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Dáil Éireann debate -
Tuesday, 16 Apr 1996

Vol. 463 No. 8

Returns to Writs: Constituencies of Donegal North-East and Dublin West. - Finance Bill, 1996: Second Stage.

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

This Finance Bill sets out to achieve a number of goals. First, it gives effect to the taxation changes announced in the budget. Secondly, it introduces a variety of new tax reliefs and allowances to encourage particular social and economic objectives. Thirdly, it closes off certain tax loopholes and avoidance schemes and, finally, it seeks to refine a number of major tax reliefs to ensure that the original intention of these reliefs — employment, productive investment or innovation — remain the central focus of the schemes of relief. This last goal delivers on an undertaking in A Government of Renewal and the continued and critical examination of all tax relief schemes will remain part of the ongoing process of review and evaluation of the effectiveness and rationale of such schemes.

This year's Finance Bill breaks new ground in that a considerable number of its measures were announced well in advance of publication. The Bill also sets out a series of tax consolidation provisions which are necessary to prepare the way for the full consolidation of the income tax, capital gains tax and corporation tax Acts to be enacted next year. An additional innovation is that the Bill has been made available in disk format this year for the first time. This, I know, will be welcomed by practitioners who track the passage of the Bill very closely. Turning to the individual sections of the Bill, the main changes in personal tax reliefs are to be found in sections 1 to 12.

Sections 1 to 3 provide for the increases in basic personal allowances, income tax exemption limits and widening of the standard rate tax band provided for in the budget. There are also increases in the blind person's tax allowance, the allowance for an incapacitated child and the maximum income tax allowance for the provision of a carer for an incapacitated taxpayer — a number of these allowances have not been increased since the middle of the last decade.

Section 4 renews for a further year up to 6 April 1997 the special exemption from unemployment benefit taxation for all systematic short-time workers, which was introduced in the Finance Act, 1994 and broadened in the Finance Act, 1995. It is worth recalling that the general exemption from tax of the first £10 per week of unemployment benefit will continue at its current level. The exemption from tax of the child dependant additions payable with unemployment benefit and disability benefit will also continue. These two measures were provided for in the Finance Act, 1995.

Section 5 implements the budget announcement of a tax allowance of up to £800 at the standard rate for persons aged 65 or over, living alone, for the purchase of and installation of alarm systems. The relief is now being extended to relatives of those elderly living alone who pay for the installation of the alarm. The new relief will apply in respect of expenditure incurred in the period from 23 January 1996 to 5 April 1998. The definition of "relative" is wide in scope and includes relationship by marriage or by legal guardianship. Much interest has been generated in this relief and I am confident it will assist the elderly in providing for their personal security. In addition, the Minister for Social Welfare has announced further measures to assist the aged generally in this regard. The tax relief will be claimable with the minimum of fuss or formality, as set out in this section.

I have been examining for some time how the benefit-in-kind charge on genuine sales representatives could be ameliorated. The problem has been to define a set of parameters which would identify this group from others for whom the use of a company car is not an absolute necessity. The group at whom the relief is aimed are those employees who spend a lot of time travelling but do not do enough business mileage to qualify for the existing tapering relief. To meet this, a 20 per cent relief from BIK on cars is being introduced in section 6 for those company representatives who spend 70 per cent or more of their time on business away from their place of work. This relief will operate as an alternative to the existing high mileage tapering relief and is available only where the business mileage exceeds 5,000 miles per annum and where the employee works on average at least 20 hours per week.

Claims for the new relief will be based on a two part certification process by employees and employers. Employees will have to maintain a log book containing details of business mileage travelled, business transacted, business time travelling and date of journey. The employer will have to certify that the details in the log book are correct. These requirements are needed to ensure that the relief is not abused by those outside the target group.

Section 7 brings the definition of an "authorised insurer" into line with the Health Insurance Act, 1994, which regulates the health insurance market in the State. Income tax relief will also be available on foreign medical insurance originally taken out while an individual was resident in another EU member state.

Section 8 updates the list of accountable bodies who must deduct 27 per cent withholding tax from payments made by them for professional services. Details of the bodies affected are set out in section 8. In section 9 it is proposed to ensure that awards by the hepatitis C tribunal, or by a court in these cases, will not be subject to income tax.

In relation to taxation of farmers, sections 10 and 11 provide some important improved reliefs. The £3,000 exemption for income derived from certain leases of farmland is being increased to £4,000 in section 10 for leases of five or six years taken out from 23 January 1996. Where such leases are for seven or more years, an exemption of £6,000 will apply instead of the previous limit of £4,000. This will encourage older farmers to lease land to young farmers on a long-term basis. A special measure is being introduced in section 11 in regard to the valuation of farm stocks on the discontinuance of a farming trade where the stock is transferred free of charge under the EU Early Retirement Scheme. This measure is designed to remove a disincentive to farmers transferring farm stocks under this scheme.

Section 12 proposes to increase the lifetime cap on existing tax relief for the purchase by full-time employees and directors of new shares in their employing company, whether quoted or unquoted, from £3,000 to £5,000. The relief is also being extended to part-time employees and directors.

Sections 13 to 21 deal with BES relief which is being renewed for a further three years from 6 April 1996, subject to certain changes announced in the budget. These changes include a statutory certification system for any investment of over £250,000, whether single or cumulative, in a company or associated company and additional measures to combat companies splitting to get around the £1 million BES limit. The guidelines for certification of industrial projects were issued on 15 February 1996 after discussion with the relevant fund managers. Guidelines for tourism projects have been put in place and those for the remaining qualifying areas are being finalised.

The Bill also sets out transitional provisions for "pipeline" cases which were well advanced before budget day. As a result of further changes announced by me on 29 February, a small number of projects, which were well advanced and in respect of which BES funds were raised by a designated fund prior to 6 April 1995, will qualify under pre-budget BES rules provided at least two-thirds of the moneys raised by the fund had already been invested by budget day in other qualifying projects. I believe that these transitional provisions are fair and reasonable.

The BES is being extended, from the passing of the Bill, to the music industry for investments in the production, publication, marketing and promotion of a new artist's recordings and associated videos subject to a detailed certification system to be operated by the Minister for Arts, Culture and the Gaeltacht.

The BES is also being extended to FINEX — the financial futures exchange in the IFSC — for a period of two years subject to certification of individual projects and a limit of £100,000 in BES funds per project and £2 million in total BES funds over the two year period.

The various changes to the BES scheme are intended to ensure that funds are invested in genuine business ventures that create additional economic activity and jobs. Since the annual amount of funds invested in BES schemes in recent years has been very substantial — at least £50 million — I will monitor the effectiveness of the new arrangements in producing an enhanced economic benefit to compensate for the substantial tax resources absorbed by BES.

Section 22 provides for the exemption from tax of income from greyhound stud fees on the same basis as the existing exemption from tax of stallion stud fees. This relief is aimed at assisting the development of the greyhound industry in the State.

Section 23 renews the 50 per cent initial capital allowance for buildings in the Custom House Docks area and Shannon Airport zone up to 24 January 1999 and for buildings in the Temple Bar area up to 5 April 1998. The standard rate of capital allowances for industrial buildings was due to revert from 4 per cent to its former 2 per cent level on 1 April 1996. Section 24, however, provides for a permanent 4 per cent allowance for such buildings. This is a useful industrial incentive in the tax code.

Section 25 closes off an undesirable loophole in the relief for seaside resorts in so far as holiday cottages and apartments are concerned. The proposed amendment will modify the tax incentive by providing that both the double rent allowance and the capital allowances cannot apply in relation to holiday cottages, apartments and other self-catering accommodation at the same time, and by ring-fencing the capital allowances for registered apartments and other self-catering accommodation to rental income or the income from the trade of operating holiday cottages or apartments, as is the case already for registered holiday cottages.

The changes will apply from 28 March 1996, the date of publication of the Bill, except in cases where before that date an application for planning permission had been received by a planning authority, or a binding contract for acquisition or construction had been entered into, or where the Revenue Commissioners had given a favourable opinion in a particular case. The proposed amendments are intended to prevent the use of certain tax aggressive schemes based on holiday cottages which are excessively costly to the Exchequer and to redress the balance in favour of other more worthwhile tourist projects in the resort areas covered by the scheme.

As announced in the budget, section 26 overhauls the existing section 35 film relief along the following lines. Section 35 relief will be continued for a further three years, with effect on and from budget day, subject to a reduction in the amount of expenditure on larger films which qualifies for relief; an increase in the limit for corporate investment; the restriction of the tax deduction to 80 per cent of the investment; and the substitution of a one year holding requirement for capital gains tax purposes for the current three year holding period for investments. Tax relief will only be available in future from the date of commencement of principal photography to encourage films to be commenced within a reasonable period of investment in the film.

In addition to details announced in the budget, the Bill provides for certain transitional measures for investment in film companies made before budget day and announced by me on 29 February. Essentially, these allow for the continuation of relief where funds were invested in good time but the film had not proceeded or been certified.

Two further changes are proposed to the section 35 relief. First, an additional special 10 per cent increase in the maximum level of qualifying expenditure eligible for the relief will apply for off-seasonal activity — i.e. where principal photography commences between 1 October and 31 January. Second, corporate investors will be allowed to invest on a annual basis up to £4 million in addition to their new £2 million annual limit, provided the additional investment is in small scale projects which tend, by their nature, to be Irish made films.

Section 27 deals with tax relief on royalties from patents. As this is a somewhat complex provision I will go into the matter in some detail. The use of certain patents to construct tax relief schemes has been well advertised among professional advisers. There is evidence which indicates that the relief is being used by manufacturing companies as a means of rewarding directors and certain employees in a tax efficient manner without any obvious benefit to the economy from greater research and development activity. The Exchequer cost associated with this practice is significant and the indications are that the cost will continue to increase substantially in the future if no action is taken.

A survey of a sample of cases undertaken by Revenue indicated that relief is being claimed in many cases for quite small changes to manufacturing and ancillary processes involving little or no technical innovation. The estimated cost over a four year period of the reliefs in this sample was £10 million to £20 million. As Deputies will be aware a patent can last for 20 years.

Abuses in the non-manufacturing sector were countered in the 1994 Finance Act by restricting the relief to royalty payments between unconnected persons. This year's Bill tackles abuses in the manufacturing sector. To target the relief at those companies pursuing ongoing research and development programmes or exploiting significant innovations protected by patent, the Bill proposes first to retain tax relief for patent royalties by a company from a manufacturing company whether connected or not. However, the Bill restricts the amount of tax free royalty income to the amount which would have been received if the parties were dealing at arm's-length. This will enable Revenue to challenge the amount of tax exempt patent income received by an individual or company where it bears little relationship to the commercial value of the patent.

Second, it is proposed to retain tax relief in full for distribution to shareholders made by companies out of patent royalty income received from unconnected companies. Third, in the case of a company receiving patent royalty income from a connected company, the maximum amount of tax exempt distributions which the company can make in an accounting period to shareholders will be determined by the actual level of research and development expenditure incurred by the company in that accounting period and in the two preceding accounting periods.

However, where it is shown to the satisfaction of the Revenue Commissioners that the patent is in respect of a radical innovation, and not taken out for tax avoidance purposes, the tax exempt distribution of the royalty income will not be limited in this way.

The Government considers that the measures proposed are balanced and reasonable. They will help to curb more questionable claims for relief, and refocus the relief on productive research and development expenditure. In this way the section will reduce the necessary cost of relief to the Exchequer while at the same time conforming to the original intention of the relief when introduced in 1973, to stimulate genuine research and development and innovation.

Sections 28, 30, 44 and 46 amend certain IFSC and Shannon reliefs. Provision is being made in section 28 to permit IFSC-Shannon fund undertakings to pay interest gross to non-residents bringing the position for this type of entity into line with that for IFSC companies. Section 30 will allow certain IFSC and Shannon financial services companies to hold units in IFSC-Shannon managed collective funds. The types of companies in question are treasury, insurance and fund management companies. At present the tax transparent status of funds under section 18 of the 1989 Finance Act would be jeopardised if these IFSC or Shannon companies held units in the funds. Section 46 allows the securitisation of a much wider range of assets by IFSC certified companies. These include loans, leases, trade receivables, such as debts, and consumer receivables, such as credit card debts.

All retail operations are currently excluded from the Shannon 10 per cent regime. This rules out mail order or distance selling activities to the extent that such operations are targeted at the final consumer. Section 44, however, will amend the law so as to facilitate the carrying on of such mail order operations in the Shannon zone which contribute to the use and development of the airport. It is hoped to attract a number of such mail-order businesses to the region in the near future.

Section 29 is aimed at assisting a mining company to return a mine site to a greenfield state after the closure of the mining operation. The section provides a tax allowance for expenditure incurred in this way and also for advance payments made by a mining company into a fund to finance the eventual closure costs, where such advance payments are required under a State mining facility or other agreement with the Minister for Transport, Energy and Communications.

Sections 31, 32, 33 and 40 deal with the tax treatment of gilt sales in certain life assurance and other investment media and the spreading of unrealised non-gilt gains by life assurance companies and undertakings for collective investment. These measures seek to ensure that the losses on gilt disposals, where the disposal is ex-dividend, are not allowable for offset against income or gains until the related interest accrues and that no unintentional relief arises from the procedure whereby life assurance companies and undertakings for collective investment can spread their unrealised non-gilt capital gains over a seven year period. The spreading process was intended to lessen the effect on such companies of the taxation of unrealised gains but the facility has been used in certain cases to bring forward the benefit of capital losses while deferring associated tax liability on the spread of unrealised gains for up to six years.

The Bill also proposes changes, in section 36, to the tax treatment of certain longer-term deposits subject to DIRT. The Bill provides that DIRT will be levied on these deposits each year on the annual accrued interest of the relevant deposits instead of being rolled-up until the final year. The financial institutions will now have to pay the DIRT to the Exchequer annually, to the extent that this is not already done in certain cases.

This amendment and those I have mentioned above seeks to ensure that life assurance products and competing deposit-based savings products are taxed on as level a basis as possible having regard, nonetheless, to inherent differences in the way in which these products are operated or constructed.

I will be examining on an ongoing basis what other tax changes might be undertaken over time in the savings market to maintain a level playing field and to encourage the provision of a greater range of savings and lending instruments best suited to customer needs and to the requirements of developing financial markets.

As the House will know, the Government has extended the range and increased the scope of various employment grants and subsidies to encourage the creation of employment opportunities, in particular for the long-term unemployed. To make these incentives attractive to firms, section 35 provides that, as with IDA employment grants, the following employment grants will be exempt from tax in the hands of employers with effect from 6 April 1996: grants paid by county enterprise boards under their operating agreements with the Department of Enterprise and Employment; grants paid under the back to work allowance scheme, and grants paid under the Leader and area partnership programmes.

The new £80 per week subsidy announced in the budget for the recruitment of persons who have been unemployed for at least three years will also be exempted. The exemption will apply from the date of commencement of the scheme, scheduled for 1 June next.

Sections 37 to 48 contain the main corporation tax provisions. Section 37 introduces the 30 per cent rate of corporation tax on the first £50,000 of proofits announced in the budget. Section 38 amends the tax treatment of certain exchange rate gains and losses on hedging instruments which are used to remove exchange risks on the corporation tax liabilities of trading companies. Other provisions in sections 41 and 42 are designed to close off certain corporation tax avoidance schemes.

Section 48 broadens the scope of tax relief on research and development expenditure introduced in the 1995 Finance Act. This relief already provides for an exceptional quadruple allowance for incremental research and development expenditure by manufacturing companies over a three year period.

The relief is being extended, first, to allow companies or groups which receive grants for research and development not exceeding £50,000 in a relevant accounting year to obtain the relief in respect of their non-grant aided expenditure. At present, companies receiving grants, no matter how small, are disqualified from the relief. This amendment will enable about half of the 200 or so companies which are being grant assisted under the EU operational programme for research and development to claim the relief in respect of non-grant aided expenditure.

Second, relief will now be calculated by reference to increases in expenditure over a fixed base year level in contrast to the previous regime which required increasing yearly expenditure. Finally, a definite termination date is being set for the scheme to ensure that the scheme is not open-ended.

The 1995 scheme has been slow to get off the ground and the take up of the relief has been disappointing. The changes now proposed should allow for a better take-up without escalating the cost of the relief in an unacceptable manner.

Over the past few years, the number and scope of reliefs from capital gains tax has been extended significantly. There is much debate on the appropriate rate of CGT with calls by some for a substantial reduction. There are two rates of CGT — the full rate of 40 per cent on the generality of capital gains and a lower 27 per cent rate on gains from shares in unquoted trading companies with a net worth of less than £25 million. There are also generous roll-over relief provisions and business retirement relief. The object of these provisions is to target the relief on productive investment and to facilitate the transfer of business assets to this end.

Sections 49 to 53 make further changes in the area of capital gains tax. Sections 49 allows insurance companies to pay claims under material damages policies without operating the capital gains tax withholding provisions. This is to rectify an unintentional side-effect of an anti-avoidance provision introduced by section 76 of last year's Finance Act.

Section 50 is intended to remove any doubt as to the correct treatment applying where, on the reorganisation of a company, a taxpayer receives a loan note in exchange for shares. Any subsequent disposal of the loan note will give rise to a charge to CGT in the same way as disposal of shares.

Section 51 amends roll-over relief on the disposal of certain quoted or unquoted shares and the acquisition of shares in an unquoted trading company. It does so by relaxing the requirements in relation to holding periods and employment with the company which a person must satisfy in order to qualify for relief.

The lower rate of CGT — 27 per cent — applies to gains realised by individuals on the disposal of ordinary shares in certain small and medium-sized companies. The shares in question must be held for at least five years prior to disposal. This ownership period is now being reduced to three years by virtue of section 52.

Finally, the Bill provides in section 53 for an exemption from any CGT liabilities that might arise from the winding-up and dissolution of the Dublin and Cork District Milk Boards. Since the proceeds of these disposals are to be paid into the Exchequer, the net effect of the exemption is to avoid a circular transfer of funds out of and into the Exchequer.

Deputies will be aware of the recent report on island development and the proposals in that report to address the economic and population decline of offshore islands. To assist in this objective, the Bill proposes in sections 54 to 59 to extend to certain offshore islands two specific reliefs to encourage the construction or refurbishment of residential accommodation. The reliefs are, first, an allowance against income tax of 50 per cent of expenditure on construction or refurbishment of permanent accommodation for owner occupiers at a rate of 5 per cent per annum for a period of ten years. Second, the offsetting of construction, conversion and refurbishment expenditure on the provision of rented accommodation against all rental income of the owner provided that the accommodation lease, to the same tenant, is for a period of at least 12 months. The reliefs will apply to qualifying expenditure in the three year period from 1 August 1996. The islands concerned are those 21 offshore islands listed in the report on island development.

Turning now to indirect taxes, sections 60 to 63 make a limited number of changes to VRT as it applies to certain special vehicles, namely, motor caravans and crew cabs. This involves a reduction in the VRT rate to 13.3 per cent. A small change is being made to the VRT scrappage scheme. In a limited number of cases involving married couples, the car being scrapped is in the name of one spouse while the new car is being registered in the name of the other. Section 62 will allow the VRT refund to be made in such cases. In fact, Revenue has exercised its discretion in allowing the relief in the few cases which have arisen so far.

Sections 64 to 75 deal in the main with the principal budget excise duty changes. I do not need to re-cap these at this stage. There are other new reliefs, however, contained in these sections. Section 64 will abolish betting duty on bets placed on course at greyhound tracks in respect of events taking place at other locations. Section 66 removes the value of food sales from the turnover basis on which pub licence duty is calculated. This will apply both to pubs and to restaurants with full pub licences and brings the basis of charging excise duty into line with hotels.

Section 67 relates to the disabled drivers scheme. This scheme provides exemptions from VRT, VAT and road tax on motor vehicles, and excise duties on fuel used in such vehicles, driven by disabled drivers or used to carry disabled passengers. To qualify for relief in respect of a disabled passenger, adaptations to take account of the passenger's disablement must be carried out to the vehicle at a cost of not less than 20 per cent of the pre-tax price of the vehicle, that is excluding VRT and VAT. In response to representations, section 67 provides that this requirement will be reduced to 10 per cent.

Section 71 makes a minor adjustment in the spirits duty rate on a revenue neutral basis in order to ensure that the average amount of duty payable on a bottle of spirits will not increase as a result of the implementation of EU rules on the definition of spirituous products. Section 71 will also reduce the duty on spirits based "alcoholic lemonades" to bring it into line with that on other similar lemonades based on beer or made wine.

Section 72 of the Finance Act, 1994, prohibits the sale of cigarettes at a price higher than the manufacturers' listed price. Section 73 of this Bill amends that provision to permit the price of cigarettes sold through coin-operated vending machines to be rounded to the nearest 5p. This amendment takes account of the shortage of copper coins and the practical difficulties in relation to using such coins in the machines.

Section 74 makes two minor changes to the offences provisions relating to tobacco tax stamps. First, it will be an offence to have unstamped cigarettes on display in shops, etc. Secondly, counterfeit or altered stamps will be seizable. I will introduce a further change on Committee Stage to make it an offence to misuse a valid stamp from one packet by putting it on another. These amendments are necessary to ensure the effectiveness of the tobacco stamp regime which came into full effect on 4 March 1996.

The provisions relating to VAT are to be found in sections 76 to 89. These give effect to the incorporation into primary legislation of the EU Second Simplification Directive with effect from 1 January 1996. Other measures are as follows: an increase in the rate of farmers' flat rate VAT, and the rate of VAT on livestock, from 2.5 per cent to 2.8 per cent announced in the budget, with effect from 1 March; and a number of technical changes to the VAT treatment of second-hand goods and the invoice rules in the case of hire-purchase transactions. The Second Simplification Directive to which I referred simplifies, among other things, the VAT rules in relation to contract work and cross-frontier supplies. It is already in force by virtue of EU regulations signed by me in December which are now being confirmed in this Bill.

Sections 90 to 100 introduce new stamp duty charging provisions in respect of the transfer of uncertificated securities. Most Irish quoted companies will opt later this year to allow the title to their shares to be transferred by a new electronic settlement system called CREST. This will replace the existing paper-based system and will do away with the need for share certificates for those shareholders and companies who opt into the new electronic system. It is necessary, therefore, to revise the stamp duty charging arrangements which are based at present on the taxing or stamping of documents.

There have been extensive discussions between Revenue and my Department and the Stock Exchange and investment managers on the new form of stamp duty taxation. My concern has been to protect the substantial annual revenue yield of almost £25 million from share transfers while, at the same time, seeking arrangements which allow the trading of shares to proceed in an efficient manner. Following detailed discussions with the Stock Exchange and other interested parties, the Bill now provides for the following: the electronic instruction to a company registrar to update the Share Register will be liable to stamp duty at the rate of 1 per cent of the sale consideration; transfers between the date of purchase and the date of settlement on the Exchange — called "closings"— will continue to be exempted from the stamp duty charge; a stamp duty liability will not generally be imposed unless the transfer involves a change in beneficial ownership; broker-dealers who purchase shares will not be liable to pay duty provided the shares are sold on within one month; and market makers who undertake to facilitate the sale and purchase of Irish shares for which they are recognised as market makers will retain their exemption from duty. The effect of these changes will be broadly revenue neutral and will ensure that the normal operations and liquidity of the market are not upset by the new arrangements.

A number of other changes are also being made to the stamp duty regime. Section 101 repeals the £10 stamp duty charge that at present applies on the incorporation of a company on both the Memorandum and the Articles of Association of the company. The revenue loss is estimated at £300,000 per annum and the need to remove the charge arises from a recent ruling of the EU Court of Justice.

Under existing law, new houses with a floor area of less than 125 square metres are exempt from stamp duty. However, the deed of transfer or conveyance must be submitted to Revenue together with a floor area certificate issued by the Department of the Environment. Section 102 provides that these deeds need no longer be presented for stamp duty purposes if the deed itself contains a statement to the effect that a valid Department of the Environment certificate was in force for the new house at the date of transfer or conveyance. This will reduce the formalities and simplify procedures for obtaining the stamp duty exemption.

Other sections provide stamp duty relief on transfers of American depositary receipts issued in the US in respect of Irish unquoted shares, and on certain international business mergers involving Irish companies. Both these changes are to assist Irish firms in the international arena, either by way of raising capital or by forming international corporate alliances.

Section 103 confirms the increase in stamp duty on ATM cards from £2 to £5 announced in the budget with effect from 1 February 1996. Section 106, with section 34 earlier, re-enacts the tax and stamp duty exemptions contained in the Securitisation (Proceeds of Certain Mortgages) Act, 1995: and section 107 repeals a number of redundant stamp duty provisions in earlier legislation.

The budget and this Bill make a number of changes to the capital acquisitions tax code. I have received a sustained level of representations to the effect that the CAT code is hindering business development and the transfer of business assets intact from one generation to the next. My approach to these claims has been to consider action where it can be shown that there are genuine employment concerns or where a business might not be able to survive intact. Whether it is a good thing to preserve the ownership of business firms from one generation to the next, or whether we should encourage new blood and new capital, is an issue on which good arguments can be advanced on both sides. The tax system should be neutral here but I wish to make it clear that, unlike the stated long-term goal in the UK, there is no question of abolishing CAT itself.

In line with this, section 109 is an anti-avoidance one. In certain circumstances it may be possible for shareholders in a private company to reduce CAT liabilities by increasing the number of shareholders above 50 and, thereby, escape the current private company control test. Section 109 amends the definition of private company for CAT purposes to ensure that companies cannot escape the private company control test in this way.

Sections 110, 113 and 115 give effect to the budget day proposal to increase CAT relief on the transfer of relevant business and agricultural assets from a maximum of 50 per cent to a rate of at least 75 per cent, and to extend the minimum holding period for such assets from six to ten years after transfer to qualify for the full relief of 75 per cent. Section 114 provides that where the beneficiary and his or her relatives control the company concerned, the 10 per cent minimum shareholding requirement will no longer apply for the purposes of business relief. This removes an anomaly in the rules for qualifying for business relief.

Section 111 provides exemption for gifts and inheritances used exclusively to discharge the medical expenses, including residential care, of a permanently incapacitated individual. Section 112 allows a life tenant who is not a spouse of a disponer to effect a tax exempt "section 60" insurance policy used to pay CAT liabilities.

Section 116 introduces a significant simplification measure which was the subject of an Opposition amendment last year. At present, all applications to the Land Registry for registration of property based on squatter's title must be cleared by Revenue for capital acquisitions tax purposes before any registration can take place. However, a considerable number of such cases involve small holdings, where a charge to CAT would not have arisen in any event or where any CAT which might possibly have arisen would be insignificant. Section 116 proposes to dispense with Revenue clearance for holdings of less than 5 hectares, and £15,000 in value, provided that solicitors are willing to certify that the holding being registered is within these limits of value and size. The section also introduces a similar but broader relaxation for statutory authorities acquiring property on which a CAT liability may arise.

Section 117 ensures that the instalment facility for business and agricultural property introduced in last year's Finance Act will continue to be available where the business or agricultural property concerned is sold or compulsorily acquired and the proceeds are reinvested within one year of the sale in other qualifying business or agricultural property.

Part VI of the Bill sets out miscellaneous pre-consolidation provisions. As the House will know, the law in relation to income tax, corporation tax and capital gains tax will be consolidated in a tax consolidation Act in 1997. Work on the consolidation Bill is progressing on schedule for the introduction of the Bill next spring. In order to speed up the process and to allow early consultation on proposals, I have already published on 5 March a series of proposed amendments which are designed to clear the way for consolidation next year. These sections were issued in a fully drafted form, together with an explanatory memorandum. They deal largely with technical items — repeals, revisions, standardisation of provisions, definitions, etc. These measures are now included in sections 118 to 125 and Schedule 5 of this Bill. The provisions are explained in detail in the explanatory memorandum and we can deal with them on Committee Stage if necessary.

I express my appreciation to the Revenue Commissioners for the expeditious and efficient way they have handled the complex and time-consuming process of consolidation, meeting all the deadlines for completion of the relevant stages of the project so far. I extend an invitation to Deputies in both Opposition parties, should they wish to have access to the Revenue Commissioners, to meet the group engaged in this consolidation work in order to fully understand the complexity associated with it. On present calculations, when it comes to the House next spring it will be the largest item of legislation ever to come through the House in a single format, containing approximately 1,100 sections. Advance familiarisation with the Bill would be of assistance to us all.

We will need a compass to get around it.

And plenty of stamina.

The final sections of the Bill cover a small number of miscellaneous matters. Section 126 is the standard provision in relation to the annual annuity to be paid into the capital services redemption account. Section 176 of the Finance Act, 1995, provides for the setting off against income tax, corporation tax, capital gains tax or capital acquisitions tax of the value of donations of heritage items made by a person to approved Irish cultural institutions. There is a cap of £0.5 million on the maximum value of donations that can be accepted in any one calendar year under this scheme. This is being increased to £0.75 million in section 127.

Section 128 provides for a new system for the recoupment to vehicle licensing authorities of the costs incurred by them in the operation of motor tax offices. Licensing authorities are now allowed to deduct their expenses at source instead of according to the system which operated up to 31 December 1995 whereby licensing authorities handed over the gross amount collected in motor tax and were reimbursed from the Vote of the Department of the Environment. Section 75 of the Bill introduces an upper limit on the amount of road tax — £2,350 per annum — that will be charged on heavy goods vehicles over 20 tonnes unlaiden weight. A limit of £800 already applies to private cars. This is being done at the request of the Minister for the Environment to simplify administrative requirements. A very limited number of vehicles will be affected by the change which will cost less than £5,000 in revenue terms.

I thank the House for listening with attention to the explanation of the main provisions of this Bill. I am sorry it has taken the length of time it has and that it had, of necessity, to be somewhat complex in its description. We will be able to deal in detail on Committee Stage with many of the sections which require attention.

I commend the Bill to the House.

I thank the Minister for dealing in detail with the various sections of the Bill which we can discuss further on Committee Stage. I suggest that there is the basis for a doctoral thesis on an analysis of spindoctoring, media coverage pre-budget and post-budget of the governmental period of Fine Gael-Labour-Democratic Left.

The people have now endured two offerings from this administration. The common theme to both has been the pre-budget hype of brilliance to come and the post-budget depression of the electorate. It is difficult to know if it is a commentary on the performance of this Government or on the media that both budgets have been characterised by fawning pre-budget coverage and, for about a month after budget day, uncritical analysis. It is only when either we have a by-election which allows media persons and politicians to meet the populace, or when trade union leadership in response to their members' concerns, give voice to their frustrations, that it dawns on some that the great budget of 1995 or 1996 was not that great after all.

I feel a certain sympathy for the Minister for Finance who in the past week has begun to lecture public sector unions and already started the build up to the 1997 budget in promising that this Government will actually do something next year. Is it not wonderful what a vote of less than 4 per cent can do?

At least the Minister for Finance appreciates the correlation between lower public expenditure and lower taxes. He was reduced to pleadings in the media — usually in Monday morning's editions of the daily newpapers — in the lead up to the 1996 budget. This unique style of Government, that of appealing to his ministerial colleagues over the airwaves to cut back on their demands for more and more spending, has not worked for the Minister in the past 16 months. Does anyone seriously believe that this left-dominated Government will seriously curtail public spending to allow real tax reform and reductions? Does anyone believe that a Labour Minister for Finance could politically stand the heat from Democratic Left for increased public spending in a politically and socially sensitive area, particularly in the lead up to an election? The answer is simply "no".

The high growth rates of the past few years are camouflaging an unprecedented growth in public expenditure. This Government has consciously decided to spend the fruits of the economic revival on increased public spending. There is a myth not totally confined to the political left that increased public spending is always good socially. This is a nonsense because, when corrective measures have to be taken, it is always the poor and the weak, whom the Left pretend to be concerned about, who bear the brunt of corrective economic measures.

One good thing about the Dublin West by-election is that it allowed policitians of all parties from all parts of the country to see at first hand the disengagement of a large segment of the population from the electoral process. I have seen this in Kildare, parts of which resemble Dublin West, for some time.

When Minister for Social Welfare I met groups who were trying to deal with those who have disengaged themselves from the political process. The Dublin West by-election provided an opportunity for members of political parties to see this first-hand. Some years ago I got into difficulties with my party for raising the concern about large segments of the population disengaging from the electorate. Some years later, following his election to the House, Deputy Currie stated on radio that the cynicism he encountered from the electorate here was more alarming than the bomb and the bullet in Northern Ireland. That echoed what I had said approximately five years previously and politicians on all sides should be aware that the number of people holding this view is increasing. I hope the Dublin West by-election, which was good for Fianna Fáil's morale but discouraging for certain members of the Government, highlighted this problem because it will eventually haunt all Members.

Under our present tax system more than 50 per cent of the wages of a single person, who earns less than the average industrial wage, is taken by the State in tax and PRSI. Due to the madness of tax and social welfare policy decisions for many years, a large number of people have decided they are better off not working and do not intend taking up work. Under our tax system an employee, depending on his or her income threshold, can be worse off financially after an increase in pay.

While our tax system is complicated, it is a shining beacon compared to our social welfare system which contains so many anomalies that minor changes in one area can create a myriad of complications elsewhere. Surely it is not beyond the wit of legislators to put into effect a relatively simple system that would give people an incentive to go back to work and guarantee the sick, the old and the unemployed sufficient income.

The Government tends to boast about how well it provides for those on welfare. While I am not directing this criticism at the Minister, some members of Government regard themselves as the caring people of society. It is amusing that commentators and the middle classes — probably priveleged from birth — who belong to various organisations appear to know what is best for the unemployed and the poor. It may surprise them that most poor people know when they are being fooled by politicians or policy makers and are well able to make decisions for themselves.

Despite our best efforts over many years, our tax and social welfare systems have become mind-boggling and are not achieving the desired results. If the two systems were integrated people would know they would be better off working. Some 95 per cent of Members are aware of what is happening but, unfortunately, many of them are afraid to state their views on the matter.

God gave us the Ten Commandments but other rules and regulations were made by the people. If we have made matters so unnecessarily complicated that some people believe they are better off not working, surely it is time to do something about it. A worthwhile aspect of canvassing in a by-election is that one meets real people who talk about their real problems. Many of us, particularly those in Government, tend to get out of touch with the electorate. The provision in the budget to provide tax relief on alarms for the elderly is an obvious example of how out of touch the Government is with the ordinary people. Undoubtedly, the person who thought of the idea had good intentions. but does the Government not know that the majority of the elderly do not have a taxable income and that the proposed relief would not benefit them? We were also told that the main thrust of the 1996 budget was to help the low paid. That is nonsense because the tables issued on budget day demonstrate that they would not be better off. To add insult to injury, the Minister abolished the £140 tax allowance for PRSI which was of some benefit to the low paid.

As a former Minister for Social Welfare I am aware of the shortcomings of the live register, but it is an exact method of a calculation each week. In recent times Ministers and commentators have said they must go by the labour force survey because the live register is not an accurate reflection of the numbers unemployed. That may be the case, but nobody has proposed how the live register could be improved to make it an accurate reflection of the numbers unemployed. The Department of Social Welfare's budget must be in excess of £120 million per annum. In my last year in office it was approximately £112 million. Long before I became Minister for Social Welfare a considerable amount of money had been expended on installing in that Department one of the best computerised systems in Europe, although the Revenue Commissioners may have caught up since. With a little political will by the Minister for Social Welfare and at the press of a few buttons, it would be possible to determine who and where people are signing on. It has been said that it is difficult to obtain accurate information from the live register but this could be done very easily and without further expense if there was political will at the top in the Department of Social Welfare, that is on the part of the Minister. This might be of interest to the officials in the Department of Finance who are afraid it might impose another administrative burden on them and bring further demands from the Department of Social Welfare. I urge the Department of Finance and the Minister to consider doing this.

In spite of the perilous state of the public finances in the late 1980s, Fianna Fáil in Government from 1987-94 was able to reduce the rates of taxation and at the same time keep the finances in order. The last two budgets have stopped the process of any semblance of tax reform stone dead. I am often amused by the phrases used in official press releases which, perhaps unconsciously, sometimes hit the nail on the head or touch a raw nerve. In the case of this Bill which was published by the Minister on 28 March, the press release described the text as "running" to 130 sections. It is true to say that it "runs" and the Members of this House are running after it. The ink was barely dry when we were given a deadline for our comments on Second Stage and the draft amendments for Committee Stage which will be taken next week. I am sure civil servants genuinely burn midnight oil in the preparation of the explanatory memorandum for us and I thank them for this commitment which is in line with the best traditions we have come to expect of the public service.

Our difficulty as legislators is that contrary to what the public believe, that is the Finance Bill merely puts the Budget Statement in a more legalistic form, the Bill contains much new material of a highly complex and technical nature hitherto unpublished. Must we as legislators simply rubber stamp the Bill's provisions on Committee Stage without any close or professional scrutiny in the hope that the draftsperson has got it right or should we attempt to get to grips with the various technical matters which the Bill addresses?

Section 120 proposes a raft of amendments described as "pre-consolidation" amendments. If we pass this section on the nod all the provisions in the Fifth Schedule will have been adapted, which comes to 12 pages of detailed drafting. This series of amendments is a convenient method of preparing for the consolidation Bill. However, when that Bill is brought before the House it will have a certificate from the Attorney General to the effect that it is purely a consolidating Bill which contains no new measures. The Minister will appreciate my hesitancy in accepting section 120 without a similar assurance that the measures in the Fifth Schedule are of no material significance. No one really expects the Dáil to be able to prevail on the Minister to change one iota of his Bill; the only changes will be those introduced by him. Last year he presented us with a 160 section Bill and a further 90 or so amendments on Committee Stage. One cannot legislate at this pace. Make no mistake about it, we are running to keep up with the Minister.

As a chartered accountant I welcome the proposed consolidation Bill. The last tax consolidation Act was introduced in 1967 and 30 years is much too long to wait for consolidation. I hope the Minister will put in train within his Department arrangements to have Finance Bills consolidated not later than every five years. I was not surprised to learn that the consolidation Bill, which will cover all the changes introduced in the Finance Acts over the past 30 years, will run to more than 1,100 sections. I am glad the Minister is dealing with the issue of consolidation which is important for everyone concerned. I congratulate the Revenue Commissioners and the Department of Finance on the speedy progress they are making in regard to consolidation. They are also speaking to various groups to ensure that everything is in order. If the Bill is introduced next spring or later in 1997 it will be well ahead of the time-scale envisaged by me.

The man in the street is crying out for reform of the tax code, but consolidation is not reform. If anything, it is designed to fix more firmly the bureaucratic maze in which taxpayers and their advisers find themselves. Fianna Fáil would prefer to see the resources which are so obviously being devoted to this massive tax measure being employed in rationalising and simplifying the tax code and in starting the task of integrating the tax and social welfare systems. However, there is no evidence in the Bill of progress on that front.

The two crunch issues facing the economy are brushed to one side by the Bill. In my reply to the Minister's Budget Statement I criticised the Government for losing this opportunity for genuine tax reform. All the lobby groups' submissions I have received tell the same story, that they cannot afford to pay new employees enough to entice them off the dole queue. This is the central log jam in economic and employment policy.

An equally disturbing threat to economic growth has emerged since the budget, that is the BSE problem. I urge the Minister to use this Bill to give a strong signal to farmers and the meat and food processing sector that we recognise the seriousness of their plight and the importance of their role in the economy. If there is to be a ministerial amendment to the Bill it should allow private enterprise a favourable tax break for intervention-type investment in beef. A part privatisation of the intervention system would help steady market nerves. I propose to table amendments which will steady the market with little additional cost, if any, to the Exchequer.

I do not know if other Deputies have noticed the growing number of submissions, pre-budget and otherwise, received from groups. I thank them for these submissions and appreciate hearing from them. Even though the meetings are time consuming, the Minister's decision not to meet such groups prior to the 1997 budget is short sighted. I ask him to reconsider this decision as one can learn from these submissions and pick up the odd nugget of information which can influence thinking. The Select Committee on Finance and General Affairs, of which I am a member, meets these groups and the Minister and his officials will lose out by not meeting them. It may be possible to schedule the meetings in a better way so that meetings are held with the main groups every year and with the smaller groups every second year. The decision to do away with this consultation process will be a loss to the Minister and his advisers.

There are a few give away items in the Finance Bill and I wish to propose a few more. However, we have lost sight of the overall shape of a simple, equitable tax system and we have no fixed criteria by which to judge the merits of applications for tax reliefs. Ideas, good bad and indifferent, come and go. Some ideas are politically expedient while others are merely cosmetic and play to the gallery. If there is any logic to the Government's bag of reliefs it is "fuzzy logic". This is the new fangled computer-speak for a programme which adjusts the behaviour of the machine when its operator does not know what he wants. For example, the Government did not know what it wanted when it introduced the resort areas scheme last year. It now wants to change this scheme but it has given no thought to those who might suffer as a result of this sudden change and there is no consideration of the legitimate expectations of entrepreneurs who had a right to expect that the scheme would be allowed to run its course. I have with me a letter from an architect who reports that the proposed changes have led to 140 holiday apartments being cancelled in his area. He has been forced to reduce the number of staff in his office and planning fees and contract deposits which have been incurred are irrecoverable. I do not object to the Revenue Commissioners closing off sections of Finance Bills which they have found to be lax, but it is most unusual and not good policy to introduce a scheme and, within a short time, to so change the ground rules as to affect a large number of people. There has been little time between last year's announcement and this year's Bill for anything to happen. I know a fair bit about the scheme because, in my time as Minister, I pushed that idea. The Minister readily acknowledged that. It was always the intention to revitalise certain areas. I ask the Minister to reconsider the changes he is proposing and give the scheme a chance to get off the ground.

This year there is another cosmetic proposal in Chapter 6 — relief for renewal and improvements of residential accommodation on certain islands. No doubt the list of islands in section 54 will be expanded as the Bill goes through the House. There is a write-off of 100 per cent of construction or refurbishment costs, subject to a certificate from the Minister for the Environment. How long will this scheme last — a year, 18 months?

There is more tinkering with the section 35 film makers' relief. Has anybody actually figured out whether we are getting a net gain from this relief? It seems there is an ongoing battle between the Department of Finance which is disposed to abolishing the relief and the Minister for Arts, Culture and the Gaeltacht who wants it to continue. I am particularly concerned about the losses incurred by local suppliers and hoteliers in Cork when a film project collapsed last year. In a real sense they, too, were investors in that film and have lost.

Fianna Fáil is concerned about the proliferation of tax relief schemes. Quite apart from the absence of a cost benefit analysis for these, they are a blunt instrument of market interference and ought to be closely monitored. They also foster the notion that nobody, except the PAYE sector, pays a fair share of tax. I will introduce an amendment to ensure that these reliefs and tax-reducing opportunities cannot be used to reduce any individual's tax liability to nil. It should be clear to all taxpayers that persons benefiting from these schemes have in most cases paid at least the average PAYE payer's level of income tax and in many cases they have paid far more, but let it be so stated in the tax code.

The public has a right to be concerned too about who promotes Finance Act changes. Do they materialise out of thin air? Very technical changes in the Act are clearly designed to benefit someone or some group. In this age of open government, the public and the legislators are entitled to know who has lobbied for the amendments proposed by the Government. For instance, in Part IV of this year's Bill we see a series of changes to stamp duty law designed to tie in with the change from paper to electronic settlement for share transfers. I assume this amendment is for the benefit of the Crest Company, the operator of the system; but why not spell this out in the explanatory memorandum?

Let us know more about other such modifications and who has promoted them in, for example, section 44 — mail order type operation in Shannon to be taxed at 10 per cent; section 52 — reducing the time shares must be held to qualify for the lower 17 per cent capital gains tax rate; section 29 — rehabilitation of the site of a qualifying mine, and section 47 about Enterprise Trust Limited.

Section 35 refers to a scheme "to be established by the Minister for Enterprise and Employment" to promote employment of the long-term unemployed. Was not this a part of the Government's much publicised plan to tackle the long-term unemployment problem, launched just before the budget? There was not much enthusiasm around either for the measures proposed by the Government, or for the minor changes proposed in the budget. It is clear the Minister has not been burning the midnight oil to finalise this scheme, and we are not yet to be told the details of the plan.

Fianna Fáil published its plans to deal with this aspect of the unemployment problem, and I will table amendments to the Finance Bill to bring these ideas into play. I challenge the Minister to accept my proposals since the Government's plans are still obviously unfinished.

By contrast with this area of inactivity, we have several instances of over-activity, of over-bureaucratisation of the tax code in this year's Bill. For example, we see the introduction of a certification system for larger business expansion schemes. Apart from the fact that the introduction of any additional layer of paperwork involves the State in extra public sector expenditure, the serious risk in this instance is that certification by the State will imply some sort of State-backed guarantee of return on investment. Undoubtedly, some disappointed investor will in due course sue the State and produce the certificate in court in support of his claim that the State investigated his scheme and gave it a gilt edge. Let us keep State involvement in vetting these schemes to a minimum. In the long run it will save us all money.

I received another letter concerning the new requirement to apply to Forbairt for certification for BES fund status. I raised the matter in correspondence with the Minister. Apparently the introduction of this new requirement was not anticipated by Forbairt which was not in a position to deal with applications. In this case the investment manager was unable to obtain his certificate in advance of the date by which his investors had to invest to qualify for tax relief for 1995-96. Somebody, somewhere, had not thought this aspect of bureaucracy through to its logical conclusion.

Speaking of bureaucracy, what is all this in Part III dealing with VAT? We are told in the Explanatory Memorandum that the Minister made a regulation under the European Communities Acts last year and that it is now necessary to revoke that regulation and re-enact its contents as part of this year's Finance Act. I do not see why. The 1995 regulation, if valid, has already made the changes which the Minister now wants us to confirm. Perhaps he is telling us, indirectly, that the regulation is not valid or in some way exceeded the Minister's powers under the European Communities Acts. We will be afforded an opportunity on Committee State to tease out the sections in greater detail. However, there are some to which I must refer at this stage.

The Minister has attempted to close off perceived loopholes in the patents-royalties area. I will accept there was a need for changes here, but I disagree with the method employed by the Minister in the Bill to limit this anti-avoidance measure. In a nutshell, the Bill gives to the Revenue Commissioners power to decide whether a scheme is solely for avoidance. I do not agree with this approach to revenue law. Furthermore, a few year ago, the High Court ruled against the Revenue Commissioners under a similar provision relating to capital gains taxes. The UK Revenue has resorted to this type of catch-all anti-avoidance legislation, but I am opposed to it being introduced here.

It was once said by an eminent judge —"a man shall not be taxed except by the clearest words". It has long been accepted by everyone, including the Revenue Commissioners, that revenue statutes are to be construed strictly against the Revenue.

In relation to the Revenue Commissioners, I feel compelled to make another observation based on some issues of the past couple of years. I am aware from first hand knowledge of the dedication and professionalism of officials from the commissioners and I hold them in high regard. Thus, I am aware from my regular contacts with them that they are concerned about leaks of taxpayers' confidential concerns to certain newspapers and, indeed, to some politicians in this House in recent years. It is only in recent times that this has become a source of concern and it is something I would like to see stamped out. There may have been only a small number of such leaks, but irrespective of the background of some of the persons concerned the rules have to be applied on the same basis to all citizens. Any deviation from those principles on whatever grounds is not justified. I am aware that my opinion may not be universally shared in this House, but this marker has to be laid down.

In his two budgets the Minister made some concessions in the area of transfer of the family business. However, relief has not been extended to the "partition" of a family company arising on restructuring. I will put forward amendments on Committee Stage to get over these difficulties, and I would ask the Minister to take them on board. Earlier, I referred to openness regarding sections of the Finance Bill and therefore I place on record that I have received representations from a specific company in this regard. I will ask the Minister to take my amendments on board and I take this opportunity to inform him that the Inland Revenue in the UK allows such concessions.

I note that the Labour Party is discovering some of the concerns of its Dublin constituents. Thus, I will not be surprised if the 1997 budget signals the end of residential property tax. Since its introduction in the mid-1980s by a Fine Gael-Labour Coalition Government I have consistently described it as a "nonsense tax". Therefore, on budget day 1995 it was with great pleasure I announced Fianna Fáil's commitment to abolish that tax on its return to office, which I reiterate.

In the past few days the Minister for Finance has struck the pose of pleading for one more chance to make things right. I suspect that the glued-together rainbow Coalition Government will allow him to present another budget but I am certain that the electorate will await polling day in the next general election to give him and his colleagues their answer, which I do not think will be a ringing endorsement.

Debate adjourned.