We are debating the Finance Bill, 1995 which seeks to implement the tax changes announced by the Minister in the budget. Unfortunately the budget must rank as one of the most reckless, aimless, confused and disorientated budgets ever introduced. For hundreds of thousands of people and the weakest and the most vulnerable in society — old age pensioners without child dependants — it was a callous and cruel budget, perhaps the worst since the infamous budget of the late Ernest Blythe.
Some provisions in the Bill are welcome. There are some improvements. infinitesimal though the space they occupy in the total budgetary landscape may be, and I acknowledge them in the interest of fairness and balance. The limit for relief on the value of shares which can be allocated to employees under an improved profit sharing scheme has been raised from £2,000 to £10,000. I welcome that as I believe in the expansion of industrial democracy.
It will have tremendous economic benefits as it has in other economies throughout the civilised world. The limit has been increased fivefold and I unashamedly welcome it.
I welcome the increase in business and agricultural relief for capital acquisitions tax purposes and heartily welcome the introduction of an instalment system for capital acquisitions tax at the sensible 9 per cent interest rate. There are some improvements in the roll-over and retirement relief for capital gains tax purposes. Though they may represent a minimalist approach I welcome them in so far as they are an improvement on the present system and are proenterprise.
As regards the change in the seed capital scheme, the amount qualifying for relief has been increased from £75,000 to £125,000 and I welcome that. However, we should not remain unaware of the fact that only 30 entities have availed of this scheme since its introduction two years ago. It is a good, imaginative scheme designed to encourage people to invest money to create jobs. It enables people to claim substantial tax relief yet only 30 applications have been received under the scheme. Why? Perhaps it is because when the Revenue Commissioners assist in the drafting of a Finance Bill they are inclined to regard every tax allowance, incentive and attempt by Government to direct investment into an area of activity which could create employment as a potential vehicle for tax avoidance.
When a scheme is introduced, the Revenue Commissioners say it could be used as a vehicle for tax avoidance and so many rules, regulations and restrictions apply to it that the scheme is practically unworkable. This is a continual feature of tax incentives which successive Governments and Ministers have given in Finance Bills over the years, imaginative and well thought out though the original idea may be. I do not blame the Revenue Commissioners exclusively for this. The accountancy and tax advisory professions must also bear some responsibility. We all recall the business expansion scheme and the ludicrous uses to which it was put by some tax advisers and accountants to write off taxes — uses which were never dreamt of in their wildest flights of imagination by those who drafted the legislation. The tax advisory profession have much to answer for but the Revenue Commissioners are unduly cautious.
Some attempt is made to simplify the scheme and I wholeheartedly endorse that but the approach is far too minimalist. There is room for much greater simplification of the scheme and I hope our spokesperson will bring that to the attention of the Minister on Committee Stage. This is a good, imaginative scheme and people should be allowed avail of it. There is no point in having complicated schemes. Too many rules and restrictions apply to this scheme and there is no logic behind them. I hope the Minister will be amenable to any suggestions made to further simplify the scheme.
I note that from 1 May the requirements to issue a VAT control monthly statement to VAT registered customers is being abolished. I welcome that. It was unnecessarily bureaucratic, expensive and time wasting. As a result of the success of the Revenue Commissioners' audit procedures in certain areas of the economy their fears have been allayed and they have allowed the Minister to make this change.
I scrutinised the Finance Bill from beginning to end in an effort to find things to welcome in the interests of being constructive. However, there is little else I can welcome. I thought I might be able to welcome section 29 but the more I read it the more intriguing I find it. If my interpretation of the section is correct, it proposes to exempt from corporation tax and capital gains tax the profits of a foreign branch of an Irish registered company which creates substantial new employment and capital investment here. There is a strong rumour, which I have every reason to believe is correct, that it was introduced to attract a particular investor to the International Financial Services Centre in Dublin. Perhaps the Minister will clarify if that rumour is correct. It is bad in principle to introduce specific legislation to cover one project or investor regardless of how valuable the investment. It might be of immense value to the economy and, if so, let the Minister state that and give the reason for bringing in legislation to accommodate one project.
Second, I imagine if any Government introduced something similar it would operate in the normal way but there is one vital difference. The people in question would have to satisfy the authorities that they would make the requisite capital investment and create the requisite employment in the State. The Revenue Commissioners would be the people who should be satisfied. However, the section states that the person who gives the certificate and who is to be satisfied is the Minister for Finance, who is a political figure. I cast no aspersions whatever on the Minister for Finance, Deputy Quinn, whose integrity is above reproach. Nevertheless, we must bear in mind the considerable controversy not long ago about the passports for investment scheme. The cry from the Opposition — now the Government — was that there was no transparency or accountability and that a person who was well heeled was lodging a huge sum of money and gaining a substantial economic benefit in return. A politician makes a decision in secret with no transparency, no openness and no accountability to anybody.
The people who caused that outcry are supporting a provision which will enable any Minister for Finance in the future to make a decision in secret without accountability, openness or transparency which could be worth hundreds of millions of pounds to an Irish resident company. Is that correct? Is that consistent? Is it consistent with the outrage about the passports for investment scheme when a passport was given in return for investment in a particular company? I appreciate that the Minister proposes to draw up guidelines but these guidelines could be changed unilaterally by the Minister. There is no provision to debate them in the Dáil or for the Dáil to be consulted about any amendments. A Minister for Finance could be tipped off in advance about a potential proposition and he could change the rules unilaterally. Where is the openness and the transparency? A politician will, in secret, without accountability to anybody make a decision — if this section goes through unamended — which could be worth any amount of money to any potential investor. The money which will be foregone as a result is taxpayers' money. At least in the passports for investment scheme, the taxpayers did not lose money. I grant that an Irish passport was given out, which I do not regard as an inconsiderable thing. Here, literally tens of millions of pounds which would normally come into the coffers of the Irish taxpayers can be foregone by a decision taken in secret by a Minister for Finance. That should be looked at.
Deputy Broughan and other welcomed the rent allowance scheme. I have looked at that scheme and I welcome it as far as it goes, which is not very far. It is designed to bring landlords into the tax net rather than to benefit tenants in any way. It is infantile for Government speakers to pretend it will represent a boon to tenants or that it represents any realistic attempt to put tenants on a similar playing pitch with people who are purchasing their own houses. The allowance is limited to £500 at the standard rate of tax, 27 per cent, for a single person. I know many single people in Dublin and in Limerick who are paying rent of £400 or £500 per month for an apartment. The person in question will benefit from this provison to the tune of 27 per cent of £500. That amounts to £135 which is not even one week's rent. It will not be worth the hassle of applying and filling out forms, obtaining receipts and getting the land-lords's tax reference number, which may not be forthcoming in each case. I welcome the provision if it succeeds in bringing more landlords into the tax net. I believe people should declare their income and pay their taxes. To represent it as a boon to tenants is a gross misrepresentation.
Section 32 provides for the expansion of the urban renewal tax incentives for the Custom House Docks area in Dublin. I have no particular hang up one way or the other about that. There is no similar incentive for the other financial zone in Shannon. There is no urban renewal tax-based scheme for Shannon. Because of the totality of the operations being carried on at Shannon it may not be of great value but due to the problems we have had since the removal of the compulsory stop over, now compounded by the crisis at Shannon Aerospace, we can use whatever we get. Representations have been made to me that a similar scheme operating in the Shannon area would be welcome and would generate revenue and investment in that region. God knows we badly need it.
The position in regard to covenants, as I understand it, is that as from 6 April 1996 covenants in favour of people over the age of 65 will be restricted to 5 per cent of the total income of the covenantor unless the person is permanently incapacitated. Who will decide the question of permanent incapacity? This is not an academic question. This will be vitally important financially to many families. Presumably the person's doctor will sign a certificate to say they are permanently incapacitated which will go to the Revenue Commissioners. Will the Revenue Commissioners have their own doctor to examine the certificate and will he go so far as to examine the patient? It will mean the difference between survival and non-survival financially for many families.
What is the position about elderly relatives who cannot look after themselves but who are not permanently incapacitated? The amount a person can covenant to them will now be restricted to 5 per cent of gross income. I was Minister of State at the Department of Health when the nursing homes regulations were introduced. The reality is that those regulations are not working. Nursing home owners have increased the fees to accommodate themselves as regards the extra subvention. I came across a case recently of a pensioner who has another small source of income and who is paying £130 per week for his wife in a private nursing home. The subvention he is being granted is £21 per week. It is no empty hyperbole on my part or on the part of any Member from this side of the House to state that amendments in relation to covenants, which are to finance something which has nothing to do with elderly people living in nursing homes, if carried through into law, will cause unendurable financial hardship for many families.
What is the position about a covenant in favour of a cohabitee? I am not asking the Minister for Finance to change the tax laws to favour cohabitation. In some cases people are living together because divorce is not available. Deputy McDowell referred to a good example of a person who had written to him about their situation. What is the position about covenants in favour of children who do not qualify for Minister Bhreathnach's unexpected benevolence because their parents income is not sufficient to bring them into the fee paying category?
The main core of the Bill concerns allowances. The general exemption limits are increased by less than the rate of inflation. In real terms the general exemption limits for tax purposes are reduced in the first year in which this country has had a budget surplus and at a time of almost unprecedented economic growth. The paltry increases in tax allowances will be halved in real terms. The same applies to the extension of the tax band which is chargeable at the standard rate.
I welcome even the 2 or 3 per cent increase in real terms in so far as it goes, but it is certainly not consistent with the Minister's claims to radicalism with which his budget speech was prepared. It should come as no surprise that there is no real tax reform in the budget or in the Finance Bill, no real diminution in the tax burden, and that is because of the Government's abject failure to control expenditure, that monstrous weight borne exclusively by the traded sector of this economy. Control of public expenditure, as anybody with even an elementary grasp of arithmetic will know, is thesine qua non of real tax reform and real tax reduction. When public expenditure is allowed to grow, as it has been by successive Governments, at four or five times the rate of the price index, any notion of tax reform simply evaporates. At the moment we have a deadly combination of a weak fiscal policy and a strong exchange rate policy which, if it goes unchanged, will lock this country for many years into an ever decreasing circle of high tax, high spending and high unemployment. Since the political events of last November and the formation of the new Government people have told me that the Government will last the two years and is working. It is something of a misstatement to say that the Government is working if over 20 per cent of the labour force is not.
According to Deputy Broughan and others section 153 is based on a recommendation of Judge Hamilton in his beef tribunal report. In many cases it will achieve the opposite of what was intended — if people trying to fiddle the system are engaged in tax evasion and know their auditor is now compelled to blow the whistle, they will use every device to keep the relevant information from the auditor. It must also be remembered that the beef tribunal dealt with malpractices in the mid to late 1980s. The world has moved on since and much has happened in the interim which considerably reduces the necessity for something like section 153. For example, since the events reported on in the beef tribunal report, the Revenue Commissioners have been given sweeping powers under the revenue audit scheme, on top of the powers they already had, to conduct VAT and PAYE inspections. In addition, the accountancy profession's code of conduct has been amended to oblige its members to report any offences they find in the course of their auditing work.
My fundamental objection to the present proposal is that it goes infinitely further than Judge Hamilton intended or, I am sure, anticipated. The section provides that anybody involved in the preparation of the company's accounts must alert the company if he suspects an offence as defined is being committed. If the problem is not rectified within 30 days, he must then inform the Revenue Commissioners. The list of offences about which the auditor must blow the whistle ranges from serious tax evasion at one end of the scale to the most minor transgressions at the other. These include late filing of returns, an error however minor in the returns submitted, failure to keep detailed records. For example, if a VAT return is one day late the reporting procedure is triggered. If an auditor notices any irregularities in the manner in which a huge multi-million pound corporation operates its petty cash or pays the cleaning lady, he will be obliged to report. If the auditor does not report, he or she has committed a criminal offence for which the maximum penalty, if prosecuted on indictment, is up to two years imprisonment. It is hard to imagine a more absurd proposal in a country where the prison system cannot hold the perpetrators of the most vicious crimes for more than a few months, sometimes only for weeks, because the system is bursting at the seams. This legislation will, if implemented, alter irrevocably and fundamentally the relationship that traditionally existed between client and adviser. It will create a climate of suspicion and, in many cases, hostility between the wealth creators of this country and their advisers.
It should be remembered by the Minister and others advising him that auditors' fee income here expressed as a percentage of GDP is one of the highest in the world. This proposal, by creating a great deal of unnecessary unproductive extra work will oblige auditors to increase fees considerably. This increase in costs will be particularly marked in the case of small and medium sized companies because the auditors' work will become more extensive when reviewing clients' accounting systems and financial results. To put it in a nutshell, auditors and tax advisers are being compelled to do work which the Revenue Commissioners are paid to do anyway, but because they are being compelled to undertake this extra work, somebody will have to pay them. Unfortunately, the people they will fall out with because they are compelled to do the work in the first place are the very people we as a nation are depending on to create employment and wealth.
The public servant who is responsible for this legal Frankenstein must have left his intellect elsewhere on the day he conceived it, because the net effect of section 153, if it goes through in its present form, will be to turn every accountant's office into a downtown branch of the Revenue Commissioners. It will transform auditors from watchdogs into bloodhounds.
I ask the Minister to change it. I had correspondence this morning from the Institute of Taxation asking the most serious questions about the constitutionality of this provision, and I share its concern. The provision is unworkable and tilts the balance dangerously. The most interesting thing I have discovered from my research on section 153 is that the Revenue Commissioners, the experts working at the coalface, do not want it. What Deputy McDowell called "some amateur from the Department of Finance" has taken it upon himself to expand the fairly mild suggestions of Judge Hamilton into this legal monstrosity which will strangle many parts of the business sector and poison relationships between the people we are supposed to be encouraging to invest their money and create jobs and the people they employ to advise them. The Revenue Commissioners, the people who will have to work the section, do not want it. I can say that without hesitation. Several tax officials have told me they do not want it. It should not be forced through to satisfy the conscience of Democratic Left.
Deputy Deasy, who is now in the House, is particularly interested in the provision relating to VAT on golf clubs. The VAT distinction between green fees to commercially operated golf courses and member-owned clubs has been abolished. However, similar VAT distortions arise in the provision of other sporting facilities and in the health and fitness area generally. This provision will be a powerful temptation, almost an invitation, to commercial providers of such services, not only there but in other sectors of the economy, who feel they are disadvantaged by the VAT exemption afforded to the nonprofit making bodies providing the same type of service and the same facilities. It is hardly necessary for me or anybody else to point out that the removal of any such distortion will involve imposing VAT where it was not imposed before rather than removing it.
Section 10 involves the removal of certain unemployment and disability benefit payments from the calculation of the total tax bill. When this measure was introduced and tax extended to unemployment and disability benefit there was considerable angst among the members of Democratic Left, but what members of Democratic Left who expressed objection to this fail to recall is that for many years invalidity pensions were reckonable for tax purposes — invalidity pension is simply disability benefit expanded into book form where somebody has been on disability benefit for a year and is permanently incapacitated. I have come across many people who qualify for invalidity pension but prefer to stay on disability benefit even though it amounts to less money, because disability benefit was not reckonable for tax purposes.
The view was taken that there was no logical distinction. If disability benefit is included there will be no distinction between disability and unemployment benefit. Unemployment benefit is payable for a maximum period of 15 months while the payment of disability benefit may terminate before that period expires. There is a powerful argument for including it as income should be taxable. If a person is in receipt of £100 per week from unemployment and £100 per week disability benefit one would logically say they should pay the same amount of tax as the person in receipt of £200 per week from employment whose marital and financial circumstances are the same. One is either in favour or against.
I cannot understand the position of Democratic Left on this issue. It does not go one way or the other; it has not said that it will stand over the budgetary provision, as there are powerful arguments in favour of it or, because its colleagues in Government are not in favour, that it will abolish it.
Child dependant allowances are excluded when reckoning unemployment and disability benefit. What is the position regarding the payment of injury benefit, occupational injuries benefit and so on? It seems that they have not been dealt with.
In regard to the second concession another distinction is made whereby the first £10 per week of unemployment benefit is disregarded. This is a ludicrous compromise and has been designed to try to convince people that what Democratic Left is doing is consistent with what it said it would do in office. This is a delusion and will not work. I doubt its constitutionality and cannot see any logical reason people whose circumstances are the same should not be treated in the same way. There is no logical reason for discriminating between disability and unemployment benefit. It is a ludicrous and nonsensical monstrosity.
The taxation system is a mess. There are 3,000 pages of tax legislation bearing down on those who have to create wealth and employment in the economy. Many provisions in the tax code have achieved the opposite effect; they are profoundly anti-enterprise and work. The best we can do on Committee Stage is to make the best of a bad job. I hope the Minister will be amenable to accepting reasonable amendments to eliminate the anomalies which are both glaring and obvious.