Finance Bill, 1999: Second Stage.

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

I am glad to be able to introduce my third Finance Bill to the House since taking office. The Bill is one of the largest Finance Bills ever published and contains a series of important initiatives which reform the tax system in favour of the lower paid, cut personal taxes for all taxpayers, introduce significant new tax reliefs, set a new agenda for tax relieved pension provision and strengthen considerably the powers of the Revenue to combat tax evasion.

I believe in making radical change when such change is desirable – not by short steps but by pushing out the frontier and challenging the accepted approach. I pursued this strategy in moving to tax credits – a move which was uni versally welcomed. I am making the same structural changes in the pension area – changes which will be a challenge to the existing way of doing things and present new opportunities to providers of pension products. The changes, however, are in the interest of those who count, that is, the pensioner who has worked and saved to accumulate the pension fund.

The proposals I set out in some detail last Thursday, when the details were published, and which I will introduce on Committee Stage, are fair, reasonable, balanced and well thought out. I was struck by the trepidation of the pensions sector which, before the Bill was published, rushed uncharacteristically to comment on proposals it had not even seen. I was also struck by the representations I have received from, and on behalf of, the pension clients who feel strongly that the current system offers too little choice and flexibility and, accordingly, does not seem to operate sufficiently in the customer's interest. I will return to this issue at a later stage.

There are nearly 200 sections in the Bill. I do not intend to give a guided tour of each. Such a tour de force would take some considerable time. Much of the content of the Bill in volume terms is accounted for by a limited number of subjects – the dividend withholding tax, profit sharing schemes, stamp duty preconsolidation measures, rural renewal reliefs and Revenue powers, including measures in relation to offshore trusts, and I will concentrate on these. There are other provisions which occupy less space in the Bill but are, nonetheless, of significance and I will highlight them.

The first part of the Bill deals with income tax, corporation tax and capital gains tax. The first six sections set out the basic elements of the personal tax package announced in the budget. This package of nearly £600 million in a full year will cut the tax bill of every taxpayer, in particular the over 65s and those on lower pay. It removes 80,000 taxpayers from the tax net, 15,000 of whom are over 65.

It delivers on the promises made to reduce the tax burden and to improve the position of the less advantaged in the community. It does so by a radical equalising of the benefits of personal tax allowances by converting these into tax credits at the standard rate of income tax. I signalled in my first budget that such a move was on the cards but this prognosis seems to have gone unnoticed in the commentaries by pundits on my 1998 budget.

Other income tax changes include an extension of the tax allowance for the employment of a carer by wider family members. Employment of a carer will now also extend to the hire of a carer through an agency. Section 11 introduces a new tax relief in respect of funds raised by public subscription for persons who are totally and permanently incapacitated. This relief recognises both the needs of such persons and the desire of those who responded to the public appeal that the entire funds raised should be applied, without deduction of tax, for the relief of the distress of the person concerned. The House will welcome this initiative.

I also propose to increase substantially the amount of the basic tax exemption for non-statutory redundancy payments with effect from 1 December 1998. The basic exemption will increase from £6,000 plus £500 for each complete year of service, to £8,000 and £600 respectively. The increases reflect the change in the general level of wages and salaries since this relief was last amended in 1993.

Other changes in this part include the removal of BIK on child care facilities and travel passes provided by employers and a reduction in the BIK charge on preferential loans.

Part one of the Bill also makes a number of changes in tax administration by tightening up in section 16 the relevant contracts tax system, whereby tax is deducted at source in the case of certain subcontractors in the construction, meat processing and forestry industries. It is also proposed to level the playing field by requiring subcontractors from outside the State working here to produce tax clearance from their own tax authorities.

Sections 18, 19, 20 and 21 make a number of changes to tax law to facilitate the introduction on a phased basis of new Revenue computer systems for dealing with taxpayers, the implementation over time of a consolidated tax billing procedure, and to tailor the penalties for late filing of the end of year return by employers – the P35 – to the length of the actual delay in meeting the due date for receipt of the return by Revenue.

Section 17 increases substantially the annual amounts which may be claimed as a deduction for funding of retirement provision and the new pension arrangements which I announced last Thursday. The new limits range from 15 per cent of net relevant earnings to a maximum of 30 per cent, depending on the age of the contributor. The 30 per cent maximum also applies to persons in certain occupations and professions, irrespective of age, where there is a limited earnings span. The Bill lists a number of such occupations, relating to professional athletes in the main, but allows for this list to be extended by regulations to other specific occupations, if the Dáil approves. These limits will be subject to an earnings cap of £200,000 per annum.

These increases in limits set the scene for the more basic changes in pension provisions which I intend to introduce on Committee Stage and which I set out in some detail in the summary of Finance Bill measures which I published on 11 February. These new pension measures give effect to the principles I set out in my budget day speech as my guiding aims in reforming the rules in this area. These principles were that the individual will not be restricted to only one pension option on retirement, will have the option of retaining ownership of' the capital sum invested on retirement, and will have a greater role in the investment of accumulating funds during the contribution period.

The new rules seek to give greater choice in how persons plan to fund their retirement, greater flexibility in how they use their accumulated funds and a greater say in how their pension scheme is run. At the same time, I will set down prudent requirements to preserve pension assets via the approved minimum retirement fund. I am also seeking to preserve the taxation principle whereby pension contributions and the investment fund, as it accumulates, are tax exempt while the draw-down or realisation of the fund is subject to tax. The system is usually referred to as exempt, exempt, taxed or EET for short.

I will nonetheless take account of particularly sensitive areas in this tax treatment, namely, the position of the surviving spouse and minor children. I will also remove the rule which forces pensioners who wish to access their lump sums to take out an annuity at the same time. They will now be able to choose between the annuity and the new pension option for which I am making provision.

Some will call these proposals radical. I call them sensible and pro-consumer. I have had a considerable input in forming my views from Members of this House, pension commentators, the pension industry, the experts in the Revenue Commissioners and the advisers in my own Department. In the final analysis, these proposals have my stamp on them and the approval of the Government. I look forward to the views of Members opposite on these proposals and to their constructive examination on Committee Stage.

Section 22 inserts 13 new sections into the Taxes Consolidation Act, 1997, to implement the budget day announcement of the new withholding tax at the standard rate of 24 per cent in respect of dividends paid and other profit distributions made from 6 April 1999 by companies resident in the State. The Explanatory Memorandum sets out in some detail how the new tax will operate. The obligation to withhold tax is placed on the company paying the dividend or on an authorised withholding agent acting for the company.

Certain exemptions are provided for in the case of dividends paid to Irish resident companies, charities, pension funds, certain persons resident in EU or tax treaty countries and to publicly quoted companies in such territories. Entitlement to these exemptions will have to be supported by particular documentary evidence from the recipients of the dividends.

The rules for the application of the tax are thorough and detailed. They have been drawn up in consultation with company registrars and intermediaries who will have to apply the tax. The rules seek to ensure the relevant tax will be deducted and returned to Revenue while at the same time applying a system that takes account of the commercial realities and practical issues involved in the payment of dividends and distri butions by, or on behalf of, companies in the State.

The Bill provides that, in the case of Irish resident shareholders, dividend withholding tax deducted in a year of assessment can be set against the shareholder's tax liability for that year – the shareholder will be taxed on the gross dividend at his or her marginal rate and will get a credit for the tax withheld. Where the tax withheld exceeds that liability, the excess can be repaid to the taxpayer. A person who is not liable to tax and who has been charged withholding tax will thus be entitled to a full refund of the tax withheld.

Sections 36 to 40 extend the termination dates for a number of tax relief schemes aimed at developing particular areas or locations in the State. These are the urban renewal scheme, the Temple Bar area scheme, the seaside resorts scheme and islands reliefs. In particular, following agreement with the EU Commission, section 36 will extend capital allowances in the Customs House Docks area from the scheduled termination date of 24 January 1999 up to 31 December 1999 and, in certain cases, where work on a project is well advanced at that latter date, the extension will run until 30 June 2000. This will allow the remaining development of the area, and the 12 acre extension to the area, to be completed.

There has been much comment on our recent difficulties with the EU Commission in this matter. While the Commission has opened a procedure under the rules for State aids to investigate the applications of double rent relief and rates reliefs since 1993 in the area concerned, I believe we can defend this successfully and get a favourable outcome. These matters have to be negotiated, in the same way as the approval for the extension of the capital allowances was secured.

My Department has been active in pursuing these issues as constructively as possible with the Commission. We have held detailed discussions with the interested developers here to keep them in the picture. Officials are in Brussels today to progress this case and to continue discussions on the commercial tax reliefs under the new urban and rural renewal schemes yet to be brought into force.

Let us be clear on one matter. Approval for State aids must be sought and secured from the Commission under Article 92 of the Treaty. These rules apply in the same manner to all member states. Ireland is not being singled out. The Commission has complete discretion in the granting or refusal of State aid approval. It is not an EU Council of Ministers matter.

The Commission is becoming increasingly vigilant and pro-active where State aids take the form of tax relief. It produced new guidelines on State aids in this regard which it published last November setting out its approach and policy in regard to special tax reliefs and reductions. It has indicated that it will monitor, from a State aids point of view, those tax relief measures notified by all the member states under the EU code of conduct on harmful tax competition. However, I should stress that in spite of our proposed single rate of corporation tax and the phasing out of our 10 per cent regime for manufacturing, the IFSC and Shannon have State aid clearance under the agreement between the Commission and the Irish Government last July.

The Commission has not regarded tax reliefs for residential development as requiring State aid approval and, accordingly, I brought in these reliefs in the case of rural renewal last June and the introduction of the corresponding residential reliefs in the case of the new urban renewal scheme is under active consideration.

In relation to the rural renewal scheme, I am proposing a number of changes to the scheme in section 41 to enhance the residential tax reliefs in particular. The main changes involve the granting of a relief in respect of expenditure, incurred by an individual in the period 6 April 1999 to 31 December 2001, on the construction or refurbishment of owner-occupied residential accommodation in a qualifying rural area.

The relief consists of an annual deduction from total income for tax purposes of an amount equal to 5 per cent in the case of construction expenditure and, in the case of refurbishment expenditure, 10 per cent of the expenditure incurred. The individual incurring the expenditure must be the first owner and occupier of the dwelling after the expenditure has been incurred. The relief available under the section may be claimed in each of the first ten years of the life of the dwelling following construction or refurbishment provided the dwelling is the sole or main residence of the individual.

In addition, I propose changes to the section 23 relief for rented residential accommodation in the area. At present, to qualify for the section 23 type allowances available under the rural renewal scheme, the lease of the property in question must be for a minimum period of one year. This minimum period is now being reduced to three months. Again, to qualify for these allowances, the premises were restricted to a maximum floor area of 125 square metres. This limit is now being increased to 140 square metres for newly constructed premises while, in the case of converted and refurbished property, the maximum increases to 150 square metres. I view these extensions as a major fillip to the scheme and a clear incentive to investors to invest in the development of the areas in Leitrim, Longford, Cavan, Sligo and Roscommon covered by the scheme.

Sections 42, 43 and 44 provide for the new capital allowances for expenditure on private convalescent facilities and on employer based child care facilities and the granting of section 23 relief for third level student accommodation. I accept these new tax reliefs may run counter to the general policy aim of reducing the range of reliefs and widening the tax base. Nonetheless, if there are clear and desirable social objectives to be secured, as all will agree is the case with health, child care and housing, we should not rule out the use of tax reliefs in a targeted and prudent manner to achieve those aims.

Section 45 is a similar type of relief under section 843 of the Taxes Consolidation Act, 1997, to encourage private investment in the provision of third level buildings by providing capital allowances to investors who put up 50 per cent of the funds. This relief was introduced in 1997. I am proposing two changes in this section. First, the termination date for the scheme of relief is being extended from 1 July 2000 to 31 December 2002. Second, the scheme will apply to projects funded by the research and development fund announced by the Minister for Education and Science last November and, to fit into the way the fund will operate, the section enables the Minister for Finance and the Minister for Education and Science to delegate the approval mechanism for such projects qualifying for section 843 relief to the Higher Education Authority.

Section 52 deals with a number of tax issues arising under the special Government bond exchange programme being undertaken by the NTMA. This will involve the exchange of certain high coupon Government bonds currently trading at a substantial premium for new bonds which reflect the current lower levels of interest rates.

The Bill contains provisions analogous to rollover relief to allow any tax change arising on the bond exchange to be computed at the current rates of tax but defer payment until the new bonds are either redeemed or sold. The interest on the new bonds will be taxed in the normal way. The aim of this tax treatment is to ensure that the net present value of the tax flow arising to the Exchequer from the new bonds is essentially the same as from the existing ones, thus preserving tax neutrality in the exchange programme.

Section 54 extends the tax relief on investment in films for a further year to 5 April 2000. The film sector is reading all sorts of unwarranted negative signals into this limited extension claiming that it puts the future continuation of the relief into question, but this is not the case. As I made clear in the summary of Finance Bill measures published on 11 February, there are a number of reports on the operation of the film relief which are to be published shortly and which the Government wishes to consider more fully. One such major report, the INDECON Report, which was received in November, supports the continuation of the relief subject to a number of modifications to help better focus and target Exchequer resources in this area. I hope this clarification calms things down in the film sector.

Chapter 5, that is sections 61 and 62, provides for the introduction of a new savings-related employee share option scheme and for changes to existing tax reliefs on employee share ownership trusts. I remind the House that in my Budget Statement I made it clear that there had been a number of calls for new profit sharing initiatives and that I was not opposed to reasonable proposals in this area.

I made the point that, if profit-related pay makes economic sense to employers and employees from a profit and pay point of view, it should need no tax relief from the State to encourage it to be put into practice. It should also be recognised by all that there are tax planning opportunities in schemes of tax-relieved profit-related pay.

My approach in this area is based on a number of criteria. First, any profit sharing schemes should be open to all employees on similar terms. Second, they should provide an opportunity for employees to acquire an equity stake in their firm. There should be a medium to longer-term aspect to profit sharing schemes in the form of the delivery of benefits in the future for efficiency improvements undertaken now.

Section 61 provides for a new save as you earn, or SAYE, scheme, which is modelled on a similar scheme in the UK. The SAYE scheme will provide for employees to save for a certain period to acquire shares in their employer company. The shares are acquired under options which may be granted by the employer at a discount to the market price at the start of the savings period. Any gain on such shares when the option is exercised will be free of income tax but will be subject to capital gains tax if the shares are sold.

The Bill provides that the SAYE scheme must be available to all employees on similar terms and that any minimum service requirement for qualification may not exceed three years. This is currently five years in other profit sharing schemes, but I plan to reduce this to three years for all schemes on Committee Stage. Employees may save for a period of three, five or seven years, the interest or bonus on such saving will be tax free, a wide range of financial institutions may qualify as savings media for SAYE and the discount on the price of shares at the time the option is granted may be up to 25 per cent. These terms and conditions were decided after consultation with IBEC and ICTU.

Section 62 contains a number of amendments to the legislation in respect of both employee share ownership trusts, ESOTs and approved profit sharing schemes. Specifically the Bill will allow those employees who leave a company in the first five years of the ESOT to benefit from the allocation of shares in the company to the trust for a period of up to 15 years after the ESOT is established. The normal benefit period for ex-employees in ESOTs and approved profit sharing schemes is 18 months after leaving.

An ESOT will operate usually by borrowing funds to acquire shares in a company and releasing these to employees after several years when the debt to the lenders is run off. To acknowledge this structure section 62 allows employees to take up to £30,000 in shares tax free in year ten, or a later year. This ties in with the current Telecom ESOT and its likely timetable for distribution of shares in the ESOT as security for borrowings. In this situation the £30,000 limit will replace, on a once-off basis, the normal annual £10,000 limit.

The Bill will also provide an exemption to CGT for the trustees of the ESOT on the proceeds of disposal of shares to the extent that such proceeds are used to repay borrowings of the trustees taken out to acquire shares in the company concerned.

Section 63 provides 100 per cent capital allowances for the establishment of park and ride facilities in the larger urban areas to help alleviate traffic congestion. The principal change in this provision since it was proposed in the budget is the extension of the allowances to commercial and residential development associated with the park and ride facility subject to the residential element of any project not exceeding 25 per cent of total allowable expenditure and the residential and commercial elements combined not exceeding 50 per cent of that expenditure. It has been put to me that the park and ride facility on its own would not be attractive to investors without this associated physical development. The park and ride scheme will last for three years.

Sections 64 to 67 give legislative effect to the reduction in the standard rate of corporation tax on trading income from 32 per cent in 1998 to 12.5 per cent in 2003 and to the provisions of the agreement reached between the Government and the European Commission last July on the phasing out of the 10 per cent rate of corporation tax for manufacturing and for certified activities in the IFSC and in the Shannon Airport Zone.

Section 66 identifies income to which a 25 per cent rate of corporation tax will apply from 1 January 2000. These legislative provisions will copperfasten the corporation tax regime in this State. This new regime conforms to EU state aid rules and with the EU code of conduct on harmful tax competition.

Sections 75 and 76 deal with the problem of Irish registered non-resident companies. The use of such companies for questionable purposes by persons with no connection with this State was debated at great length and in some detail this time last year. The Government undertook to come up with a comprehensive package of company law and tax measures to get rid of the undesirable exploitation of such companies, while at the same time not ruling out the legitimate use of a non-resident structure for acceptable business purposes.

The measures in this Bill will be complemented by action to be taken by the Minister of State with responsibility for science, technology and commerce under company law in a companies Bill to be published shortly.

The company law measures will provide that as a precondition of incorporation, every new company must show that it intends to carry on an activity in the State before it will be registered; every company will be required on incorporation to have either an Irish resident director or to provide a bond to the value of £20,000 as surety in the event of the company failing to comply with company law and tax requirements; the number of directorships that any one person can hold will be limited to 25, subject to certain exemptions, to curb the use of nominee directors as a means of disguising beneficial ownership or control; and more effective powers will be available to strike off companies where they fail to make the statutory annual return to the Companies Registration Office or to register with the Revenue Commissioners for tax purposes.

On the tax side, section 75 will make registration in the State equate with tax residence for all companies. This will apply to new companies incorporated on or after the date of publication of the Bill and for existing companies from 1 October 1999.

This will not be the case where the company, or a related company, is carrying on a trade in the State and either the company is ultimately controlled by residents of an EU member state or a tax treaty country, or the company or the related company is quoted on a recognised stock exchange. In such cases, tax residence will continue to be based on where the company is managed and controlled.

Section 76 provides that a company which is incorporated but not tax resident in the State will be required to identify the territory in which it is tax resident, to say whether the company or a related company is trading in this State and to identify the ultimate beneficial owners of the company where the company is claiming non-residence because of treaty provisions.

The Bill will also enable the Revenue Commissioners to give the Registrar of Companies details of those companies which fail to comply with the new Revenue information requirements to enable such companies to be struck off the company register, if appropriate. I intend to introduce further provisions on Committee Stage which will complement the provisions to be introduced under the Companies Amendment Bill on the requirement to appoint an Irish resident director or provide a bond to the value of £20,000. The Committee Stage amendment will provide that, where a company fails to pay penalties for failure to meet certain tax and company law compliance obligations, these penalties may be recovered from an Irish resident director of the company. Where a company does not have an Irish resident company director, any such penalties will be recoverable from the £20,000 bond already referred to.

This is an extensive, comprehensive and focused set of measures to deal with the malpractices in this area and to allow Revenue identify and deal effectively with cases of abuse. It is a far better solution than that attempted in the Finance Act, 1995.

Sections 80 to 83 introduce new provisions dealing with offshore trusts and companies. These provisions will tighten up the legislation in place since 1974 to ensure that gains made by such trusts and companies are effectively taxed in the hands of taxpayers who are domiciled and resident or ordinarily resident in the State. The law in this area is in need of some up-dating.

Irish tax law is similar to the corresponding UK legislation but has not kept up with the changes and adjustments that have been made in that jurisdiction. There is some evidence that the use of such trusts is growing as a means of avoiding Irish tax and the present deficiencies in the Irish legislation compared to the UK are being taken advantage of and advertised by tax advisers.

The Bill tackles the main avoidance issue by imposing an exit charge under CGT on trusts moving offshore, applying more stringent provisions for attributing gains to resident beneficiaries, limiting exemptions from tax for beneficiaries disposing of an interest in a trust, and requiring more information to be returned to Revenue in relation to offshore trusts. I am happy these changes will close a potential avenue for tax avoidance which would have become increasingly attractive as personal wealth in Ireland continues to grow given our rapid economic expansion in recent years.

Under the customs and excise provisions in Part II, sections 84 to 99 consolidate and modernise the excise legislation relating to mineral oils, namely, petrol, diesel and other heating and fuel oils. This oil legislation has been amended and supplemented on many occasions since the original 1930s legislation to the extent that it has become very fragmented and difficult to follow. The various sections deal with the rates of excise, the charging of excise, reliefs and abatements, excise licensing requirements, control procedures, prosecutions and offences.

The excise duty and VRT changes are implemented in sections 100 to 106, as announced in the budget. In the case of the VRT changes contained in section 105, it is interesting to note that despite the increase in rates on cars over 1400 ccs from 1 January, the level of new car registrations in January 1999 was 21 per cent up on the same month in 1998. On the cut in betting tax, section 106 provides that the new rate of 5 per cent will come into effect by order made by the Minister. In the budget I linked the implementation of this cut to the agreement by the trade of satisfactory alternative arrangements to replace the on-course levy which funds the Irish Horseracing Authority and Bord na gCon. Discussions are at an advanced stage on proposals to put in place these new arrangements and I will announce these shortly.

The VAT changes in this year's Bill are limited in extent and mainly technical in nature, apart from the increase in the farmers' flat rate of VAT from 3.6 per cent to 4 per cent from 1 March 1999, and the associated similar increase in the VAT livestock rate announced in the budget. The VAT changes deal in the main with the removal of a double VAT charge on certain HP transactions and sales of secondhand agricultural machinery, the tightening up of certain VAT charging and control provisions and implementation of an EU directive on the VAT treatment of gold held for investment purposes.

A considerable part of the Bill, namely, sections 126 to 180, deals with stamp duty changes. This is an area of taxation which normally attracts limited attention. The present stamp duty code goes back to 1891. Stamp duties were first introduced to the UK by William of Orange who brought the idea from Holland where they had proved to be a very effective source of revenue. The application of stamp duties in the 1891 Act was seen as a radical and progressive form of taxation requiring those who transferred property by deed to make a substantial contribution to the Exchequer. This was a source of irritation to the better off at that time. I recognise the contribution William of Orange has made to the Exchequer in recent years, something which is appropriate given that he is often referred to in a less than complimentary light.

Was he a Fianna Fáil man?

His father was.

Stamp duties still contribute a significant amount of tax revenue to the Exchequer. The yield has risen by 90 per cent in the past three years, from £286 million in 1995 to £541 million in 1998, reflecting economic growth and the increasing value of property. It is necessary, therefore, to ensure that stamp duty legislation, which was last consolidated in 1891, is kept up to date and that any potential loopholes are closed off.

As part of this process, it is proposed to publish a Bill later this year to consolidate all stamp duty legislation since 1891. In advance of this it is necessary to make a number of changes to stamp duty law in the Finance Bill. These measures, which are in the main technical, include repealing a number of redundant sections as well as standardising all references to fines and penalties so that there is a clear distinction between civil penalties and criminal offences. In addition, penalties which are set at a nominal amount, for example, £10 or £20, will be increased to more realistic levels. Further, the rate of interest which will apply when stamp duty relief is being clawed back will be standardised at 1 per cent per month. These are substantive changes to the law which cannot be included in the consolidation Bill under the legislative rules applying to such Bills.

Apart from this there are a number of other changes being made in the area of stamp duty. One of these relates to the application of surcharges for incorrectly estimating the value of the residential element of a mixed residential and commercial use property to avail of lower stamp duty rates. This change is a consequence of new rates which apply for residential property since the Finance (No. 2) Act, 1998.

The Bill will also put on a statutory basis a concession in place since 1996 relating to interest charged on any capital acquisitions tax clawed back from a taxpayer under the provisions relating to agricultural relief. Under the concession, interest is charged only from the date of the event giving rise to the clawback and not from the date of the original acquisition. Similar treatment will be given to other CAT reliefs, for example, business relief, and to the stamp duty reliefs for company reconstructions and intra-group transfers and young trained farmers.

I now turn to the provisions governing Revenue powers which have been subject to much recent comment. Sections 189 and 190 provide additional powers to Revenue to facilitate greater access to material held by or in financial institutions, including in certain cases in non-resident accounts, where this information is necessary to pursue tax liabilities. There are also provisions to enable Revenue to obtain a greater range of information from third parties in relation to persons with whom they have dealings and to require a taxpayer to provide fuller information to Revenue on their own tax affairs, including answering specific questions put by a tax inspector.

The Bill also augments the current provisions requiring a person to give a full statement of their financial affairs and of their assets and liabilities. These proposed new powers will add considerably to the statutory powers of the Revenue Commissioners in all tax areas. They are in response to recent tax investigations and are based on experience of the gaps in powers which have been identified in following up such investigations.

I indicated on previous occasions that the wisest course might be to await the findings of the Moriarity tribunal. The tribunal was asked among other things to make recommendations in this area. Events have moved apace and the Government considered it necessary in the interest of reassuring the public, to propose new powers at this time. It is the intention to review the matter further when the report and recommendations of that tribunal are available. I have no doubt the tribunal will make a valuable contribution in this connection.

In relation to access to persons' accounts in financial institutions, the Bill proposes to broaden existing powers of access to accounts of named individuals where Revenue has reasonable grounds to believe there is information in the possession of the financial institution relating to the taxpayer's liability to tax. These new powers of access will include resident and ordinarily resident individuals, companies, trusts and connected persons, not just individuals who are ordinarily resident in the State; cover all tax heads and not just income tax and corporation tax as at present; extend to accounts held by unidentified persons or classes of persons, not just named individuals as at present; allow access to non-resident accounts in cases where there is reason to believe the true owner is resident, and extend the definition of "bankers' books" to include relevant sup plementary information in a financial institution's possession, such as background documentation.

The Revenue Commissioners will also be able to examine the procedures and systems of financial institutions in relation to non-resident DIRT free accounts and to examine a sample of non-resident accounts to ensure they are genuine. The Bill will also empower the Revenue in specific criminal investigations to gain access to accounts in the same manner as the Garda currently can in criminal investigations. Finally, the Bill will permit Revenue to conduct on-site audits of a banks affairs, not just a PAYE or VAT audit as at present.

For clarification, the accounts referred to in the Bill include accounts in banks, building societies and other deposit taking institutions such as credit unions. This wide range of deposit taking institutions is already covered by the existing Revenue powers of access to individual accounts.

Under current law, the Revenue Commissioners must seek the approval of the High Court or the Appeal Commissioners for access to the account of a named individual who is ordinarily resident in the State. The Bill will allow for such access to be secured by an order issued by one of the three Revenue Commissioners. In the case of accounts held by unidentified persons or classes of persons, and non-resident accounts, it will still be necessary to secure High Court or Appeals Commissioners approval. These arrangements are comparable to the situation found in many other countries. They bring us more into line with other countries rather than ahead of them as some media comments have suggested.

Fears have been expressed in certain quarters that this new provision will be misused, and that the Revenue Commissioners will engage in trawling exercises of all and every account. This will not be the case. The powers will be used responsibly. The focus will be on tax evasion. There will have to be prima facie evidence of suspected evasion in the possession of Revenue before the Revenue Commissioners seek access.

The Revenue Commissioners have assured me they will exercise these powers and grant orders only in those cases where it is necessary and where there are firm reasons to believe there is material and particular information held in the deposit taking bodies in question. Revenue will give notice to the taxpayer concerned and, if necessary, the taxpayer can take court action for judicial review.

The Commissioners have also assured me there will be appropriate checks and balances to ensure that only properly authorised and trained Revenue personnel will have access to any new powers. The chairman of the Commissioners has already publicly indicated on RTE radio last week that the new proposed powers would not be focused on smaller cases; he saw these powers as providing the means to restore public confidence in the tax collection system which has been sever ely dented by the revelations of the past two years.

The Institute of Taxation has called for the appointment of a special tax ombudsman to ensure any new powers are not abused. There is no history in this country of the Revenue Commissioners abusing powers given to them by the Oireachtas. Second, the Ombudsman already has a remit in Revenue matters and dealt with some 130 complaints on tax matters last year. Third, there are existing procedures for a taxpayer to appeal to the Appeal Commissioners and to the courts. Fourth, Revenue has standing procedures for internal review – by a senior officer unconnected with the case – where a taxpayer is unhappy with the actions of a tax inspector. While I do not see the need for a special tax ombudsman at this juncture, the matter will, nonetheless, be kept under review in the light of the experience in the operation of these new powers.

I am anxious to preserve the balance between the legitimate expectation of taxpayers to go about their business without unwarranted intrusion and the need to empower Revenue to tackle the episodes of tax evasion which have caused such recent public concern and anxiety. This balance is essentially a matter of political judgment. That is, in the final analysis, an assessment which can only be made by this House and reflected in the legislation passed by the public representatives assembled here.

One thing is clear. One cannot beat one's breast about tax evasion and, at the same time, be horrified when the powers to combat tax evasion are sought and given. This is a perennial issue. This ambivalence has arisen on each occasion when it is proposed that Revenue powers be widened significantly. The last such occasion was section 153 of the Finance Bill, 1995, in relation to the famous whistle blowers' charter requiring tax advisers of various sorts to report tax evasion by the their clients to Revenue. I am sure we will have a thorough and frank debate in this House on where we want to go in this area and I look forward to the constructive input of Deputies on all sides.

There are many other important proposals in the Bill which I have not found time to mention in these opening remarks. All sections of the Bill can be gone into in detail on Committee Stage. I have suggested to the chairman of the committee that we might take three days this year compared to the two days allocated to the 1998 Bill. I commend the Bill to the House.

I was trying to recall who the Fianna Fáil finance spokesman was who created a great head of steam in 1995 when the whistle blowers' charter was introduced.

I do not think I did. The Incorporated Law Society made more of it.

Whoever he was, he would not have that much authority in lecturing the Oppo sition when bringing powers himself, if he checked the record.

The Finance Bill is voluminous work. It contains 196 sections and when it first hit the desk, I thought we would be debating it until the summer recess. Like all Finance Bills, it implements the decisions of the budget. It is not as intimidating as it first appears, however, as in excess of 40 sections are technical ones on stamp duty which are necessary to prepare the way for a stamp duty Bill later in the year.

The Minister made a number of new announcements on Thursday last when the Finance Bill was published. Some of these are fully dealt with in the Finance Bill, some are partially dealt with and others are not dealt with at all. In debating the latter, we are relying on the Minister's press statement and his speech today.

In general terms, it is very bad practice to introduce new material involving serious policy issues by way of amendment on Committee Stage of the Finance Bill. It is unfair to the House, particularly to the Deputies who contribute to the debate. It makes it very difficult for the House to discharge its responsibilities in full. The Government is responsible to the Oireachtas. The Government proposes and the Parliament disposes, is the principle on which we operate, and if the House does not have proposals in sufficient time to give them serious, detailed, informed consideration then it cannot discharge its constitutional responsibilities.

In modern finance legislation, to be informed is to get the assistance of outside practitioners. If we do not get the proposals until the eve of Committee Stage, then a travesty of parliamentary responsibility is being visited on the House. I want a commitment from the Minister that he will circulate the new sections to the Finance Bill, which he announced by way of press statement last Thursday, as quickly as possible. I would like them this week, certainly not later than Friday.

I discussed the Minister's budgetary decisions on budget day and will debate some of them again this afternoon, but initially I will give priority to the new proposals by the Minister. The Minister's proposes to give significant extra powers to the Revenue Commissioners. Against the background of the news from the tribunals, the findings of the McCracken tribunal and the various banking tax evasion scandals, particularly those in NIB and AIB, no Minister for Finance could have come before this House without taking measures to prevent tax evasion. The Minister would be politically naked if, in present circumstances, he were not prepared to give the Revenue Commissioners the additional powers they say they need to do their job properly.

On a number of occasions the Minister's predecessors have come into the House looking for extra powers. On all occasions the Fine Gael Party treated the proposal reasonably, and were generally in support of granting additional powers to the Revenue. For some time, compliant taxpayers have not been prepared to continue with a situation where they are always being required to divvy up on a full PAYE basis, while persons whose lifestyle would suggest they have significantly more resources seem to lead a charmed life and to possess some type of cloaking device which makes them invisible to the eyes of the Revenue Commissioners.

On this occasion, Fine Gael agrees with the new powers in principle, but we have serious concerns about the efficacy, legality and timing of the proposals. The Minister for Finance will have to be more convincing on Committee Stage than on Second Stage when Fine Gael intends to scrutinise the relevant sections of the Finance Bill in detail.

The major tax evasions which have been brought to our attention by the recent spate of scandals are directly centred in the banking system. NIB designed a type of broker bond which was sold to customers for the sole purpose of evading tax. NIB received a handling charge and commission well in excess of the economic cost of the transaction, and out of line with rates applying to legitimate transactions. The motive for the bank as an institution was to increase banking profits and, for the individual bank employees, the motive was to comply with the culture of the bank, to enhance their promotion prospects and to benefit from the commission which resulted from the sale of the product.

The evasion of DIRT through the use of bogus non-resident accounts was an industry wide problem. This is the subject of an inquiry by a committee of the House in association with the Comptroller and Auditor General. At initial hearings of the committee a conflict of evidence emerged between the Revenue Commissioners and the AIB. Whatever the final outcome, a number of facts have been established. There was widespread evasion of DIRT by all the main banks through the use of bogus offshore accounts. The initiative came from the banks and was endemic in the system, led by management and promoted by all relevant employees. The McCracken and Moriarty tribunals have shown that if the activities of Mr. Des Traynor resulted in tax evasion, he was acting more in his role as banker than accountant when he was most devastatingly effective.

All we have learned from the scandals would suggest that the essential element in large-scale tax evasion is that the banks collude with their customers to enhance their liquidity and profitability, the primary purpose of tax evasion, with their customers being the consequent beneficiaries. The banks are the designers and promoters of the financial products, mechanisms or accounts used for the purpose of tax evasion.

When these facts are taken into account the Minister's response appears weak. He seeks to open up the bank accounts of individuals to scrutiny by the Revenue Commissioners and to impose severe penalties on professionals, solicitors and accountants, who advise and assist tax payers in ordering their affairs. He is removing from these professionals, under pain of criminal sanction, privileges of confidentiality which they have traditionally enjoyed. It is the banks, however, which have systematically promoted tax evasion, colluded with their customers and are now being found out. The Minister is missing the target. The new powers are stringent and while they may be effective against the small fry, the big sharks, swimming in the protection of the banking system, will continue to escape, not because the Revenue Commissioners are bad with a harpoon but because they and the Minister have identified the wrong target.

The Minister would be in a better position to introduce measures if the reports and recommendations of the various tribunals and inquiries were available. The terms of reference of the Moriarty tribunal require it to report on these matters. To my knowledge, the NIB inquiry has not yet reported – there is no evidence that it has. Does the Tánaiste have a copy of its report, to which she refers obliquely in television interviews? Do some of the proposals arise from it? Are there recommendations on tax evasion and, if so, does the Minister have access to the report? The inquiries of the Comptroller and Auditor General and the Committee of Public Accounts into the non-payment of DIRT have not concluded.

The Minister has proceeded for political reasons ahead of a series of reports whose recommendations would enable him to legislate more effectively. I understand the reasons he is making these proposals but he or his successor will have to return to the House before the end of the year when the various reports and their recommendations have been published and scrutinised.

The powers being sought on behalf of the Revenue Commissioners may lead to legal difficulties. The right to privacy and to natural justice cannot be set aside lightly. In exercising these new powers the Revenue Commissioners should follow a fair and systematic process known and transparent to practitioners and taxpayers and endorsed by the House. The Minister, by way of statutory regulation, or the Revenue Commissioners, by way of statement of practice, should put in place a transparent procedural process under which these powers will be invoked. I would prefer the Minister to do this by way of statutory regulation and the Revenue Commissioners to subsequently issue a statement of practise based on the Minister's regulations. This would reduce the possibility of a successful legal challenge. The right to privacy and to natural justice and other personal rights in the Constitution may be transgressed for good and sufficient reason.

Individuals can be protected from draconian powers by a well ordered and agreed process. If this is not done, there will be legal difficulties. In no circumstances would it be proper for the Revenue Commissioners to engage in a trawl of taxpayers' accounts. That would not stand up to legal challenge. The Minister repeated the assurances of the chairman of the Revenue Commissioners that the powers will not be used in this way. The Revenue Commissioners should be required to rely on evidence of evasion, no matter how slight. On Committee Stage I will press the Minister to indicate clearly the trigger mechanism which will allow the Revenue Commissioners to examine the bank accounts of individuals.

For generations the conversations of solicitors and their clients have been privileged. Solicitors will now be required not alone to produce documents given to them by their clients, if the Revenue Commissioners are inquiring into possible tax evasion, but to produce minutes or notes of conversations with their clients. It is difficult to see how a solicitor can deal with a client when he or she knows that documents the client may produce as well as notes of confidential conversations may be the subject of a discovery order by the Revenue Commissioners. He or she will have to inform the client in advance that he or she may have to report the subject of conservations to the Revenue Commissioners. It requires no great imagination to foresee the consequences of such a warning.

The Revenue Commissioners will confirm that many tax evasion schemes and mechanisms are first brought to their notice by solicitors and other tax practitioners who advise clients to put their houses in order and start afresh. Were it not for honest professionals, the Revenue Commissioners may remain blind to the latest tax evasion fashion. In removing their privileges the Minister should ensure he hits the target and does not make the situation worse.

As I understand the law, it is a criminal offence to assist taxpayers to evade tax in Ireland. It is not, however, a criminal offence for tax professionals in other jurisdictions to assist Irish taxpayers to evade tax through the use of mechanisms and products available in other jurisdictions. I have no doubt the new powers will be effective in chasing small offenders. However, those involved in large scale tax evasion may avail of the services of foreign practitioners. There is a gap in the law as these powers are given to the Revenue Commissioners. If the Minister strengthens the domestic powers he has no protection from those who go abroad. For these purposes, abroad is a 45 minute drive to Newry. We are not talking about people going to far flung fields. We are talking about a trot up the road. Those drafting this legislation should examine this issue before Committee Stage.

Large scale systematic tax evasion, as distinct from small scale tax evasion in the black economy, which involves millions of pounds, is still prevalent in Ireland but is a Europe-wide rather than a nationwide problem. This is even more the case since we entered the euro in January. Consequently, successful attempts to counteract serious tax evasion must be promoted on a European basis. That basis should be a greater European basis rather than an EU basis. The Minister should raise this issue at ECOFIN to see if procedures can be put in place in respect of the evasion we suspect is taking place and of which we have a certain amount of evidence thanks to the tribunals, particularly McCracken and Moriarty tribunals.

I wish the Minister well in his attempts to counteract tax evasion and Fine Gael will not be found wanting in assisting him. However, these proposals will not be effective. I understand the political pressure on the Minister to produce measures but he would have aimed his gun with greater accuracy if he had the benefit of the recommendations of Moriarty, the NIB report, and the inquiry by the Comptroller and Auditor General and the Public Accounts Committee into evasion of DIRT.

I agree with the proposals relating to the use of companies incorporated within the State by non-residents who have no personal or business connections with the State, for whatever purpose these accounts are held. There are varying estimates of the number of Irish-registered, non-resident companies. There are also various legitimate and illegitimate explanations of why there are so many such accounts. Legitimate explanations range from fraud to international crime, drug cartels, money laundering, the international arms business and tax evasion. Whatever explanation there may be for any individual accounts, their number and the shadowy nature of whatever activity they engage in are a blot on the Irish financial landscape which can no longer be tolerated by Ireland or our European partners.

I welcome the Minister's proposal in so far as I understand them. However, my initial point is also relevant in this instance. It is difficult to discuss his proposals in any detail as he has indicated he will introduce additional proposals on Committee Stage and that the main bulk of the proposals he outlined today will be a matter for the Companies (Amendment) Bill to be introduced by the Minister of State, Deputy Treacy. This is bad parliamentary practice. This Parliament is not able to properly do its job if proposals put forward by Government are not provided in sufficient time to enable Members engage in detailed, informed debate.

These proposals involve major issues of policy which add several sections of tax legislation but which are being introduced on Committee Stage. The Oireachtas cannot do its job properly when amendments are the subject of time motions on Committee and Report Stages, as they will be, and when all amendments, except those in the name of the Minister, fall when the allocated time has elapsed. In such circumstances the concept of parliamentary scrutiny of Government decisions is a sick joke. It is bad enough when we see proposals on Second Stage. However, in this case we have to wait until the eve of Committee Stage and then the debate is the subject of a time motion so that all amendments fall except those in the Minister's name.

There are serious financial proposals involving every area in this legislation which will not be the subject of any scrutiny. They go from their originators in the Department of Finance to the draftsman's office, are read into the record by the Minister on Second Stage, and circulated in documents without being scrutinised by any Member of this Parliament. We then have to take responsiblity for tax laws to which we have contributed nothing. That is not good enough. There are proposals on non-resident accounts, pensions and innumerable other suggestions made by the Minister which have been kicked to touch until Committee Stage. The pretence is that they will be scrutinised in detail on Committee Stage but that does not happen. They fall and any votes taken are often on an omnibus basis whereby amendments are not taken individually.

I urge the Minister to bring these proposals forward at an early stage. I appreciate the pressures on officials in the Department of Finance and the parliamentary draftsman's office, particularly at this time of year. I understand there are occasions when it is not physically possible to have all proposals ready for the date of publication of the Finance Bill. The dates of that Bill are set by legislative procedure, deadlines must be met and additional material must sometimes be introduced at a later stage. However, if the Minister legislates in haste he will repent at leisure.

On this occasion he is proposing sufficient additional material which is not yet ready, to justify a second Finance Bill before the summer recess. If he had proceeded on the basis of a second Finance Bill we would be more effective as parliamentarians in ensuring that the legislation is water tight and that the extra powers being given to the Revenue Commissioners will be effective.

The Revenue Commissioners are doing a good job. They operate within legal constraints and have a significant portfolio of powers which sometimes they do not adequately use. They do not carry out a sufficient number of random audits. We have moved to a self-assessment system for the self-employed since the late 1980s. The self-employed have more latitude to evade and avoid tax than PAYE taxpayers who have no such latitude. Human flesh is weak and many of those on self-assessment will give way to temptation if they do not fear discovery by the Revenue Commissioners for evading tax or making incorrect returns. The number of random audits being carried out is so small as to be derisory. It does not put fear into anyone on self-assessment. Someone on self-assessment has almost as good a chance of winning the lottery as of being the subject of a random audit by the Revenue Commissioners.

That is not how self-assessment operates in the US or how it was intended to operate when US advisers recommended we introduce a self-assessment system. Anyone familiar with the US system knows it is an efficient tax collection system because there is such fear of the internal revenue. Self-assessment systems only operate if there is such fear. There is no fear of the revenue unless there are a sufficient number of random audits. The chances of escaping are so high that the sanction is very limited and the Minister should examine this situation.

The last time I raised this issue I was told the Revenue Commissioners did not have sufficient staff. In their last report they implied they would like to carry out more random audits but did not have enough staff. We should not constantly talk about extra powers. The Revenue Commissioners need the powers to do the job but if they lack resources the Minister should provide them so we do not have a Statute Book full of powers which cannot be implemented. This would also address the Minister's point about keeping public opinion on side and the populist calm against the background of scandals. The Revenue Commissioners need resources to exercise their powers.

I welcome the Minister's proposals on pensions which he made on budget day and also the more detailed proposals announced last Thursday. However, the only details we have are the press statement and the Minister's speech. The proposals are not in the Finance Bill and we will not get the details for some time. Many people in the pensions industry are opposed to the proposals. However, change is desirable and in the interest of the consumer who is, in effect, the man or woman who contributes to the pension. It is also in the interest of the beneficiaries of his or her estate.

Frequently, people who made major contributions to pension funds died and did not benefit much from the annuities. They may only have benefited for a short time and the pension fund died with them. Their children or beneficiaries under their wills did not enjoy the benefits. I welcome the move although I wish to examine certain aspects in depth. There is no great clarity regarding the detail of the proposals because they are not available and the Minister is only telling us about them.

The Minister made an interesting speech, but much of the time he only gave heads of sections and discussed them. This is not good enough in a Finance Bill. Previously cases went to appeal commissioners and as far as the Supreme Court where millions of pounds weighed on a word. Yet, we are expected to adjudicate on provisions when only heads of sections, which are not well formed, are available. There are no sections in the Bill to support the arguments put forward by the Minister.

I call on the Minister to make a commitment to bring before the House shortly some other recommendations of the Pensions Board. Now that the national finances are in surplus and are likely to remain so for many years, the Minister should give serious consideration to establishing a funded social insurance fund to underpin social welfare pensions. The Minister may be thinking along these lines. Apart from the prudence of funding public pensions for the future, it is a bet ter way of using surpluses. The Government of the day might be able to use them if things were not always as good as they are at present instead of running surpluses which would immediately knock down or reduce the debt. There is great merit in having a properly funded social insurance fund and viewing this as a type of reserve fund outside the criteria under which we must operate our financial accounts to comply with the plus or minus 3 per cent surplus deficit agreement in respect of our entry to the euro.

Regarding the provisions announced by the Minister on budget day, Fine Gael has been committed to tax credits for many years and we would welcome their introduction. However, the Minister has not introduced tax credits; he merely took the first step towards their introduction by applying the personal allowance at the standard rate. Will the Minister outline how he intends to proceed from now? Is he committed to the full implementation of tax credits? In respect of benefits such as the incapacitated person's allowance, the blind person's allowance and other allowances on which people depend, will the Minister raise them sufficiently so that when the relief is applied at 24 per cent rather than 46 per cent, the individual taxpayer will not lose in any way?

Unless the Minister makes such a commitment, a transfer to tax credits in respect of allowances in the income tax code other than the strictly personal allowances will be penal. I ask the Minister to outline his views and to do as he has done in respect of corporation tax by indicating in his reply or on Committee Stage the schedule for implementing tax credits in the future. Does he intend moving completely to tax credits in the next budget? Will he state how he intends to deal with the allowances I mentioned.

I welcome another provision in the Bill, which is colloquially known as the Shane Broderick provision, to which the Minister did not refer. This is a farseeing measure and I welcome it. However, it opens an interesting argument. Funds subscribed by the public to a trust will be exempt from taxation in the trust and when they are drawn down and paid by the trustees to the beneficiary. However, how can the Minister continue to justify in situations where a father gives money to an incapacitated son, a relative gives money for the benefit of another relative or a neighbour gives money for the benefit of a retarded child that a publicly subscribed fund and its beneficiary should be exempt from tax but the private individual doing exactly the same to a relative or a person they know should be taxed?

The Minister must address this issue because he has created a precedent. I ask him to consider it between now and Committee Stage. In one sense, the provision has a far reaching effect but, in another sense, it is a focused area of relief. It is focused on individuals who need it most. I welcome the Minister's proposals, but he has created a precedent, the logic of which he must follow to assist those who are incapacitated in society. A certain logic will carry the Minister in that direc tion and I ask him to have the matter examined between now and Committee Stage where I intend to raise it again.

I am glad the Minister published a schedule in respect of corporation tax. However, other issues arise in the application of the new schedule of taxes to individual companies. There is an increasing case to be made for the Minister to publish a White Paper which would cover the issues of tax credits, corporation tax, the change in the tax year to a calendar year, withholding tax and dividends, the powers of the Revenue Commissioners, off-shore accounts and pensions. This would allow people to know where they are going in respect of a range of taxes. It would be of great benefit if, in the next three or four months, the Minister's officials put the information they have to hand together in a White Paper and indicated the route they intend following in respect of these items and others which Members may mention.

The officials should try to deal with the possible consequences of the changes for individual taxpayers. While the proposals for change are clear, it is unclear how many of the changes will impact on individual taxpayers or companies. Those who wish to plan ahead, particularly with regard to corporation tax, need to know the position now. The Minister has always been strong in terms of business taxation. Given his professional background, he has a good understanding of these issues. He is aware that investment decisions are always made five or six years ahead. Frequently, they are now made eight to ten years ahead. The Minister is aware that any progressive multinational company which seeks to set up in Ireland will have put its plans to its tax advisers before it even reaches first base. A White Paper is needed now. This is one of the calls made by the Institute of Taxation of Ireland. The Minister mentioned its call for an ombudsman, but its call for a White Paper is a much more significant demand and the Minister should move to meet it.

Another issue which is ancillary to corporation tax and in the same family of issues is the matter of State aids. I ask the Minister to deal with this area in his reply. What is our position now? Is there a danger that, as regards companies and persons who thought they were enjoying certain reliefs in our urban renewal areas, double rent allowances and relief from commercial rates will be cancelled and they will be required to pay back the tax advantage they enjoyed? If they have to pay it back, will the payback be through some mechanism to Brussels, since they seem to be the offended party, or will Brussels require those who got tax relief to repay the Exchequer for the relief they got which we do not want them to give back? It would be ironic if a decision from Brussels compelled Irish taxpayers to pay back tax which the Exchequer and the various parties in this House hoped they would continue to enjoy.

Where does the situation stand? The Minister should state it bluntly for us because there are many inquiries now and we do not know what the situation is. Will the Minister project into the future, as well? Is it a fact that only capital allowances and tax reliefs in respect of residential accommodation may be applied in any new round of either urban or rural renewal schemes? Will only capital allowances relating to the residential side pass the test? If so, will the Minister state that? As in the upper Shannon area where residential reliefs have already been applied, is it confined to section 23 type apartment buildings and small houses or will it also apply to hotels, guest houses, holiday homes and boats on the Shannon, where people reside for a time during the summer? What will be caught within the residential provision? There is much concern about this matter which is inhibiting growth in the tourism industry and is also inhibiting investment in Dublin and other areas. In addition, it is inhibiting investment in residential accommodation which is badly needed.

Against a background of rising house prices, the Minister must do something about capital acquisitions tax in respect of the transfer of the family home because thresholds are now very low. Transfers from parents to children are becoming increasingly penal. When the transfer is not in the direct line of descent, including transfers to nephews, nieces and step-nephews, it is becoming very difficult. The transfer of quite modest homes, which the rise in inflation has made into very valuable properties, between aged sisters and brothers is becoming absolutely penal. The person who is left behind is in an impossible situation. I know of cases where the legal advice to people is not to set their affairs in order by taking out probate. If they do so they will end up in a nursing home because they will not be able to afford to pay the tax on the family home which they will then have to sell. The Minister will have to examine this situation because escalating house prices have left the tax regime totally out of line. I am disappoint that the Minister did not say anything about this, either in the budget or today. It is one of the areas about which I am receiving most representations. With house prices as they currently stand, there is a real social need to bring things into line.

I am also disappointed that the Minister did not say much about vehicle registration tax, except to reaffirm that it comes as he announced it. My colleague, Deputy Deenihan will deal with this matter in greater detail but we are disappointed in it.

I am glad of the assurances the Minister gave to the film industry. He could have included such provisions in the Bill, but the pressure of work in his Department with so many new proposals being brought forward, meant that he simply did not have the resources to deal with the various reports on the film industry. The Minister has extended the matter for a year to allow himself extra time, but he should not wait until next year's Finance Bill. He should introduce a separate Bill, either before the summer recess or immediately after it. We know Ireland was a very favoured location for the international film industry. It is not as favoured now because there is uncertainty about tax. The Minister should put that right.

I am very glad the Deputy said after the summer.

Yes, either the Minister or his successor. In the same way the masculine contains the feminine, the Minister's persona now contains me.

The betting at the moment is on Deputy Noonan to be the next Minister for Finance.

A very capable choice, I must say.

The Minister's officials should take note.

I welcome the Minister's proposals on profit sharing and particularly the "pay as you save" scheme he is introducing. If he is around at the commencement of the negotiations with the social partners, he should take pay into account. Of all the perceived threats to the booming economy, the one which resonates most is that at some future point we will find ourselves to be uncompetitive. The uncompetitiveness may arise from the price of houses but it is more likely to concern wage inflation. In 1986 and 1994 we found ourselves to be uncompetitive and we devalued. The competitiveness provided by those two devaluations has underpinned the economic boom because our growth is export led. There has been a kind of secret devaluation in fixing the 2.48 benchmark rate with the deutschmark. If one looks at it in trade related terms over a period of years, there has been a devaluation of about 30 per cent against the deutschmark, but the two previous devaluations did not add up to anything like that. That secret devaluation has given us further competitiveness benefits. In future, however, we will not be able to rely on devaluations. If there is a problem and the Central Bank wants to calm it down they will not be able to raise interest rates. Proportionately, we are very small players in Europe and if we get into trouble there will be no point in going to Brussels or Frankfurt because they will not take any macroeconomic initiative to help us.

If we become uncompetitive once more, the first line of defence will be pay. Once it becomes pay it will become jobs and multinationals will close down and leave for more competitive locations. Indigenous employers, meanwhile, will seek wage freezes or reductions. In the next wage negotiations, the negotiators must build in a buffer so that jobs are not the first line of defence. I do not want the situation to run from uncompetitiveness straight into redundancy. The Minister has included in the Finance Bill part of the buffer that can be built in, including profit-sharing and the "pay as you earn" share schemes. The Minister should add to that by introducing a scheme whereby the Exchequer will allow a company to give 0.5 per cent of its total payroll by way of an incentive bonus to at least 40 per cent or 50 per cent of its employees. That gives flexibility to the employer. The State would have to back it up by making it tax free to make it worthwhile. If sterling goes wrong, the next wage agreement should have some percentage related to the fluctuations in that currency. There should be a range whereby at a particular level of sterling one could have an x per cent pay increase which would rise or fall in relation to sterling. Something is needed because if sterling does not track the euro, there is a grave danger that indigenous industry, which trades principally into the UK, will be in difficulty.

The Minister might also look at the possibility of incorporating once-off lump sums into the package of rewards in the next pay agreement. Once off lump sums do not run into the wage base, yet they are there in good times and can be taken out in bad times. The policy levers that were available to Governments up to now are no longer there. If we become uncompetitive again there will be widespread redundancies. To ensure that jobs are not the front line of defence, the next agreement between the social partners should build in a buffer containing the elements I have suggested. In that way there will be one set of rewards in one set of circumstances, which can be taken out without touching basic wages, or without affecting jobs in other circumstances.

Essentially there are two elements to the Bill: those provisions which give effect to what was announced on budget day and some new items, most of which were flagged by the Minister a few weeks ago. I will deal with both in the time available to me.

I endorse what Deputy Noonan said earlier, and the Minister is on record as having said something similar during his period in Opposition. This is a long Bill with almost 200 sections. I welcome the Minister's advocacy of three days for Committee Stage. However, the notion of one vote on many amendments grouped together at the end of a two or three hour session must be examined carefully. Going on the experience of last year and the year before last, most of the amendments were not dealt with and most of the sections not discussed. We did not even get sight of the Minister's speaking notes on most of the sections. I hope the Whips take this into account when setting the time. Most of the time on Committee Stage is spent with about a half dozen Deputies. It is essential for the sake of the legitimacy of the House and our scrutiny of Bills that there is adequate time to at least give the Minister an opportunity to put his speaking notes on the record of the House and to have an opportunity to question him on them. That is something with which we must deal for Committee Stage.

I will make some general comments on what appears to be the economic and budgetary strategy of the Government. When the Government came to power less than two years ago, it appeared to have two central tenets to its economic policy. It committed itself to restricting Government expenditure within certain specified targets and to reducing the rates of income tax. Less than two years after it came to power, both these central tenets of its economic policy are in tatters. That in itself would not be such a bad thing since the policy was wrong anyway. Unfortunately, the Government's previously clear, if wrongheaded, policy has given way to an unintelligible mixture of contradictory aspirations.

Looking at the current side, the Government's stated target is to limit the gross increase in current spending to 4 per cent per annum over the life of the Government. I have said before, as have others, that the target makes little sense. It is a stand alone target plucked out of the air neither underpinned by logical reasoning nor related to ability to pay. That said, since the Minister persists with the target, we are entitled to judge him by the standards he has set for himself.

In 1997-8 the Minister sought to stay within his target by bringing forward almost £500 million of future liabilities into 1997. This affected a once-off change in the base which would make future adherence to the target a good deal easier. It had precisely that effect in 1998. In effect, the Minister remained within his target by sleight of hand. Unfortunately for him, the sleight of hand could not be operated a second time. Bringing expenditure into 1997 altered the base for all future calculations. To repeat that exercise in this year's budget would have had the effect of increasing the 1998 outturn. Given that, it was reasonable to expect that the 1999 budget would give a more accurate reflection of the real growth in Government expenditure. Given that he had other things going for him, such as lower unemployment, increased PRSI receipts and lower debt repayments, many people thought the Minister might make a genuine effort to stay within his targets. As we now know, we underestimated his ingenuity and willingness, not to say his determination, to put one over on any commentator trying to make sense of his economic policy.

One simple mechanism used was to increase the health levy from 1.25 per cent to 2 per cent and to abolish the employment and training levy. This was of no benefit to the health budget; Government spending on health was reduced by an amount equivalent to the levy proceeds. In his budget speech, the Minister attempted to suggest in a half-hearted way that this was a measure of the Government's commitment to the health services. It is nothing of the kind. It is nothing more than a mathematical exercise intended to deceive those trying to make sense of the Government's economic policy. The Minister admitted as much when he addressed the Joint Committee on Fin ance and the Public Service before Christmas in the presence of the Secretary General of his Department.

In one sense, none of this matters a great deal. The Minister's targets were wrong in the first place and it is no harm that they have been abandoned. On the other hand, there is something deeply unsettling about a Minister who insists on articulating an economic policy which is so manifestly bogus. How can any of us seek to debate with him if he is determined not to pursue a certain policy but to appear as if he were doing so? In all likelihood, the Minister, Deputy McCreevy, believes in the targets he has set himself. He should now have the courage to either put up or shut up. Either he should seek to meet his targets or he should formally abandon them. This make-believe world of fancy statistics and number juggling is an inadequate substitute for a genuine economic policy.

Still on the subject of current expenditure, I was struck by the financial envelopes set out by the Minister in the supplementary documentation he provided on budget day. He told us a number of times last year in reply to parliamentary questions and otherwise that he intended to publish on budget day the financial envelopes, disaggregated by individual Vote group, which would be available over the next three years. The figures he produced on budget day seemed to fall short of this but, nonetheless, they make interesting reading. For example, the health budget for 1999 is projected to be £2.974 billion, which is 10.5 per cent to 11 per cent higher than in the previous year, allowing for the trick acting with the levy. The figure for the year 2000 is given as £3.044 billion and the figure for the year 2001 is £3.165 billion. This represents an increase of only 2.5 per cent in each of those years. This contrasts dramatically with increases of more than 10 per cent in the past two years.

This provokes the obvious question: from where do these figures come? How, or in what context, were they agreed? Is anyone seriously suggesting that health expenditure is to be restrained in this way? At a time when the largest hospital in the State is threatened with closure because of inadequate financing, surely this is not a time to cut back health spending? However, the health figure is typical. Most of the increases provided for in the years 2000 and 2001 are in the order of 2 per cent to 3 per cent per annum. We are entitled to know how these figures were reached and calculated. With the exception of the Minister of State with responsibility for overseas development aid, Deputy O'Donnell, I am not aware of any statement made by any Minister relating to the allocation made to his or her Department for future years. In anticipation of the Minister's response, I am aware an unallocated additional figure of £296 million has been provided for the year 2000 and a figure of slightly more than twice that for the following year. That said, even these figures are inadequate. Almost all this money would have to be allocated to the health budget to meet the increase likely to be demanded in that Department alone.

The Government's record in medium-term forecasting is not good. The convergence programme produced in 1997 now reads like a work of complete fiction. However, these financial envelopes, if that is what they are, are meant to be something more than estimates. They are meant to be a key part of the Government's multi-annual budget strategy. The Taoiseach told me on budget day that these allocations had been made by Government decision. He seemed to imply they were hard and fast decisions rather than mere aspirations. It is time the Government came clean. Is it committed to multi-annual budgeting or not? Do these future allocations mean anything? If they are to be taken seriously, the Minister owes us a full explanation of all the implications.

Presumably, these expenditure projections for 2000 and 2001 have been taken into account in compiling the stability programme submitted to the European Commission before Christmas. The programme makes for interesting and in some ways, disturbing reading. It projects a cyclically adjusted tightening of fiscal policy over the period of the programme. This is at a time when fiscal tightening is the last thing we need or want. Even more disturbingly, the programme projects a reduction in general current expenditure as a percentage of GDP, from 31.4 per cent of GDP in 1998 to 28 per cent in 2001. This is nothing less than ideologically driven monetary conservatism at a time when the country still has enormous social needs, and more to the point, now has the capacity to go at least some distance in meeting them.

Let us not forget that our per capita spending on health is still among the lowest in Europe, that class sizes in our schools are still among the highest in the European Union, and that in this time of plenty, local authorities are still obliged to make real cuts in services to stay within the relatively meagre increases in budgets provided by the Custom House.

I attended a meeting in Dún Laoghaire two or three weeks ago at a time when local authorities were setting their annual budgets. I was amazed to hear they were being obliged to contemplate relatively minor but very stupid cuts in areas such as the provision of books in libraries because of the inadequacy of the budget being provided from the Custom House.

There are two different things happening in this country – on the macro level, in the documentation we receive from the Department of Finance, we have wonderful current budget surpluses, likely to hit £3 billion or £4 billion in the next couple of years, while at the same time, in local authorities, minor but nonetheless painful cuts are being made. The two cannot comfortably sit side by side.

The Government's policy on capital investment is no less confusing than its policy on current spending. Virtually everyone accepts we have an infrastructural deficit. Notwithstanding the high rates of economic growth in recent years there are still major deficiencies in our road network, our telecommunications sector and other services such as water and sewage treatment. There is an overwhelming case, accepted by virtually every party in this House and widely outside it, for investing in these services at a time when we can afford to do so.

In that context, the Government's stated target of increasing capital expenditure by only 5 per cent per annum was clearly a nonsense and in fairness to the Minister he rapidly abandoned it. He made provisions substantially in excess of that in his first two budgets. However, he also stoutly refused to apply any of last year's unintended budget surplus towards necessary investment. In the communiqué issued jointly with the European Commission on 14 March, he committed the Government to applying any unintended surplus to the reduction of the national debt.

He followed through on this policy by making provision in his 1999 budget for a budget surplus of close to £1 billion, all of which is to be applied to the national debt. There is a strong argument that this is not the best possible use of money in these circumstances. The national debt is reducing as a percentage of GDP in any event and is already below the 60 per cent target set in the Maastricht convergence criteria. The national debt is well and truly under control; so much so that the agency charged with managing the debt, the NTMA, has indicated its view that the surplus money would be better used on infrastructural investment rather than on reducing the debt.

Perhaps even more interesting were the comments in a speech given in Limerick a few weeks ago:

Paying off part of the national debt is hardly a grand political project. Surely, we as a nation are capable of more visionary thinking; surely we are capable of devising a forward strategy for future investment that will help to transform this country.

That speech was not made by some loony leftie or some vested interest with a tendency towards profligate spending. This speech, which is, interestingly enough, on Progressive Democrats' headed notepaper as opposed to Department of Enterprise, Trade and Employment headed notepaper, was made by the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Harney. This clearly represents a significant shift in PD policy. More importantly, it is a direct contradiction of the Minister of Finance's stated policy and the Government's policy stated in the communiqué issued in March 1998.

Apart from the fact that Deputy Harney is the Leader of the Progressive Democrats, the Minister's partner in Government, she is also Minister in a Department which has a direct influence and say in economic policy. We are entitled to ask who speaks on behalf of the Government on this issue. This is far from being an academic or purely party political argument. If this Government was to run its full course, it would have in the region of £5 billion surplus moneys to spend. Allowing for privatisation receipts, the figure could be close to twice that. There is clearly a fundamental indecision, if not division in Government as to how best this money can be used. The Tánaiste promises a brave new world while the Minister of Finance wants to reduce the debt.

I suspect the Minister will protest that he has provided for significant increases in capital expenditure over his two budgets. It is true that in percentage terms, the capital budget has been increased by a significant amount. However, there is clearly a need for this level of increase to be sustained and increased further; but stated Government policy suggests exactly the contrary.

The stability programme projects that total Government investment as a percentage of GDP – I gather this figure includes receipts from Europe as well as moneys provided from our domestic resources – will remain almost exactly the same as it currently is over the next three years. This means that actual cash increases will be in accordance with the level of growth which is projected in the same programme as in the region of 6 per cent per annum over those three years, which is a reasonable balance to strike.

Is the Minister seriously telling us he believes that dedicating just 3 per cent of GDP to infrastructural spending is sufficient in the circumstances in which we are projecting a current budget surplus of about £4 billion? How can we possibly justify such a low level of capital expenditure at a time when we can clearly afford and clearly need a great deal more?

We all know the lead-in period for planning is quite long. If we are to have the decade of investment which we need, the planning needs to start now. I see no sign, even in the context of the current national plan, that this Government is making the wherewithal available to ensure that planning and the investment we require happens.

It is particularly ironic that this is happening at a time when the Minister is playing ducks and drakes with Brussels in an attempt to squeeze an extra few million pounds out of the European taxpayer. I have spoken at some length on this issue before and I do not intend to labour the point here. Suffice to say that the Government's pathetic effort at regionalisation must be put in the context of its abject failure to use resources generated at home.

Before I leave the stability programme, I will ask some questions about taxation. Is it Government policy to reduce taxation as a percentage of GDP? Mr. Tutty of the Department of Finance told me a few months ago at a committee that it was not stated Government policy to reduce the relative value of the tax take in this way. On the other hand, the stability programme projects a reduction in central Government taxes from 29.3 per cent of GDP to 27.9 per cent over the next three years. The Minister is on record in previous times and in a previous guise as stating that as a matter of ideological principle, he would also favour a reduction in the tax burden in this way. It would be helpful if he clarified the position today, or at the very least on Committee Stage.

The stability programme also indicates that projections of Government expenditure for future years incorporate a continuation of current taxation policy. Unfortunately, he then goes on to characterise this policy in a way which does not stand up to scrutiny. Given the lack of continuity and coherence between the Minister's two budgets in tax policy particularly income tax policy, it is unlikely he will tell us how he intends to pursue these matters over the next few years. However, he should surely be able to tell us the measure of the reduction in tax which has been factored into the stability programme which has been presented to the European Commission. I hope he will be able to do at least that when he replies to the debate.

The major change in the budget, to which the Finance Bill gives effect, is the partial switch to tax credits. I welcomed this in my budget speech. It is a manifestly fairer way to do things. However, the Minister has only started into the process and he has not gone a great distance down the road. In a sense what he has done provides him with the framework on which he can build in future years should he chose to do so. It clearly contradicts what he had done in previous years particularly in his first budget when he had sought to reduce the income tax rates. To give positive effect to what I acknowledge as an equitable move, he needs to indicate to us how he intends to build upon it or, given the Minister's tendency towards secrecy in these matters, at least confirm that he intends to continue to go down this road.

The major initiative in the Finance Bill is the pension provisions. Unlike Deputy Noonan, who expressed unreserved support for them, I have some concerns about some of the provisions in the memorandum because we have not seen the provisions in the Bill itself. We must put all of this debate in the context of the pensions initiative published about six or eight months ago which made a number of recommendations. It was a particularly good initiative. The Minister's reaction to it and the reaction of his colleague, the Minister for Social, Community and Family Affairs, was quite positive. As I recall, some three working groups were set up to look at aspects of it. None of them has yet reported.

I support the pre-funding of pensions. It is a useful, progressive and politically saleable way of using surplus moneys which are available now. I know the Minister's Department is considering these matters and that the interdepartmental working group will shortly come to a conclusion. I hope it will be a positive one and that we will establish a fund before the end of this year or at least in next year's provisions.

However, it provokes a number of interesting questions. If we accept the principle that rather than reducing the debt it is more economically viable and proper to set up a fund and that the Minister can invest to greater effect and with benefit to the Exchequer, then we are surely saying the State must maintain some exposure to the market because it is likely that any managed fund of that kind, whether it is done through the NTMA or private fund managers, would need to include at least some equity element. Recently it struck me that, at a time when many of the ideological objections to privatisation on this side of the House are not as strong as they once were, there is surely still an important argument to be made in this context for the retention of some valuable State assets. One which strikes me as most obvious is Telecom Éireann. The reality is that had we disposed of the shares in Telecom Éireann a couple of years ago they would have fetched a great deal less than they would fetch now. To a great extent, it has been an appreciating asset. It has been in the financial interests of the State, apart from all the strategic considerations in the telecommunications area, to retain those shares. If we are considering setting up a fund which will presumably have some equity element to it for the purpose of pre-funding pensions, we must consider whether it is appropriate at the same time for us to dispose of valuable State assets.

One of the provisions in the Bill relates to the tax-free element of contributions. There is a balance to be struck here. We should encourage people to make provision for pension and a tax-free element is a necessary part of that, but we should not deliberately look to create what could prove to be valuable tax shelters for better off people. There is a risk that at the higher end – the 30 per cent level – it would be possible for people, even given the earnings cap, to secrete away a considerable tax-free sum of money for purposes other than purely providing pensions. Given that it will no longer be necessary for all of that money to be applied towards pensions when the time comes and that it will be possible for individuals to draw down a considerable amount of money by way of lump sums, one must wonder whether we should create a tax shelter of that kind. I presume the Minister will argue that tax will be payable when the lump sum is drawn down, but it will still be possible for somebody to invest over a period of 20 years and the benefit which he derives from that investment in terms of its increased value would not be taxable. I wonder whether we are going a little too far in that and I want to tease out that matter further on Committee Stage.

Perhaps the central provision in what the Minister is looking to do is more important. He is effectively looking to deregulate what happens to pension funds when somebody comes to retirement age. He has put it in terms which, on the face of it, sound extremely attractive. He said the provisions are pro-consumer, he is giving back people's accumulated savings to them and he is allowing people to inherit moneys which are not used by the person who made the savings in the first place. All of that sounds attractive and to some degree it is. I agree with him that the current provision, whereby one is obliged to invest in annuities and cannot change once one has done so, is not satisfactory and is far too rigid. It is right that we should seek to change it.

However, there is a middle ground which the Minister has chosen not to take. There is still a need for regulation of some kind. Certainly, by all means let us expand the number of ways in which the money can be invested or drawn down. There is no reason to oblige somebody to invest in annuities. I do not see why properly regulated and approved managed funds should not also be available to individual investors and pensioners for the use and management of their moneys, but there should be some control over it. There should be some obligation on the Minister or the Pensions Board to approve funds which would be suitable for the investment of pension funds in that way. We should not allow pensioners to have virtually unfettered control over the moneys they have provided for themselves.

The reason is simple: that whether we like it or not, not everybody will make a sound investment decision and not everybody, whether he or she is advised or not, is in a position to make a sound investment decision. Unfortunately, some older people will be brought under pressure, perhaps from offspring who might require a loan to sustain a business or buy a house. It is not difficult to imagine circumstances where older people in their declining years are brought under pressure or, indeed, put themselves under pressure to dispose of their pension or savings in a way which is not directly for their benefit. The reality is that all of our thinking in pension provision heretofore has been based on security. The current system may not offer good returns and may be too inflexible, but it offers security. We must look to maintain that level of security in anything that we do.

I remember the Minister making contributions on this issue during Committee Stage of last year's Finance Bill. He made it clear that he intended to do something of this kind so I am not surprised at the provisions of the Bill, but I am concerned about how they sit with the pensions initiative published last year which was so wholeheartedly welcomed by the Government at the time. It seems to me that much of what the Minister, Deputy McCreevy, is seeking to do flies in the face of what the pensions initiative suggested. It is possible that private retirement funds can be made to sit side by side with what the Minister has done. However, the element of security is missing and I am concerned about that. Having given some thought to this matter, I am inclined towards obligatory personal contributions which would oblige those who can afford to do so to make some provision for their own pensions. I am not quite sure how this could be done but I am convinced the voluntary way of doing things which now applies is not sufficient and does not provide the level of security which our society should try to encourage.

The question of giving powers to the Revenue Commission has attracted much attention in recent days. The Labour Party has always supported granting the necessary powers and resources to the Revenue Commissioners to enable them to ensure that there is proper compliance with revenue legislation. There is no point in this House passing legislation if the powers do not exist to ensure proper compliance with the law. We must also acknowledge people's entitlement to privacy and to protection from unfair intrusion into their affairs. We must strike a balance. Any tax practitioner and anyone who has ever had an audit done will know that theory and practice can diverge considerably. When a tax inspector arrives at an office the first thing he or she will do is ask to see bank statements. In most cases those bank statements are voluntarily presented.

If they are not, a measure of justifiable suspicion is aroused. However, concern has been expressed that the Revenue Commission may do trawls without any particular reason. It is important that we focus on the need for the establishment of reasonable suspicion before the Revenue Commissioners use this power. I was encouraged by what the Chairman of the Revenue Commissioners had to say the other day on this matter and I was glad to hear the Minister repeat some of what he said today. I agree with Deputy Noonan that there is a need to set out the procedures to be followed, whether by way of statement of practice or statutory regulation. My preference would be for a statement of practice. For example, it should be required to state the nature of the suspicion before the Revenue Commission would exercise these powers. The process will be largely internal and will not be visible to individual taxpayers and it is important that the process be clearly set out in principle, in writing and in advance.

I note what the Minister said about advance notification of individual taxpayers. That is the least that would have been required by the Haughey case of a few weeks ago but he needs to go further in setting in motion a review process. I noted that the Minister said that there would be a facility to apply for judicial review. I am not sure if he intends that as an appeal to the courts. If that is what is intended it should be spelled out in the Bill. As a general principle, provided these measures are employed in a fair and equitable fashion, the Labour Party supports the new provisions for powers.

The Minister touched on the business of ESOTs. Like Deputy Noonan I think this will become increasingly important. Because devaluation is not available to us because of our membership of the EMU, we need to have different forms of remuneration available to us which are more flexible and which can be reduced. There is no reality in suggesting that actual wages can be reduced in times of economic difficulty for firms. We need a more flexible instrument which can go up an down according to whether a company or an economy is profitable.

I welcome the start the Minister has made in dealing with ESOTs. I am concerned about one aspect of this question. Some of the provisions of the Bill were agreed with the Communications Workers' Union and the unions involved in setting up the Telecom Trust. I suspect we will see a great deal more of this. The motivation in setting up ESOTs should be clear. It is to set up a partnership arrangement within particular companies and to allow for more flexibility with regard to remuneration. They are not intended to provide a capital asset for individuals which, if they cease to be workers, they may retain for five or ten more years and then sell on the open market. This defeats the purpose of the exercise.

While I understand why people who are currently working for Telecom Éireann, for example, will want to retain that asset, this aspect of ESOTs does not lie comfortably with the stated aims of these trusts which are to foster partnership and provide more flexible forms of remuneration. This is something on which we need to keep a close eye. I suspect that trusts of this kind in the semi-State sector are being provided as something close to a bribe to workers to facilitate the privatisation of companies in this sector. We must maintain a focus on the primary purpose of these trusts.

The Bill does not contain provision for the regulation of credit unions. The Minister is not here to allow me to tease him about the events of last year. As a result of his failure to deal with the question of credit unions last year, the Minister set up a working group comprising representatives of the League of Credit Unions, his own Department, the Department of Enterprise, Trade and Employment, the Registrar of Friendly Societies and one or two others. The group produced a report towards the end of last year which suggested various changes all of which are in the public arena. It is quite clear from the Minister's demeanour and from what he has said in the past week or so that he has no intention of giving effect to the proposals of the working group. In the first page of the report I read, "The Department of Finance sees no case for any further changes to tax law to favour credit unions". This is the core of the issue.

The Department, and presumably the Minister, does not accept that credit unions are particular types of organisations which require or deserve our support. I strongly disagree. Credit unions were not established to make a profit. They are not the same as other financial institutions. They are largely managed by volunteers and they have a structure which is not analogous or comparable to other financial institutions. They also have a client base which is distinctly different from those of other financial institutions and that must be recognised. This is recognised by everyone in the House except for the Minister and his Department. Does the Minister stand by the statement by the Department of Finance and does it represent his policy and the policy of the Government?

The Minister knows that the working group divided on the question of its recommendations. All parties on the working group favoured granting favourable taxation treatment to credit unions except the Department of Finance. I assume the Minister agrees with his Department. If he does not intend taking action on this matter, let him say so. We can then judge him accordingly.

The Minister referred to film relief. This is widely acknowledged as an enormously successful relief which has brought considerable investment to the country. It has targeted attention on the country which has been largely positive. The INDECON report, which will soon be available to us, recommends the continuation of this tax relief. I know a number of other reports are being prepared on this subject and I gather they will be available soon. The Minister needs to go further than he did today in saying that he favours in principle the continuation of the relief.

Obviously we can tweak it in a particular direction by setting a greater requirement for employment initiatives. He should go further in acknowledging that the relief has had the desired effect in bringing investment into the country and providing employment and he should seek to have it continued in future years. It is not sufficient that it would continue on a year to year basis.

The Minister did not mention today that the Bill provides for an increase in the limits for tax free take of redundancies. Given that the limits have not been increased for a number of years, it is right that they be increased in accordance with inflation in the intervening time. I take this opportunity to comment on the level of redundancy provided largely as part of the restructuring of semi-State bodies because there is cause for concern. The statutory redundancy is far too low. Few people made redundant would be happy with anything remotely close to the statutory redundancy provided for in the 1970s legislation. I am concerned in the current employment market at the levels of redundancy offered in the semi-State sector as part of restructuring arrangements. They strike me as extraordinarily generous. We are all aware of people in their 40s in Telecom Éireann, the ESB and other companies who have left with very large sums of money only to get another job a few weeks later. In an employment market where people are setting up in employment, in circumstances where they may even be facing unemployment, they need help. Where there is a likelihood that a person who has acquired skills in the semi-State sector over a period will get a job in the private sector, probably competing with previous employers, one wonders whether such generous settlements are appropriate.

I welcome the Minister's statement about Irish non-registered companies. On reading the pro posals in the explanatory memorandum it strikes me he has got the balance right. Unfortunately, the proposals are not contained in the Bill but I hope they will be available soon. He has got the balance between taxation measures and company registration measures right. I argued last year that actual residents should be acquainted with residence for taxation purposes and I am pleased he has taken that on board.

The issues of compliance and enforcement are extremely important. There has been an improvement in recent years in the staffing levels of the Companies Registration Office, but if there is any increase in the number of Irish non-registered companies there will be a major task of enforcement and I ask whether the office has the capacity to carry out that task. Likewise since the measures specifically proposed are taxation measures, I wonder if the Revenue has the capacity to ensure compliance with the measures set out in the Bill?

I wish to refer to provisions which I thought might be contained in the Bill. The Minister indicated last year he intended to change the income tax year to coincide with the calendar year. How far has he got with that proposal and does he intend to bring it in next year? He indicated also last year that he intended to look at the taxation arrangements for cohabiting individuals rather than married couples? Has he made any progress on that matter?

There are good and bad measures in the Bill. Given the need for sufficient time to deal with this Bill in detail on Committee Stage, I hope the Minister will lend his weight to making time available.

I wish to share my time with Deputy Hanafin.

Is that agreed? Agreed.

The number and diversity of sections in the Bill demonstrate the work and effort being put into his portfolio by the Minister for Finance, Deputy McCreevy. I commend him for the flexibility he has shown in adapting to the prevailing circumstances. I congratulate the Department of Finance on publication of the Bill. The full text of the Bill and explanatory memorandum were immediately available on the Internet. The Bill contains an index of all the items in layman's language. It was interesting to note that of the 82 items, only 33 were mentioned in the budget, a further 26 or 27 were mentioned on 21 January and there are 22 new items.

What marks this Finance Bill are the powers being given to the Revenue Commissioners. They are far-reaching and appear to encompass all the controversies in banking, taxation and associated activities. As happens on many great occasions, the best wine is kept until the end. Some of the most interesting parts are at the end of the Bill. Therefore, I wish to approach the Bill from the end and proceed to the beginning rather than the other way around.

Section 195 places the taxes Acts under the care and management of the Revenue Commissioners. Effectively they are the bosses when it comes to application of the taxes Acts. The Revenue Commissioners consists of three persons. They are not the Holy Trinity but to some people in difficulty in their taxes they often appear to be. There is a perception that the Revenue Commissioners are unapproachable. Since I became a member of the Committee of Public Accounts, the Revenue Commissioners have been accountable to the House through that committee. The chairman of the Revenue Commissioners is asked to fully explain his actions on how he has carried out his duty over the previous year.

It is right and proper for Members to make representations to the Revenue Commissioners on behalf of their constituents. The Revenue Commissioners have discretion under the care and management section to mitigate taxes and penalties in the interests of effective and efficient management of the whole tax system. If a public representative considers there are circumstances which the Revenue Commissioners should take into account in making a decision on the tax affairs of his constituent, that public representative has a right and duty to his constituent to make those circumstances known to the Revenue Commissioners. The Revenue Commissioners have a duty to consider those representations in arriving at their decision.

There is an attitude among tax inspectors that no public representative should interfere in the assessment and collection of taxes, but this is wrong. If there are circumstances which a public representative believes may not have been taken into account by the Revenue Commissioners in arriving at a decision, it is incumbent on the public representative to make representation on behalf of his constituent. Public representatives can bring a human element into the equation while often taxpayers' agents, be they accountants or lawyers, look only at the legalistic and statutory implications. Invariably, when questioned about a taxation matter, the Minister for Finance replies that he has no function in the matter and that the Revenue Commissioners are charged with the care and management of the taxes Acts. I can understand the reason a Member should not make representations to the Minister for Finance on the tax affairs of a constituent, but there is no reason he cannot make representations to the Revenue Commissioners.

The Revenue Commissioners should ensure the various inspectors of taxes treat representations from Members as genuine and take on board and consider the representations made. I acknowledge in the vast majority of cases the same decision may result. However, it should be possible for a public representative to, on occasion, expand the criteria upon which a decision is made and, thereby, produce a different result.

Under section 193 the limit on the amount of grants that county enterprise boards can make is being increased from £100 million to £200 million. Over recent months, both enterprise boards and their clients who are trying to start businesses have found that payments which were agreed and promised could not be paid. I hope such a monumental omission by the bureaucracy will not recur.

Under section 192 the management of borrowing for FEOGA purposes is being transferred to the National Treasury Management Agency. There has been a great deal of criticism over a number of years of the management of borrowing by the Department of Agriculture and Food, particularly by two Members of this House. However, I question whether that criticism was deserved. The Department of Agriculture and Food performed the task of managing that borrowing in a very professional manner.

The National Treasury Management Agency has been set up as the sacred cow of financial matters in Ireland. However, it should guard against becoming a self important ivory tower type organisation. Everyone accepts its competence, but it is unelected and its contributions to policies, while much esteemed, should be given to the Minister for Finance rather than the national media.

Section 189 deals with the additional powers of the Revenue Commissioners. I was delivering leaflets over the weekend—

A wise precaution.

—making people aware of the improvements in the medical card guidelines and the very generous increases in the social welfare payments in the budget which will come into effect very shortly. However, there is a fear among social welfare recipients, old age pensioners and owners of small businesses whom I met over the weekend that this section will be used as a witch-hunt against them for the purposes of reducing means tested payments, and that senior citizens will be frightened to put their money in banks. Last Monday we heard how almost £30,000 in cash was robbed from a couple, money which should have been in a bank.

These fears are not well founded. Dermot Quigley, the chairman of the Revenue Commissioners, recently made a statement, to which the Minister for Finance alluded in his speech, in which he said the additional powers being given to the Revenue Commissioners in the Finance Bill are targeted at cases of tax evasion, and not at means tested social welfare recipients or owners of small businesses.

The Social Welfare Bill will be debated in the House next week. There is a case for disregarding the first £20,000 of savings of social welfare recipients for means testing purposes. People who save money for hard times should not be subjected to that type of means test. Savings of £20,000 effectively mean that the social welfare recipient is down £40 per week. A person on social welfare should be allowed to have savings of up to £20,000 for their security and old age. I will develop that point further during the debate on the Social Welfare Bill next week.

It is obvious, from reading the section, that the additional powers are aimed, as the chairman of the Revenue Commissioners stated, at the serious tax offender and not at social welfare recipients and owners of small businesses.

One of the little heralded powers given to the Revenue Commissioners is that the details of insurance policies related to taxpayers' assets will have to be made known. It is not often that taxpayers are asked for a statement of affairs and a list of their assets and liabilities. However, it appears from this section that it may be a more frequent occurrence in the future. I do not know if those who leave their Mercedes at home and drive their battered old Fiat on the day the inspector calls will continue to get away with that.

One of the sections that aroused fear among a number of bank account holders was the amendment to section 905 of the Taxes Consolidation Act. Under this section an authorised officer can carry out an on site audit of a financial institution. Concern was expressed to me by a number of people that under this section the tax authorities could trawl through bank accounts on a wide basis, on the pretext of examining the tax affairs of the bank.

The section in the Taxes Consolidation Act specifically states that only items of the bank's clients such as fee income or charges will be examined by the Revenue Commissioners, and not the accounts of the clients of the bank. Will the Minister confirm there will not be a trawl and examination of bank accounts when an on site audit of a financial institution is being carried out?

The amendment to section 906 of the Taxes Consolidation Act states that the consent of the Revenue Commissioners is required for an authorised officer to seek information relevant to a person's tax liability. That additional power demonstrates that the Revenue Commissioners do not have the power to examine bank accounts on a general basis.

The new power under the amended section 907 of the Taxes Consolidation Act allows the Revenue to apply to the Appeal Commissioners to examine a group of accounts. Accounts such as the Ansbacher accounts will come under the remit of this provision, which everyone believes is absolutely necessary. The Revenue Commissioners, on the order of a Circuit Court, can investigate transactions relating to offshore insurance bonds and so on.

The amendment to section 908 gives power to the Revenue Commissioners, on the orders of a High Court judge, to freeze the assets held in the bank of a person. This will allow the Revenue Commissioners greater access to freeze the assets of criminals.

On sections 11 and 188, to which the Minister alluded, I am delighted that funds donated to trusts for permanently incapacitated individuals – who are often injured sportspersons – and the income from such funds will be exempted from tax. That is a very welcome development which, as the Minister said, reflects the desires of the donors of such funds.

Section 105 refers to vehicle registration tax. A concerted effort to change the minds of Deputies and the Minister in regard to increases has been waged by SIMI. As the Minister stated, in January there was a 21 per cent increase in sales of cars over 1400cc, compared to the same period last year.

The provision in regard to Irish registered non-resident companies is very welcome. For too long, we have been reading in the Sunday newspapers about Irish companies for sale for £240, obviously with the intention of evading tax. These advertisements are placed in newspapers in the UK and across Europe. This provision will ensure that such companies will not be as popular in the future as they have been. All companies registered in Ireland will be deemed to be resident for tax purposes in Ireland. In addition, those companies which are already registered will, from October 1999, be deemed resident here for tax purposes. I foresee a large exodus of phantom companies from our shores, companies which were never here in the first place.

Debate adjourned.