32, 34 and 35 increase from 90 to 125 square metres the maximum permissable floor size for newly-built apartments in the various urban renewal areas. This is to encourage the provision of larger family oriented accommodation in these areas.

Section 36 amends section 35 of the Finance Act, 1987, which provides relief from income tax and corporation tax in respect of investment in Irish film-making companies. The amendments concern the power of the Minister for Arts, Culture and the Gaeltacht to impose conditions in his certification of a qualifying film and clarification of the necessity for such certification before relief can be granted in respect of film investment. The section also closes off an unacceptable arrangement in the raising of loan finance for a section 35 investment. Such an arrangement could involve a film-making company forgoing interest which would otherwise be receivable by it from a bank so that, in return, the bank concerned would reduce the interest it charged on loans to investors in the film company.

Section 43 provides for a corporation tax exemption in respect of employment grants paid by the industrial development agencies to medium and large industrial undertakings. A similar exemption already exists for employment grants to small and service businesses. The concession will increase the real value of the grant in the hands of recipient companies and thus provide an additional incentive to such enterprises.

Section 44 provides for an exemption from corporation tax and capital gains tax for the Irish Horse Racing Authority and its subsidiary, Irish Thoroughbred Marketing Limited, from their inauguration dates of 1 December 1994. In line with precedent, there is no proposal for an exemption for these bodies from tax on deposit interest.

Section 45 and the Second Schedule provide that following the reduction in the standard rate of corporation tax from 40 per cent to 38 per cent from 1 April last, the associated tax credits applicable to distributors to shareholders will be reduced, in line with precedent, from 25/75ths to 23/77ths of distributions made on or after 6 April 1995. As indicated in the Budget Statement, the reduction in the standard rate of corporation tax provided for by section 54 of the Bill should be viewed as a first step on the road to securing a rate comparable with our overseas competitors. To that end, the aim will be to reduce the standard rate further in future years, as resources permit.

Chapter III of Part I of the Bill provides for a new scheme of tax reliefs from 1 July aimed at renewing and updating the tourist amenities and facilities in certain seaside resorts, namely Achill, Ballybunion, Bundoran, Courtown, Kilkee, Lahinch, Tramore, Westport and Youghal. The precise qualifying areas are described in the Third Schedule.

Sections 47 and 48 provide for accelerated capital allowances in respect of capital expenditure incurred on the construction of hotels, holiday camps, holiday cottages and other tourist accommodation registered or approved by Bord Fáilte. The accelerated capital allowances will also be available in respect of capital expenditure incurred on the construction or refurbishment of types of non-accommodation tourist facilities as set out in a list to be published by the Minister for Tourism and Trade with the consent of the Minister for Finance.

Section 49 provides for a double rent allowances as a deduction in computing trading income of the lessor for the first ten years rent paid under a qualifying lease on a qualifying business premises in a resort area.

Sections 50 to 52, inclusive, provide for reliefs for 100 per cent of expenditure incurred on the construction, conversion and refurbishment of certain rented residential accommodation. Under these reliefs the qualifying expenditure can be offset against all the rental income of the claimant in computing liability to tax but will apply only where the accommodation is available primarily for letting to tourists.

Sections 56 and 125 of the Bill deal with the bank levy. Section 125 provides for the phasing out of the bank levy from £36 million in 1994 to £24 million in 1995, to £12 million in 1996 and to nil in 1997. There is no net cost to the Exchequer since the levy is already fully offset against the banks' corporation tax liability. There would, however, be a cash flow loss in the current year due to the later payment date for corporation tax. As the House is aware, to overcome this the banks have agreed to a compensatory cash-flow arrangement whereby in 1995 they will make an earlier payment of corporation tax of £12 million in order to cover the £12 million reduction in the levy. Thus the Exchequer will not be at a loss. This compensatory cashflow arrangement will be continued in subsequent years.

Section 64 provides for a two-year extension of the corporation tax relief on certain gifts to First Step Limited, a charitable organisation which assists job creation by supporting enterprise development in areas of high unemployment.

As the House is aware, my colleague, the Minister of State with responsibility for commerce, science and technology recently published the report of the Science, Technology and Innovation Advisory Council. The report and recommendations of this council will now be examined in detail by a high level official group under the guidance of a Cabinet steering committee, which will be chaired by the Minister of State, Deputy Rabbitte. I welcome the publication of this in-depth study and I wish to echo the report's finding that Irish firms must realise the need to increase their investment in R&D if they are to survive in the increasingly competitive global market. In this context, I will be introducing by way of Committee Stage amendment to the Bill a measure aimed at stimulating incremental R&D investment. Full details of the amendment will be given in due course.

I propose certain measures in this Bill which will assist the future development of the International Financial Services Centre.

To facilitate the development of treasury activities in the IFSC and in the Shannon zone, section 59 provides that certain withholding taxes imposed abroad may be grouped together and allowed as a credit against Irish tax chargeable on intra-group activities, subject to certain restrictions. As already indicated I am extending under section 17 the seed capital scheme to trading activities on the Dublin exchange facility with a view to facilitating local involvement in trading on the exchange. Section 62 amends existing legislation to allow dealings in commodity futures and commodity options on the Dublin exchange facility where such dealing is the principal trading activity of the company.

To enable the development of the collective funds sector, section 38 will allow transparency where all the unit holders in a collective fund are themselves collective investors. Also in the collective funds sector, section 37 removes, in specific circumstances only, the advance corporation tax liability of certain investment companies. IFSC companies will also benefit from other provisions in the Bill which are of more general application.

As regards capital gains tax section 65 increases from £5,000 to £15,000 the reporting limit, for capital gains tax purposes, on sales of art, antiques and other valuables by auctioneers. The existing requirements are putting Irish auction houses at a competitive disadvantagevis-à-vis their UK counterparts. Sections 66 and 67 provide significant improvements in the retirement relief for disposals of business assets by entrepreneurs over 55 years. These include an amendment in the rules for computing relief for company shares which should result in a substantial increase in relief for many family companies. Also, the exemption limit on disposals of business assets outside the family is being increased from £200,000 to £250,000.

Section 69 provides for significant changes in the rollover relief for equity investment, the aim of which is to make the relief available to a wider range of enterpreneurs. Also, by virtue of section 68, rollover relief is being extended to disposals of development land used for trading purposes, where the business has to relocate for environmental reasons. The relief will be subject to the local authority certifying that the land has been subject to a use which is damaging to the local environment.

Section 70 contains provisions to rectify certain weaknesses in the capital gains tax legislation which came to light as a result of the Glackin Inquiry into transactions involving the former Johnston Mooney & O'Brien site in Ballsbridge, Dublin. I am closing off a loophole whereby the 15 per cent withholding tax on disposals of certain assets, mainly land or land-related, could be circumvented where the disposal is made for a non-cash consideration. This problem will be rectified by extending the withholding tax provisions to such transactions.

I now turn to excise duties. The Bill confirms the budget increase of 12p on a packet of 20 cigarettes and pro rata increases on other tobacco products. It also provides in sections 71 to 78 for the extension of tobacco stamps to non-cigarette products such as roll your own tobacco. Tax stamps are due to come into effect on packet cigarettes this autumn and on roll your own tobacco next year.

In the area of excise duty compliance and enforcement, the Bill includes provisions to update and clarify Revenue powers to stop, search, detain and seize goods liable for forfeiture under excise. The necessity for this action arises from a High Court decision which held that, because of the inconsistency in phrasing legislation, the issue of a search warrant in respect of excisable goods liable for forfeiture was invalid; this ruling resulted in the curtailment of seizure powers of the Revenue Commissioners in the excise duty area it is now proposed to remedy. The availability to Revenue of the powers in question are vital to secure the very significant revenues at stake. The powers in sections 79 and 90 are largely a restoration of the search and seizure powers together with re-enactment of provisions in the Finance Act, 1992 and related basic excise management provisions from early statutes, as well as a right for a claimant to appeal against the seizure and forfeiture of goods.

The Bill provides for a vehicle registration tax relief scheme which I announced in the budget. Schemes of this type have been successful in other countries. Tax relief of £1,000 will be granted by way of repayment where a car at least 10 years old is scrapped and the owner purchases a new car. This transparent approach ensures that the concession will accure to the qualifying new car purchaser.

The Bill also includes other proposed amendments to VRT law which increases the minimum amount of tax payable on category A vehicles — mainly cars — from £100 to £250 and which make technical changes in the way VRT ic calculated when a vehicle is converted to a category subject to a higher rate of tax. The VRT provisions are contained in section 91 and 92 of the Bill.

In the road tax area, it is proposed to introduce in section 104 two concessions relating to the first licensing of a vehicle which will bring some flexibility into the system in circumstances where delays arise between the registration of a vehicle and its subsequent going on the road. First, where a vehicle is registered within the last seven working days of a month and a road tax application is made in the following month, because the vehicle owner has not had the use of vehicle until then the road tax disc will be effective from the beginning of the month of licensing rather than, as at present, from the month of registration. Second, where there is a prolonged delay between the first registration of a vehicle and subsequent licensing, road tax will be effective from the beginning of the month of licensing provided certain conditions are complied with and on payment of a fee of £20 to the licensing authority.

Section 102 provides for the continuation in force of certain excise licences or the granting of a temporary licence where an application has been made by a specified deadline for a tax clearance certificate and where a decision on a tax clearance certificate has not been given in sufficient time to allow the licence to be renewed or taken out.

Section 103 establishes an excise duty framework for the production and importation of substitute motor fuels including biofuels. The section gives effect to EU rules in this area. Substitute fuels used in motors will be liable to the road diesel rate of duty which is the lowest rate of duty applicable in the road fuel area. Existing reliefs for diesel fule will automatically apply to the duty on substitute fuels. It is also proposed to avail of an EU provision which allows for the exemption from the new excise duty of pilot scheme production and use of biofuels. The Minister for Finance, in consultation with the Minister for Transport, Energy and Communications, will be empowered to exempt projects where applications are submitted before end-1998.

Sections 105 to 124 of the Bill relate to VAT and are predominantly concerned with the transposition into Irish VAT law of the EU Seventh VAT Directive. The directive contains new rules for the VAT treatment of sales of second-hand moveable goods, works of art, collectors' items and antiques. The objective of the directive is to avoid double taxation of such goods. Under the new system — the margin scheme — the dealer has the option to charge VAT on his profit margin only, rather than, as has applied up to now, on the full sale price of the goods which would include an element of trapped VAT.

The Bill also establishes a special scheme for auctioneers, which is similar to the margin scheme and provides for the retention, in slightly modified form, of our existing VAT input credit arrangements for dealers in second-hand motor vehicles.

The Bill contains two initiatives in the area of sporting and health and fitness which have the purpose of ensuring equity and consistency of treatment in relation to VAT. These changes are covered by sections 110, 120, 122 and 123 of the Bill.

In the case of golfing facilities, it is proposed that where a member-owned club's turnover from non-members exceeds, or is likely to exceed, £20,000 per annum — the normal registration threshold for services — it will be liable to VAT at 12.5 per cent on that turnover. Such clubs will remain exempt in relation to turnover derived from normal membership fees and where turnover from non-members does not exceed the £20,000 threshold. For the purposes of these provisions, a person will be regarded as a member if his or her current membership entitles that person to use the golfing facilities, without further charge, for at least 200 days in a continuous period of 12 months.

Similar provisions will apply to the "pay as you play" golfing facilities provided by the State and local authorities. Pitch and putt facilities provided by non-profit making bodies or local authorities will not be affected by the initiative and will remain exempt.

The Bill also includes an enabling provision which will allow the Revenue Commissioners to determine, on a case by case basis, if the VAT exemption afforded to non-profit making bodies operating in the general area of sports and health and fitness should be withdrawn where the £20,000 turnover limit is exceeded. It is not intended to apply a heavy-handed approach in this area. A determination made under these provisions may be appealed to the Appeal Commissioners.

The measures represent a considered effort to respond to the many representations received on behalf of the commercial sectors concerned and are designed to conform to existing EU requirements that VAT exemptions should not give rise to distortions of competition. They will take effect from 1 January 1996.

The Bill provides in section 119 that, if requested to do so, any VAT registered traders operating cash rebates or other incentives not recorded in normal trade documentation will be required to notify the Revenue Commissioners of all such payments or benefits given in connection with supplies to other traders. This measure, which replaces the monthly control statement requirement, will be reinforced by the continued development of the Revenue Commissioners' existing sector by sector audit programme. I know that business interests in general will welcome these new arrangements.

Turning to stamp duty, the Bill contains a number of measures which will be of particular assistance to the business sector. A new stamp duty exemption is being introduced under section 133 to facilitate stock borrowing by member firms of the Irish Stock Exchange. Sections 126 and 127 give stamp duty relief for company restructurings.

Section 129 exempts health insurance from the 2 per cent levy on non-life insurance premiums which would otherwise have applied to the VHI when it becomes an authorised non-life insurer later this year.

Sections 134 to 138 contain the new provisions in relation to residential property tax. The Bill increases the thresholds for property value and income as announced in the budget. The new thresholds are £94,000 for property and £29,500 for income. The tax will be at a flat rate of 1.5 per cent.

This year's Finance Bill contains a number of important measures which will help family businesses. In relation to capital acquisitions tax, section 142 of the Bill provides for an increase in business relief to a flat rate of 50 per cent on all qualifying assets. Previously, only the first £250,000 per beneficiary qualified for 50 per cent relief, with 25 per cent relief on the balance. In addition, more favourable instalment payment terms are being introduced in section 145 for capital acquisitions tax. This will give business owners the option of discharging their liabilities over five years at a competitive interest rate of 9 per cent.

The combination of the EU farmer retirement scheme and the stamp duty relief for young trained farmers introduced last year has given rise to substantial intergenerational transfers of farm property. In 1994, an estimated £100 million worth of farm land was transferred to young trained farmers. This year's Bill contains a number of measures which will give further encouragement to the transfer of farm property to younger more enterprising farmers.

A number of family-owned companies holding heritage houses, gardens and other items of historic or aesthetic interest are currently unable to avail of the capital acquisitions tax relief for heritage property which does not extend to company shares. In order to assist the preservation of such properties for public viewing, section 147 provides for the granting of relief to shares in existing heritage companies to the extent that the underlying value of the shares is attributable to heritage property.

Sections 148 to 151 make a number of amendments to the legislative provisions dealing with the Irish residence of individuals for tax purposes. Section 148 provides that the exemption from liability to DIRT will now be based on the non-residence status instead of the non-ordinary residence status of the tax-payer. Section 149 makes a similar change in regard to the exclusion from the obligation on financial institutions to report details of deposit interest to Revenue. Section 150 introduces an annual £3,000 threshold in regard to the Irish tax liability on the foreign investment income of an individual who leaves Ireland to work abroad for a number of years. At present, all the foreign investment income of such a person is liable to Irish tax for the first three years of his stay abroad. Section 151 deals with the tax relief for Irish individuals who go abroad to work on foreign assignments and removes the existing disallowance of the first 15 days spent abroad in computing the amount of the relief.

Section 153 provides for reporting certain tax offences to the Revenue Commissioners by auditors and other persons who assist companies in relation to tax. The offences which are reportable include making incorrect returns and failure to make returns, false claims to relief, falsifying documents, failure to keep records and non-payment of certain tax, otherwise than where the tax is declared tax or the non-payment is under discussion with the Collector-General. This provision implements a recommendation of the beef tribunal report but extends the reporting requirement in the interests of equity and consistency, to all persons who assist companies in relation to tax, not just auditors.

Where such a person has reasonable grounds to believe that a company has committed an offence, the person is obliged to notify the company. I would emphasise that if the company itself then notifies the Revenue Commissioners or the evaded tax is made good the person will not be required to notify the Commissioners. However, if the company does not rectify the matter, the person will be obliged to inform the Revenue Commissioners within 30 days of notifying the company. This requirement will not apply where the information is obtained in the context of assisting the company in preparing for litigation.

We have sought to strike a balance here between the requirement to report evasion and the extra duties this places on business and professionals. We have included a materiality clause to lessen the burden and to focus on reporting of substantial evasion — the materiality criterion is 5 per cent of tax liability or £5,000, whichever is the lesser. I am anxious to accommodate genuine concerns in the operation of the section but the essential structure and requirements of the section will remain. At the request of the auditing profession I have allowed an arrangement whereby the adviser or auditor reports to the company first to give the client a full opportunity to bring its affairs into order and, if this is done the adviser or auditor will not be obliged to make any report to Revenue.

Section 154 amends section 429 of the Income Tax Act, 1967, to confirm the right of accountants and tax practitioners to represent clients at the rehearing of tax appeals before a Circuit Court judge.

Section 155 amends section 115 of the Finance Act, 1986, to limit a bank's liability to pay VAT and PAYE to the Revenue Commissioners, in respect of a company on whose book debts it has a fixed charge, to arrears of VAT and PAYE arising only after the issue to the bank of a notice of liability under section 115. At present, a bank is liable to pay arrears of tax arising before issue of a notice and even before the taking out of the fixed charge. To benefit from this reduced exposure a bank must notify Revenue of the existence of the fixed charge. The amendment reduces a bank's exposure arising from lending to firms on foot of a fixed charge and is intended to alleviate problems for firms, in particular small firms, in securing loan finance. I hope the banking sector will respond positively to this initiative.

The black economy monitoring group and ICTU have identified access by the Revenue Commissioners to information held by public authorities as a valuable tool in monitoring the black economy and combating abuse. Section 156 empowers the Revenue Commissioners, for the purposes of the assessment, charge, collection and recovery of tax to obtain from a Minister of the Government details regarding payments made by the Minister to specified persons.

On a separate but related issue section 14 introduces an amendment to the Income Tax Act, 1967, to require a return to the Revenue Commissioners of payments to landlords in relation to rent or rent subsidy by public bodies such as health boards.

Further to the announcement in the budget, section 157 provides for a scheme of tax relief on donations of items of national heritage. It provides that the annual aggregate value of all items to be accepted under the scheme by an expert selection committee for donation to one of the national cultural institutions or approved bodies will be £0.5 million. No individual item worth less than £75,000 will be eligible for acceptance under the scheme. The tax relief available to donors will apply to income tax, corporation tax, capital gains tax, and gift and inheritance tax and will be available also in respect of arrears of such taxes.

I hope the House has benefited from this long exposition and I am ready to hear and examine the points put by other Members in the debate.

I recommend the Bill to the House.

I congratulate the Minister on his first Finance Bill. I hope he will be able to put into effect some of the ideas he had before coming to the Department of Finance. The annual budget speech of the Minister for Finance is regarded as the definitive statement of the Government's economic intentions, and the publication of the Finance Bill signals the method by which it will implement its taxation objectives in line with its overall budgetary plan. Bearing this in mind, I look forward to the day when some future Minister for Finance will be in a position to do the following in respect of both the budget and the Finance Bill.

The pre-budget publication would be of real estimates not designed, as they are now to obfuscate and make it practically impossible for anyone not an expert in Government financial accounts to understand them. The Government accounts should be designed in the same fashion as those for any business. In other words, the estimated tax revenue for the year should be easily ascertainable as should estimated expenditure for the year and liabilities. If a company produced a set of accounts in the manner of the Government's estimates, it would be prosecuted under the Companies Acts.

I know the Minister for Finance probably agrees with me regarding the layout of the National Accounts. I look forward to progress from him in this area for next year's production. That they have been produced in the same way for generations is no defence — modern government needs a more modern up to date approach in its accounting.

The next part of the new approach would relate to the annual budget speech. It is many years since I first opined that budget day was the most over-hyped day in the Dáil calendar. The budget speech should not take more than 30 minutes. There would be no need for it to be any longer because the proper presentation of the Estimates would have given sufficient information for everyone to know the Government's planning for the coming year. All that would be necessary on budget day would be for the Minister to outline the taxation changes he intended to introduce in the Finance Bill. Later in my contribution I will state what I think a good budget should contain.

I am aware that a shortened budget speech has been the wish of a number of recent Finance Ministers. The current incumbent signalled some weeks before this year's event that he would have a very short budget speech. While everyone in the Department of Finance might have agreed at the outset that this was something devoutly to be wished for, and would had every intention of complying with the Minister's wishes, I am sure the original speech grew longer by the hour as various officials told the Minister: "Well, this little sentence will have to be included". Like all good civil servants, they acceded to the wishes of the Minister by tightening up the type spacing, and, thus it was possible for someone in Government to herald that the Minister's speech would be only 22 pages in length. They forgot to mention that it was tightly spaced, which meant it took well over an hour to read.

In my utopian future, the budget speech having being disposed of in 30 minutes or so, the last part of the jigsaw would be the presentation of the Finance Bill. I am not certain if the Finance Bill can be so shortened. However, I find it extraordinary that each annual Finance Bill appears to get bigger and bigger — the 1995 epic comes to 185 pages.

I welcome the Minister's announcement in the budget that it is his intention to consolidate the taxes Acts — the last Consolidation Act being in 1967. I suggest that, when the proposed consolidation takes place, it may be possible for the annual Finance Bills for a couple of years after to be of more manageable proportions. I congratulate the Minister on this very welcome proposal and I further urge him to make it a standard policy objective in the Department of Finance that the taxes Acts be consolidated every five years. Earlier I referred to what a budget should contain.

A major criticism of most budgets is that they tinker round the edges rather than having a limited set of objectives and a focused, targeted approach. This year's budget, and the consequent Finance Bill which we are now discussing, are clear examples of trying to please many pressure groups; skirting round edges of problems and ending up pleasing no one.

The budget and Finance Bill should concentrate on a limited number of objectives. A Minister for Finance should ignore 90 per cent of the pre-budget lobbying. This is not to say that lobbying for changes is not desirable but, if a Minister for Finance tries to do too much, he will end up with the scatter-gun approach and make no real impact in any area.

Having been in Government, I am realistic enough to know that it may not be possible ever to go along fully with the approach I outlined earlier. All Ministers for Finance are not alone pressurised by the lobbby groups each year, but financial commentators, analysists, and gurus, throw in their tuppence worth and advise the Minister that he must look after this or that sectional interest. Furthermore, he is subject to pressures from each of his ministerial colleagues to look after some vital matter which pertains to their Department, and this also means spending more money.

With the best will in the world, the unfortunate Minister for Finance cannot look after all these desirable works. The temptation is to give a little in every direction, but by doing so, he limits the amount of Exchequer resources he can give to what may be the most important objective.

I have clearly signalled on behalf of the Fianna Fáil Party that the number one objective for the Government for 1995 was to plan for, at least, a balanced current budget. I emphasise that there is a major difference between planning for a balanced current budget and ending up with one. It took over a quarter of a century to get back to this situation and it would be foolish to squander those hard-won gains. Any sensible Minister for Finance would not have allowed his governmental colleagues to persuade him from moving away from that benchmark.

Not alone is it economic madness, it is political madness as well to embark, as this Government has done, on fiscally loose financial targets. Is it not just common sense to make provision in the relatively good times for the dark clouds which will inevitably gather in the future? The prudent company, the sensible family household, plans its affairs on that basis.

What does this Government do? At the outset it sets itself an easy target of an increase of 6 per cent in current spending for 1995. There are many — and I am one — who suggest that this target was too lax. Whether it was or not, the ink was hardly dry on the Minister's budget speech when the Government announced increases in spending which manifestly break their own targets.

Surely, there is little point in having annual targets if within a few weeks one announces that there are to be problems; and is it not adding insult to the intelligence of the Irish people to claim, on foot of fancy creative accountancy, that one is keeping within the limits?

If some expenditures have to be legally made — as in the case of the equal treatment arrears to married women — then they must be paid. However, it is the job of Government to prioritise and this means taking tough decisions, which will not be popular with the relevant interest group. Therefore, if the Government decided to pay the equal treatment arrears in one calendar year, corresponding expenditure adjustments should have been made in other areas to stay within the 6 per cent spending limit for 1995.

It is not the job of the Opposition to make those decisions. If the Government has not the courage to make appropriate prioritisations, it should step aside and allow others to make those decisions.

I advise the Minister for Finance to stop wasting his time in giving off the record briefings to journalists which are designed to make a headline, such as: "the Government is getting tough on public spending". There was a time when such PR exercises may have fooled the electorate — I have always doubted this proposition. It does not work now, and it certainly fools nobody at home or abroad whose job it is to professionally analyse financial trends.

Scarcely a day goes by that a Government Minister does not indicate to a pressure group that more money will be spent to meet its special needs. I am alarmed by the spendthrift approach of most members of the Government, who appear to commit themselves to a course of action within their departmental remit without any approval, or even thought, to the overall public finances.

It should be remembered that this country was brought to the verge of bankruptcy in the mid 1980s by successive Governments not being prepared to tackle our financial problems. Is it asking too much of our politicians in the mid-1990s to act in a more responsible fashion than their counterparts of recent decades?

The attitude of the Government to public financial prudence is outstandingly illustrated by its method of dealing with the political problem of service charges. Its decision in this regard will be a future monument for this coalition and a remainder in years to come of the irresponsibility of this Administration. The only reason the media has not highlighted the scandal of this decision is that service charges are not an issue in the greater Dublin area and in some other major cities. I feel a little sorry for Minister Quinn in this regard. Possibly he felt the problem was defused by this signal in the budget of a tax allowance to be given for householders who paid their charges. This was not enough for Democratic Left who demanded and were given a further concession prior to its annual conference. The resultant concession is, in essence, the Government saying collectively: "well, sure if you don't feel like paying these charges, don't bother".

What type of signal of governmental responsibility is given by such a ludicrous decision? You cannot hope to be taken seriously as a responsible administration if, at the first sign of political pressure, you just cave in and throw your hands up in submission. If this is the type of decision-making we can expect for the remainder of this coalition's term, the people are being exceptionally poorly served by their elected Government. I am dismayed by this attitude because I thought that perhaps all parties and politicians had learned the very expensive lessons of the past.

The short-sightedness of the Government's approach to the public finances will be to the long term detriment of the economy. Economically, there is no justification for it. Prudent public financial management got us out of the mess of the late 1970s and 1980s and gave us low inflation and good economic growth in the mid 1990s.

I find it hard to believe that any Government — no matter what its political makeup — would go back down a road which failed totally in economic terms and brought no long term gains to the political parties or politicians who perpetrated the stupidity on the Irish people.

The tax and PRSI reliefs in the Finance Bill are to be welcomed, but because the Minister and Government used the scatter-gun approach, the reliefs in these areas do not go far enough. If the Minister really wanted to do something worthwhile in this area, whatever moneys were available on budget day should have been targeted here. Of course, by having thresholds or ceilings for PRSI exemptions, one runs the policy danger of setting maximum earnings levels and forcing workers' earnings downwards. Certainly, the worth-while changes announced in last year's budget and this year's throw up anomalies for workers at the margins. Long term the solution is to lower the rates at which contributions must be paid.

Most politicians and political parties have repeated, mantra-like, for years that taxation is too high but that depends on how you look at it. One cannot divorce high levels of taxation from high levels of Government spending and impossible levels of national debt. Political parties which throw all their resources into bleating about high taxation have a sustainable political constituency but it willper se be a small niche market. One could have a low level of taxation if one decided to have a low level of desirable public services. For example, there is a low level of taxation in the United States but an ordinary person would have to sell their house if they were stricken with illness and needed hospitalisation. My party does not believe in that type of society but it does believe in responsible and prudent management which gives us a level of services which we can afford to pay for by an equivalent level of taxation.

It would be better to deal with many details of the Finance Bill on Committee Stage. However, there are a few outstanding anomalies which I should mention. This Bill heralds some fundamental changes in the legislation dealing with covenants. We were led to believe by the Government that the reasoning was the introduction of free third level education. Much has been written and said about that decision. For the purposes of this Bill I am prepared to leave aside the arguments for and against its introduction but I am sure the Minister will admit that it was clearly signalled that a change in the legislation dealing with education covenants was to be made in order to meet the cost of the new education scheme. It was never said by any Minister in the run up to the decision on free third level education that there would be wholesale changes in the legislation dealing with covenants. The Minister for Finance has used the excuse of the education debate to uproot and change the legislation dealing with covenants. Since the budget he has granted the Alzheimer's Association a concession but, as has been pointed out in various journals, the changes affect a wide variety of other deserving cases. I ask him to abandon his proposals in this area. If changes are to be made they should only be made in the legislation dealing with education covenants given that it was the introduction of the new education scheme which gave rise to the changes in the first place.

Serious anomalies will arise causing hardship to many taxpayers as a result of the proposed changes. This is neither fair nor equitable and it is a form of sleight of hand by the Government to impose burdens on hard pressed taxpayers who may be using the covenants legislation to provide for their separated spouses or parents.

Perhaps my good friend and former colleague, the Minister, Deputy Quinn, wants to shed his student image and to be known as Mandrake the Magician. Notwithstanding his valiant efforts at creative accountancy, his attempts as illusionist supreme are at their height in the proposed treatment of the tax break for designated Third World charities. I humbly suggest that most people, on hearing in the budget about the tax break in respect of donations to Third World charities, believed that anyone giving a donation would qualify for tax relief. I am aware, however, that this was not stated in the small print and I congratulate the genius in the Department of Finance who came up with the section in question. As we now know, the method of giving the tax break is not what most people thought. Under the proposed system it is envisaged that the donor will give his or her tax number to the designated charity and that at the end of a period the Revenue Commissioners will give an appropriate tax refund at the standard rate to the charity on foot of the said donations. It will now be possible — I am sure this did not cross the mind of anyone in the Department of Finance — to calculate more accurately the total Irish contribution to the Third World. This is an act of pure genius and I congratulate the person who thought of it. What is the difference between the proposed system and the Government increasing the Exchequer grant-in-aid to any of the Third World charities?

This type of Mandrake the Magician approach creates a distortion against home based Irish charities. The good hearted Irish people are being asked to discriminate between their local branch of St. Vincent de Paul and some equally deserving Third World organisation. At the very minimum the Minister should ensure there is a level playing pitch for both home based and Third World charities.

The proposed system is administratively attractive. The Minister's initial idea was a good one. I suggest he put forward the suggestion that Third World charities should be given a tax break but his officials, for good reasons, indicated that if he opened that Pandora's box he would be inundated with requests for designation. The matter would have been debated and the Minister would have insisted on getting his way. Shortly after the budget someone suggested that rather than giving the donor tax relief, the designated Third World charity would receive a refund from the Revenue Commissioners. Consequently, if a person made a donation of £500, the designated Third World charity would receive a refund at the standard rate. The beauty of it was that at the end of each year the Minister would be able to say how much Ireland had given to the Third World.

It has been suggested for many years that the aid figure for each country, including Ireland, should reach the figure of 0.7 per cent of gross national product. The figure in the Estimates for 1995 only comes to 0.27 per cent. We will now be able to add the contributions from the ordinary taxpayer to the Exchequer contribution and say that we have attained the figure of 0.7 per cent. That is the way the matter would have been discussed in the Department of Finance. I congratulate the official who thought of this idea as it will not lead to the dreaded Pandora's box being opened but to two birds being killed with the one stone.

I do not want to give the impression that we want to stop designated Third World charities from receiving this relief but the same principle should be applied to home based charities. The Minister should make the necessary adjustment. That would be fair and equitable. I am one of the few people in the country who admire the officials of the Department of Finance. If they argue that they would not be able to quantify the loss to the Exchequer there could be a ceiling whereby a person would not be allowed to exceed a certain figure in tax relief over a period of two years. There should be no distortion between home based charities and Third World charities. I intend to table some amendments on Committee Stage to resolve this problem.

I commented earlier on the proposed changes in the legislation dealing with covenants. I am well aware that the idea of free third level education was sold by certain people on the basis that it would not be expensive if tax relief for education covenants was abolished. I have also been aware for some time, despite the impression given by others in the House, that it is not possible to quantify the cost of education covenants to the Exchequer. It was possible to quantify the total loss to the Exchequer in tax breaks by covenants, but it was not possible, even through the sophisticated computers of the Revenue Commissioners, to define the amount that related to education covenants. The figures used by people inside and outside this House were based on a sample number of covenants. The figure given of the loss through education covenants of £38 million or £40 million is not the real figure and no one in th Revenue Commissioners is able to substantiate it.

This whole idea was sold as a method of paying for free third level education. Whatever the merits of that decision, the Government was within its rights in making the decision that there should be free third level education. It is sleight of hand to use the excuse that covenant legislation must be changed in order to fund this measure. That is not acceptable. As the Minister is aware — this is a difficult matter for persons such as the Minister and myself who are in the same marital situation — separated spouses are one category of persons who will be affected by this change in covenant legislation.

I am in favour of doing business above board, saying what you will do and doing it. The Government says it will change tax breaks relating to education covenants, but it should not use that as the excuse to change the entire legislation in this area. The balance of the cost of third level education should be made up from general taxation, with adjustments being made in expenditure areas. It is not fair to use this measure as an excuse to make changes in other areas.

I will give an example of how this measure will affect separated persons. I have received various letters from people in this position and I have the permission of one person to mention his case. This is an unusual example but other examples apply also. The person involved was divorced in Northern Ireland and remarried in this State. Although the marriage is not recognised in this country the person got tax relief on a covenant, similar to the normal tax relief allowed to married couples. Due to the recent change in covenants, that person will lose £25 net per week, or £1,200 net per year, which he cannot afford. As I said, this is a difficult matter and I have a personal interest in that I am separated, but I am not affected by this section. I am not making a case for myself or other Members of the House who are in the same marital position as I am, but it is unacceptable to make the changes as announced.

A number of people use covenants to provide for parents who do not have substantial incomes. Those people are willing to covenant a certain amount of their income to their parents in order that they can enjoy a better lifestyle than they would on their own income alone. Many people whose parents scrimped and saved to send them to college wish to repay them by way of covenants, but they will be affected by the proposed changes. A wide variety of changes are proposed in covenant legislation, but why must the State become involved in those areas? Why must we change a system that is working well? I do not understand politicians who say that this measure is a cost to the State. If, for example, elderly people were not looked after in this way by their sons and daughters they probably would be in nursing homes, thereby costing the taxpayer a fortune. According to the 1960s "lefty" syndrome the State must run everything, but that is a short sighted view; people should be allowed get on with their own affairs.

There were many examples in previous years of civil servants who, with the best will in the world, proposed to a Minister that certain tax breaks be closed off because the State was losing money on them. However, it was often forgotten that these actions in the long run cost a considerable amount of money. I hope the Minister will take the opportunity on Committee Stage to make some adjustment to the covenant legislation, with changes being made only in the education area as was proposed.

Section 153 of the Finance Bill has been labelled the informer section or the whistle blowers' provision. I wish to disclose a professional interest in the provisions of this section. As most people know, I am a chartered accountant and therefore would be adversely affected by this section as it relates to my practice. The section arises from the beef tribunal report which made recommendations on the reporting by auditors of tax evasion by companies. A politician, particularly a politician who is an accountant, is in a no win situation in arguing for a rational debate on this topic. The Institute of Chartered Accountants, of which I am a member, has lobbied for withdrawal of the section as it stands, and many other bodies have joined in this exercise. Many independent commentators are also concerned about this section. No one condones tax evasion, but there is a vast difference between what I submit was the intention behind the recommendations of the beef tribunal report and what is included in section 153. The tribunal report wanted the law strengthened regarding real and substantial tax evasion rather than the myriad of mickey mouse offences, some technical, envisaged by this section.

For example, what is the purpose of making it an offence for an auditor to report on the late filing of returns? Have the Revenue Commissioners not invested millions of pounds in the most up-to-date and sophisticated computers to give them such information at the press of a button? Commonsense should prevail here. The Minister should withdraw this section and engage in further discussions with professional bodies. I look forward to detailed debate on Committee Stage on the various sections of the Bill, particularly this section. I know the Minister is prepared to keep an open mind on this and other sections.

Section 153 about which much has been written — we will have considerable opportunity on Committee Stage to debate it further — is unacceptable. I do not know who dreamt it up. The Revenue Commissioners were not lobbied for a section such as this, and everyone in this town knows that. As my friend and colleague, Deputy Cullen, would say, everybody would be against it. For more than a decade we have put on the Statute Book detailed draconian legislation which gives more powers to the Revenue Commissioners than in any other country in Europe. The Revenue Commissioners are satisfied with the powers they have and do not want further powers, therefore nobody from the Revenue Commissioners persuaded the Minister to introduce such a section. I could quote sections of various Acts which give the Revenue Commissioners all the powers they want. That is set out in section 94 (s) of the 1983 Act. This section is ridiculous. I cannot understand the manner in which it has been drafted. For example, if an auditor suspects that there has been tax evasion, he or she is obliged to report it even though the person or company involved may not be guilty of an offence. The directors and employees of the company may get off scot free, but the auditor, whose suspicion of tax evasion cannot be justified, will be caught for all types of offences. It is a ludicrous section. The Minister for Finance, Deputy Quinn, may have the impression that chartered accountants are devious people who are not honest like architects. I understand some of the Minister's close relations are in the same profession as myself——

They are not as devious.

They may not be. I am sure the Minister will tell his relative that this section is draft. The fine for reportable offences is ridiculous. The Minister is a sensible individual. I am sure an official from the Revenue Commissioners did not draft that section and I doubt if any of the sensible officials in the Department of Finance asked for this section. However, the person who drafted the section should be removed from the area of his or her current responsibility because if that person has any more brainwaves like this, I fear greatly for the Minister's future political safety. There are many other sections I will debate on Committee Stage, the detail of which is technical.

I commend the Minister for introducing a change in the tax legislation regarding seaside resorts. When I was Minister for Tourism and Trade it was intended that measure would be announced in the 1995 Finance Bill. I am glad the Minister for Tourism and Trade proceeded with the idea and the Minister for Finance, Deputy Quinn, had the foresight to go along with it. That measure is based primarily on the designated urban renewal type legislation because many of our seaside resorts have fallen into a bad state of repair. It is a good idea to give a tax break to encourage people to improve those resorts. I sympathise with the Minister for Tourism and Trade and the Minister for Finance who had to decide what seaside resorts to include in the legislation, but most of the towns selected are those I had nominated. However, there will always be people with other ideas. I do not criticise the Minister for Tourism and Trade or the Minister for Finance for including the resorts selected because this is a matter of subjective judgment and I am glad the measure has been introduced.

I do not agree with the general thrust of the budget or the Finance Bill and I signalled that on Budget Day. Notwithstanding the compromises in which the Minister for Finance in any Government must engage, the Minister for Finance, Deputy Quinn, allowed himself to be pulled in many different directions and there is not a clear focused approach to the budget or the Finance Bill. I look forward to Committee Stage when we can table amendments to improve many of the sections.

I welcome the Minister's statement that he expects a debate to take place in this House on the subject of taxation policy and that he will be interested to hear contributions on it. In that context I was saddened to hear him say, before he heard what the Opposition had to say on section 153, that the substance of the section would not be changed although there could be some marginal change in it. As Deputy McCreevy said, that is a singularly stupid provision. It is a provision which could not be proposed by somebody who has a deep understanding of how enterprise works or of how the accountancy profession interrelates with enterprise. It is certainly not something which will have a beneficial effect on tax compliance here in the long run. I agree with Deputy McCreevy that the Revenue Commissioners do not want it introduced because it deals with the accountancy profession. If the Revenue Commissioners do not want to do that and they are the professional, how dare amateurs come on the stage and say they know better how enterprise runs? The Minister is an architect, I am a barrister and Deputy McCreevy is a chartered accountant and all three of us are in a sense lay people rather than participants in enterprise. Nobody who understands how enterprise works will stand over this proposition. If the Minister persists with the view that the section must substantially stand as it is, he will do untold damage which in the last analysis another Minister for Finance will have to remedy.

The Finance Bill is an index of the failure of the Government to address the real economic needs of the State. In every respect it represents a gross dereliction of duty combined with a demonstration of lack of Government judgment. I was reminded of the speech made by the Minister on Budget Day. He described the budget as a radical one and on checking his speech I found there was more hyperbole. He claimed that the budget will give heart to young people to seek to broaden their horizons. Now when there is no applause in the House and the three of us are discussing this Bill, does the Minister believe that young people took heart and broadened their horizons when they read that document?

They took flight.

The only sense in which they may broaden their horizons is with an intention to emigrate. The Minister also said that the budget was one small step in the direction of budgetary reform, that some of the measures it contains may not work as effectively as the Government intends them to and, if so, in time it will correct them. The Minister at the beginning of his speech said it was a radical budget that would change the future for young people and at the end indicated it was a small step in the direction of budgetary reform. In retrospect, I believe the second view is the correct one. This is a rather inconsequential budget and the tragedy is that it ignores the huge challenge for tax reform that confronted this and the two previous Governments. This Bill is a "marking time" exercise. The Minister may claim that he has increased tax allowances and he has repeated that today, but all the changes made amount in gross terms to 6 per cent or less. Allowing for inflation that means we are really talking about changes in tax allowances and tax bands in real terms of 3 per cent. Is that to be the stuff of which radical tax reform is made? It is not, because if it is repeated three times by the Government in three budgets, there will be a 10 per cent difference in the value of tax allowances and tax bands by the time the Minister finishes his term in office.

In a country in which tax reform has been identified as a necessity by all the political parties, which the Culliton report — to which the Minister paid lip service in his capacity as Minister for Enterprise and Employment — said was the single issue on which this Government could do something substantial to change the climate for enterprise here, it is disappointing that we are asked to accept as radical a budget that has a 3 per cent effect on personal tax allowances and tax bands. It is not radical, it is creeping incrementalism of the worst kind, which is really what this Government has on offer. It does not surprise me that this is the case; I never expected anything different. The public should be made aware repeatedly during the lifetime of this Government, that it has funked tax reform and intends to continue funking as long as the issue remains to be decided.

On the evidence of this Bill I suggest that the Minister, the Government, the Labour Party, Fine Gael and Democratic Left, demonstrate that not merely do they not understand, but at heart reject, the advice tendered them on tax reform, not only by the Culliton committee but also by the OECD, the Central Bank, the ESRI and many other non-party political commentators and observers. The challenge to the political establishment to radically reform its system of tax on work simply will not go away; it will not be forgotten or satisfied by marginal changes or incrementalism of the kind shown in this Bill. That challenge must be taken up, if not by this Government, by its successor. The next Government must seek and obtain a mandate for radical tax reform.

I listened carefully to Deputy McCreevy. Sometimes I find it difficult to follow the exact differences in nuance between what he and Deputy Bertie Ahern say on the question of taxation. In retrospect I welcome the statement of the Leader of the Fianna Fáil Party, that he now shares the aim of the Progressive Democrats of a 20 per cent standard rate of income tax and a top rate of 40 per cent. Although that did not receive much publicity, I noted it. While I accept it may be a matter of less pressing urgency for some politicians than for others, I believe and stand by the proposition that reform of our tax system, and lowering marginal rates of tax, is one of the ways in which this country will transform itself into a genuinely enterprising economy. It matters that the lower rate of income tax is 27 per cent rather than 20 per cent, and that 48 per cent rather than 40 per cent is the higher rate because people faced with 48 per cent tax and, say, 5 per cent PRSI contributions, take different decisions in relation to their marginal earnings, savings, investments, risk-taking and the like, their willingness to work overtime and to employ other people. In betting parlance, it puts out the odds against getting an adequate return by a factor of 2, so what was a 2:1 chance in effect becomes a 4:1 chance in the case of someone who has to take the risk.

Deputy McCreevy heaps plaudits on officials in the Department of Finance.

I do not believe they have a culture of understanding that issue. Whereas I admire their numeracy and the rest of it, I do not admire their instincts which find expression in successive Finance Bills. I reject the notion that politicians solely dictate our Finance Bills. There is a cultural problem endemic in public administration which does not understand enterprise or risk-taking. It regards them — and profit — as dirty concepts, to which it is not really and genuinely committed. Until this country has a Minister for Finance who not simply tolerates profit but welcomes it, not simply congratulates those who make profits but who genuinely and sincerely admires them; who is not simply willing to effect this or that change in a Finance Bill, or pay lipservice to enterprise but who, in his heart, feels it is a good thing that people in our society take risks and are rewarded for taking them, until such time as we have a Department of Finance which wholly supports its Minister in that regard, we shall not have turned the cultural corner which will bring this country to prosperity.

Like it or lump it, when all the changes the Minister has effected in our taxation system are examined, the figures in his own tables tell their tale. For example, in Appendix 1 on page 59 of the circulated budget booklet, a single employee earning £11,000 per annum effectively will be £144 a year "better off' if his or her earnings remain static within the context of this budget. A single employee earning well below the average industrial wage, say, £12,250 per annum — £234 a week — in present circumstances takes home approximately £8,800 or £169 per week. Such a single person with gross earnings of £12,250 costs his or her employer £13,720 because the latter must pay PRSI contributions. Therefore, the percentage of gross take-home pay is approximately 65 per cent and the difference between the take-home pay and the total outlay of the employer is closer to 60 per cent.

Under our crazy tax law a person with take-home pay of £169 per week faces a confiscation of 57 per cent of any overtime earnings. For example, if he or she receives a raise, the Government takes 57 per cent.

Effectively, this budget did nothing for people who earn well below the average industrial wage, to take off their shoulders what in many other European countries would be regarded as surtax or tax rates for the super rich. How dare we collectively, as a Legislature, impose on somebody earning below the average industrial wage a confiscatory regime of taxation whereby the State takes more of every £1 extra overtime and they get less? How can we justify it? How can anyone justify such a system of taxation? It is a gross injustice that people earning below the average industrial wage are faced with confiscatory taxation. This Finance Bill effectively cements that provision for yet another year, give or take 1, 2 or 3 per cent difference in their position. Allowing for inflation, this Bill probably means that in some cases people in those circumstances will be worse off taking into account the payment of mortgages and so on.

This Bill offends my sense of social justice. There is nothing just about a tax system which confiscates more than 50 per cent of the marginal earnings of those who earn well below the average industrial wage. No socialist could possibly defend it, certainly no liberal economist could defend it. If it is indefensible, when will this State tackle the issue? The time has come for this State, for the Minister's Department in particular and all his clever officials, to face up to the fact that the slow incremental movement toward standard-rating allowances should accelerate next year.

The Minister has a year in which to plan for the introduction of tax credits, a step which social justice demands. He does not have to look to the Progressive Democrats to find support for that proposition; all he has to do is go to the national organisation for the unemployed and those who are concerned about the effect of the taxation system and who have consistently said that the time has come to deal with this issue. If it is correct every year to standard rate a little bit more of certain reliefs then it is correct to do it right across the board and to take the necessary steps to achieve that in next year's budget.

In this context I want to make a point which I have made on many occasions in the House. The time has come for the Department of Finance, all the clever officials in it and the Minister in charge of it to face up to the fact that the Murphy decision as implemented by the late George Colley through doubling tax allowances and the tax bands is fundamentally unfair. As a matter of economic fact I am led to believe — and I have no reason to disbelieve it — that the living expenses of a married couple are 1.6 times those of a single person. It is fundamentally unfair to have in being a system under which a married person gets twice the tax bands and allowances as a single person. This is indefensible from any point of view and is the reason people earning £12,250 who have to give up 57 per cent of their marginal earnings in tax are stuck in this trap. The 2:1 ratio of married allowances and bands to single allowances and bands has led to most single workers being trapped in this way.

This system needs to be challenged. It is not implicit in the Murphy decision that there must be a 2:1 ratio; all it said was that people who cohabit as man and wife cannot be worse off than unmarried people. It was never necessary to double allowances and bands for married people and a fairer tax system would not have attempted that; rather it would have taken account of reality and the economies of scale of setting up a married home.

The Minister is implementing yet another grotesquely unfair consequence of the Murphy decision in section 5 which provides for a rent allowance against income of £1,000 for a married couple, £500 for a single person and £750 for a widow. I want to give an example of a person living in a flat whose wife dies and who suffers all the consequences of that in terms of having his personal allowance reduced by 25 per cent. I do not understand how one can say it is just in those circumstances that the allowance on the rent of the flat, which is the same as it was before his wife died, should also be reduced by a quarter. I do not see the logic in this. If an elderly pensioner in a flat in Dublin loses a portion of their rent allowance consequent on the death of their spouse, in addition to losing a portion of their personal allowance and having their tax bands contracted dramatically as a result, then it is grossly unfair. It is not just that the rent allowance for a married couple should be doubled in this way. It would be much easier to say that a limit applies in respect of any one dwelling where a person or couple, whether or not they are married, are living. Their marital status should not matter. This is a prime example of extending the Murphy logic well beyond what is necessary.

I want to reiterate the points made by Deputy McCreevy about tax covenants. I sent the Minister a copy of a letter I received, written by a woman living with a policeman. The policeman had an unsuccessful marriage at some stage in his life and he is now cohabiting with this woman by whom he has four children. In order to receive something better than a single person's tax allowance — his original spouse retained her tax allowance and he was only entitled to a single person's tax allowance — he used the covenant system to apply his salary to the support of people to whom he was inloco parentis and the mother of his children. Deputy McCreevy may be technically wrong as this man is not entitled to have his payments regarded as maintenance payments. It is very harsh to say that in order to pay for Minister Bhreathnach's excursion into free university education he must have financial havoc let loose on his household and that all he can receive is a single person's tax allowance, with all that implies on our grossly unfair system.

I support entirely the points made by Deputy McCreevy about charitable donations. It is wrong to attempt through the tax regime to encourage people to allocate funds for specific charitable purposes when domestic charities are so deserving and are as badly affected by actions taken by Governments in recent years. I ask the Minister to bear in mind that the continuing failure of the Government to raise the amount of money which can be offered in prizes by real charities, which used to have a large lottery income, when the national lottery can offer prizes of £2 million-£3 million has had the effect of siphoning disposable discretionary income away from many good causes and into Government coffers. It is wrong to complicate the tax-system further and to discriminate further against domestic charities and create a new band of favoured charities — I have no doubt that they are very worthy — which exclude charities such as the Society of St. Vincent de Paul. I agree that it would be very difficult not to open the floodgates but I do not believe it is beyond the wit of man to devise a system whereby Trócaire and the Society of St. Vincent de Paul are both entitled to the same tax breaks under tax law without doing any massive damage to the Exchequer's expectations in any given tax year.

In 1989 there were three tax bands, 35 per cent, 48 per cent and 58 per cent. By 1992 those three tax bands has been consolidated into two tax bands of 27 per cent and 48 per cent. My party hoped that in the 1993 budget the 27 per cent rate would be reduced to 25 per cent and the 48 per cent rate would be reduced towards 40 per cent. If those targets has been achieved there would have been a considerable improvement in the taxation system.

The time has come to tackle employee PRSI as a tax, to reduce the 27 per cent standard rate and the standard rate of PRSI to a single lower tax level of 20 per cent on incomes up to the average industrial wage, to extend the lower tax rate to cover at least the average industrial wage, to reduce the top rate of tax and PRSI to a single rate of not more than 40 per cent, to reform the system of tax allowances by replacing them with tax credits, to significantly improve the relative position of single people and to make significant changes in regard to capital gains tax.

The cost of reducing the rate of capital gains tax from 40 per cent to 20 per cent would be negligible, but the effect on enterprise and risk-taking would be substantial. All that could be achieved in the lifetime of a Government, although it might have a gross cost of approximately £1 billion if it said it would make available in every budget £200 million or £250 million in resources by widening the tax bands or by economies or controlling public spending. If a Government committed itself to such a plan over four years it could achieve a very different taxation regime, one similar to that achieved by the New Zealand Government.

The economic context in which the Minister is operating, is also very important. While it could be said that Government liabilities each year have resulted in a public spending growth rate of well above 6 per cent, has the time not come to ask public sector unions — the driving force behind the deals done between the social partners — if they are interested in take-home pay or gross wages. If public sector pay increased only at the rate of average industrial earnings since 1987 there would be hundreds of millions of pounds to put into the process of tax reduction, but public sector pay has increased at a rate far higher than the the average industrial wage since then. George Lee carried out a study on this subject for one of our business organisations and, even if one believes he oversimplifies in some respects, the thrust of what he said is substantially correct, namely, that the outcome of what the social partners have agreed has been to throw away an opportunity to concentrate on real take-home pay instead of gross pay under a regime of high taxation.

The Minister abused the trust of this House in the way he claimed in the budget to have kept increases in public spending to a limit of 6 per cent. It can be noted from the infamous table that the Minister is using a new unit of measure and that the old fashioned net figure for increases in public spending applied to the same budgetary arithmetic would amount to 6.9 per cent. It is obvious the Government is willing to use cosmetics to disguise the rate of growth in public spending. If one compares 1995 with 1994, shorn of the onceoff tax amnesty, and takes into account the anticipated expenditure this year on equality payments, it appears the real increase in public spending will be of the order of 9 per cent, a rate which was unacceptable when the Progressive Democrats were in Government and I was a voice off-stage criticising that level of growth.

The commitment to reduce that growth rate to 2 per cent next year is merely more political eyewash because it will not be realised. In an attempt to shoehorn the bloated foot of this "ugly sisters" Government into the Cinderella glass slipper of fiscal rectitude, the Minister resorted to a stratagem of abandoning accounting rules of his Department and substituting new rules that enabled him to pretend the current spending limit of 6 per cent set out in the Programme for Government was being respected when it was not. I am not of the view that the low growth rate projected for receipts of income tax this year will be realised. Income tax is conservatively underestimated in the budgetary arithmetic and will be substantially higher.

In the 225 pages of proposals for legislative action contained in the White Paper on Education launched by the Minister for Education, Deputy Bhreathnach, some days ago, to which the Government is committed in a semi-detached way, why is there no mention of cost? How could a responsible Government propose massive transformation of our education system — some of which is for the worse — including a health board style network of regional education boards with the necessary bureaucracies attached and avoid the issue of cost? Is the Department of Finance allowing a White Paper containing vast expenditure commitments to be launched without a caveat? This is a cause of great concern because a political commitment is being given and expectations raised without any check by the Department of Finance. Yet, we can read in one of our Sunday newspapers that the cost of implementing such proposals, as estimated by the Department of Finance, could be of the order of £1 billion.

I do not mind putting resources into education if they are available, but I do mind destroying our education system by pumping resources into massive bureaucracy and a hideous transformation of the system at a cost of £1 billion when nobody in this House is even given the elementary courtesy of being told by the Department of Finance how much it will cost. If a newspaper reports that it will cost an additional £1 billion to implement the proposals in the White Paper, the least this House is entitled to, from a Government that claims it will reduce public spending growth to 2 per cent next year, is to be told who will finance such a transformation and why. We are also entitled to an explanation as to why the Department of Finance abdicated its function as the regulatory mechanism in respect of finance and allowed such a document into the public arena with its inherent expectations without a single line in it stating how much it will cost. It would be an exciting prospect if a case could be made for spending more on education to improve the system, but the White Paper suggests that we should spend a vast amount of money making appalling changes to our education system.

The Government has allowed public spending to go out of control. It is spending money on the semi-State sector as if it were going out of fashion. It is committing itself to expenditure programmes in education as if money was growing on trees. It is a Government which has not made a serious effort in 1995 to control the growth in public expenditure and, in those circumstances, this Finance Bill, which is intended to fund profligate, uncontrolled growth in public spending, should be challenged. The tax system which underpins this bloated expenditure machine must be cut back.

On Committee Stage we will be tabling amendments to make some sense of this Finance Bill because at present it does not make any sense.

Debate adjourned.