Dáil Éireann debate -
Wednesday, 10 Mar 1999

Vol. 502 No. 1

Finance Bill, 1999: Report Stage.

Mr. Noonan

I move amendment No. 1:

In page 15, between lines 11 and 12, to insert the following:

"PART 1

Taxation Policy

1.–(1) The Minister for Finance shall on the 30th day of October, 1999, and not less frequently than each fifth anniversary thereof, lay before both Houses of the Oireachtas a White Paper on the development of taxation policy.

(2) The Minister for Finance shall invite submissions from interested parties, not later than the 1st day of April in each year, in which such a White Paper is prepared. Such invitation, which shall be published in Iris Oifigiúil, shall be accompanied by a listing of those areas of taxation policy, which the Minister considers should be addressed in the White Paper.”.

We discussed this on Committee Stage but I thought it was worth resubmitting it so that we could discuss it again. The Minister has signalled major changes to the tax code and the ramifications of some of those changes are not clear.

In the budget he announced that, from now on, personal allowances would only be available at the standard rate but there are a range of other allowances. On behalf of the Government he said we were moving away from an allowances system to a tax credits system. This should be dealt with in a White Paper so that people could clearly see the ramifications of a move to tax credits.

There are also implications arising from the agreement in Brussels that the standard rate of corporation tax will be 12.5 per cent. I raised with the Minister the question of how surpluses would be distributed. Although he has signalled the schedule of change and the increments by which he will reduce the rate after this Finance Bill from 28 per cent to 12.5 per cent, the full implications for certain companies are still not clear. We have discovered that mining will be treated as if it were not a trading activity and a 25 per cent rate of corporation tax will apply to it, although quarrying will be taxed at 12.5 per cent. We need further information in that area also. Again, a White Paper would be the appropriate vehicle to flag the way forward.

The Minister has indicated that the Finance Bill represents the commencement of a new approach to pensions. For the purposes of debate, it would be of assistance if he indicated his intentions in detail by way of a White Paper. The Minister will be aware that the proposals he announced on budget day, which he implemented by way of amendments on Committee Stage, have caused a great deal of debate, some of which has been ill informed. The fact that professional advisers have only had since last Monday to come to terms with the changes proposed by the Minister is one of the difficulties. If, as stated on Committee Stage, the Minister intends this to be the first instalment of a total reform of the manner in which pensions are funded, and given his indication that he also intends to make changes in occupational pensions, there is a necessity to flag this in advance and to set out the main proposals by way of a White Paper to allow a public debate before legislation is introduced.

The other area in respect of which a fruitful discussion could take place involves the appropriateness or otherwise of granting additional powers to the Revenue. The Minister may not be able to indicate his overall position by October because it does not seem the tribunals will have reported at that stage. However, this is another area where an overview is necessary.

There are five obvious areas where it would facilitate debate and inform the public and Members in a more satisfactory way if the Minister committed himself to the publication of a White Paper. The first part of the amendment suggests that on this occasion it should be done by 30 October 1999, but the second part proposes the Minister for Finance and his successors would be obliged, following consultation, to bring forward a White Paper every five years to update the public on the latest thinking on tax changes intended within the Department of Finance or by the Minister. That is the basis of this proposal.

I thank the Minister for forwarding to me the papers from the taxation review group which have been helpful. I am aware he intends this as a compromise to producing a White Paper to better inform the public. I understand the papers are being placed in the Oireachtas Library and I presume they will be made generally available. I do not know if they are available on disk, but the cover note accompanying them suggests they will be made available on the Internet on the Department of Finance's web page. If they were made available on disk they would be of benefit to the professions, but I presume interested parties will be able to download them from the Department's website.

I thank the Minister for this major advance in providing information to everyone in respect of current thinking in the Department of Finance, which moves a considerable distance towards meeting the requirements set out in the amendment. However, the Minister should reconsider the position because there is nothing to fear from sharing the maximum amount of information with the public or with Members of this House. In my opinion there is an obligation to do so at a time when the Minister is signalling major changes across a range of taxation issues and when he is raising the expectations of change but not supplying the relevant information to the general public.

Mr. McDowell

This amendment provides the opportunity for a short debate on how we plan ahead and the level of economic debate in which we engage. I join Deputy Noonan in thanking the Minister for publishing the tax strategy group's reports. I have not had an opportunity to consider them carefully because I received them only this morning. I have no intention of carping, but at a glance they seem to be somewhat different in tone from previous TSG reports. I wonder if this is informed to some degree by a paper which appears close to the start of the folder indicating that the reports are accessible under the Freedom of Information Act. Perhaps that has informed the way the reports are drawn up because they are far slower than previous reports to identify who held a particular view. I suppose that is one of the downsides of openness. However, I welcome the publication of the reports because they will be useful in stimulating debate.

It is interesting that the primary element of last year's budget, namely, the partial shift to tax credits, scarcely features in the reports. There is one discussion on this in the summary of the Partnership 2000 working group's report. However, beyond that there is almost no reference to the major element of last year's budget. It might be fair to state that perhaps the Minister relies rather less than his predecessors on TSG reports and discussions. If I can anticipate his response, I do not doubt that the Minister will make a virtue of that, rather than considering it to be a criticism.

Minister for Finance (Mr. McCreevy)

The Deputy is correct.

Mr. McDowell

I thought I might be. Today's debate will be interesting because the Minister had a late in the day Pauline conversion to political correctness on Committee Stage and he was proud to inform us of that. Perhaps during this debate we will be able to test the mettle of that assertion.

To return to the serious issue of multi-annual budgeting and planning, we appear to be in a position where we can meaningfully plan for the next five to ten years on the basis of a moderate level of growth, namely, 4 per cent to 5 per cent. It is sad that there has been a dearth of discussion and debate about how this can be achieved. Part of that results from the size of the country and the number of bodies, institutes and advisory groups in place to provide the debate that is needed. Also, political thought in this area has tended to clutter around the centre.

An important element of this issue involves the role of Government. We have made some effort to project into the medium term and since budget day I have made an effort to generate debate about the stability and convergence programmes we have submitted to the European Commission. It is interesting and remarkable that, even to debate this issue, we have been obliged to base our discussions on reports and projections we have been required to submit to the Commission. The notion of medium-term thought or projecting ahead by three to four years is foreign to us. This stands in notable contrast to the budget introduced yesterday by Chancellor Gordon Brown in Britain which set out a programme for two to three years. That is something we have been reluctant to do and it partly reflects the decision making process which obtains in this country.

I do not know when the decision was taken to introduce tax credits. However, I will wager it was taken late in the day and that the Minister has not been planning the conversion to tax credits since taking office. There is a lack of planning, coherence and predictability about the way we deal with the taxation system, which is unfortunate.

Given that the Minister is indulging in significant openness in terms of publishing the tax strategy group's reports, I suggest that, in terms of medium-term projections and planning, openness is also required in respect of the national plan. A number of weeks ago the Irish Independent leaked, if that is the correct word, an ESRI report which will form the basis of the advice to the Government in respect of the plan. It would be useful if a statement of the Government's current thinking were circulated, perhaps to the Joint Committee on Finance and Public Service, for discussion rather than waiting until the plan is produced in completed form. A much more extensive public debate than was previously entered into is needed on these issues. I take it that is the intention behind the amendment.

There is not much point in making medium-term projections if we are not in some way bound by those projections and the plans we set out. As stated previously, the multi-annual budgetary strategy will work only if it is credible. It will be credible only if people believe the Government is committed to delivering on the targets included in the multi-annual budgetary strategy. Given that there has been no debate on the Estimates – the Minister does not refer to them as financial envelopes but they appear to me to be exactly that – since they were published last December, it would be easy for the Minister and the Government to simply walk away from them.

There is a need to debate the way the Estimates are formulated. It is interesting that the Minister has published the TSG report today. I submitted a request under the Freedom of Information Act in respect of Estimates debates within particular Departments. Some of the responses bordered on the hysterical. There was a lack of comprehension that they were being asked to indicate their spending priorities and negotiating position with the Department of Finance. It was almost as if munitions had been used in part of the war, had not worked in the particular year and were being banked for the following year. The notion that there could be public debate on whether this was a good way to spend money appeared to be anathema to those responding to the requests. That is typical of the way business has been done over many decades.

While reductions in taxation and increases in excise duties always attract attention on budget day, the most important decisions are those relating to spending which are still made in private and attract little attention unless there is a particular issue, for example, health spending, which is the subject of controversy. I endorse the general thrust of the amendment. There is a need for more openness and debate. The Government has to be central in pushing this forward.

Mr. Deenihan

There should be more debate prior to publication of the Finance Bill. This would be good practice and would be of help to the Minister. In the correspondence every Deputy has received from the Institute of Taxation, it reiterates that there is genuine concern among compliant taxpayers who have always paid their way about the extraordinary powers being given to the Revenue Commissioners despite the assurances given by the Minister on Committee Stage. The institute has received the advice of senior counsel on the constitutionality of the proposed provisions. They have identified ten areas where they are probably unconstitutional. If the matter had been discussed beforehand with the institute, the Minister would probably be able to tell us with certainty that there are no constitutional difficulties with the proposed provisions.

The approach suggested by Deputy Noonan of a White Paper should be considered. In this way any grey areas can be identified and teased out. The proposed provisions appear to be a kneejerk reaction to the tribunals to send a signal to the public that the Government is acting to curb tax evasion. Measures as extreme as this should be discussed beforehand. If the approach suggested by Deputy Noonan was adopted, the consequences of major change, not just in this area but in the area of pensions and so on, would be discussed beforehand. The public and general practitioners can find loopholes and weaknesses in the laws that we make and think are perfect. While the motor industry lobby group is effective, a discussion of implications of the proposed changes in VRT would have been helpful prior to their announcement in the budget.

Mr. McCreevy

Deputies Noonan and Deenihan want to write into the law a compulsory provision which would oblige every Minister for Finance to prepare a White Paper on selected areas of tax policy at five year intervals, starting in October 1999. The proposed amendment would also require invitations to be issued for public comment on a list of taxation topics specified by the Minister by 1 April in the year in which the White Paper is to be produced. The amendment appears to envisage a grant strategy on tax policy being announced following public consultation every five years.

This issue was the subject of a comprehensive debate on Committee Stage last week. I fully agree that the more information there is in the public domain on issues surrounding tax policy the better should be the formulation of that policy. I share the Deputies' views on the importance of a stable and predictable tax system where businesses know as far as possible in advance what the Government has in store for them by way of future tax changes. I do not agree, however, that the proposed amendment is the best or only way to secure these aims.

The Government's approach to tax policy is set out in An Action Programme for the Millennium on which it was elected. As I said in my first budget and repeated in my second in December, I intend to deliver over the five budgets of the Government the tax proposals agreed in An Action Programme for the Millennium. There is not, therefore, as appears to be implied by the amendment, great uncertainty about the future of the Government's tax reform programme.

In many of the areas cited by Deputy Noonan as suitable for a White Paper there has been considerable debate inside and outside the House. There is the question of child care on which the Government recently published the Partnership 2000 working group report. As I said on Committee Stage, there is one initiative which may be worth while and which could be undertaken around this time each year, that is, to publish the relevant papers of the tax strategy group which cover all aspects of income tax, corporation tax, capital tax, indirect tax, environmental and other tax policies. They not only set out a general statement of the goals and objectives in particular tax areas and the options available to secure them but also give an insight into the dynamics of how policy is arrived at. If there are areas of tax policy on which Members would welcome a briefing from time to time or in respect of which the appropriate committee would wish to invite a submission, I would be anxious to facilitate such requests. I have given the Deputy a copy of these papers. As indicated on Committee Stage, it has been necessary to hold back a small amount of material. I am placing copies of the papers in the Oireachtas Library and will be publishing them on my Department's website on the Internet.

While these proposals should assist the Deputies and underline official thinking in these areas, tax changes are a matter for the Government. They are for the people to decide in elections and through that method the Government. If the people like what the Government parties are putting forward in taxation measures, they will vote for those parties. If not, they will vote for somebody else and adopt their tax policies. That is the ultimate basis for all tax changes – they come from the people who give power to the elected Government.

Various tax changes have been raised. It has been suggested that there was inadequate consultation and that there should be a White Paper leading to a grand strategy. It is useful to have wideranging consultation on topics due to come before the Government for decision – the consensus approach. This used to take the form of observations from Government Departments which were incorporated in a memorandum to the Government which ultimately made a decision on the matter. That type of approach has been developed in the past decade with the very successful partnership mechanism to agreeing wages and other matters in the national programmes by employers, Government, trade unions and the farmers.

However, I do not believe this is the only way for Ministers for Finance or any other Minister to make decisions. On the debate on last year's Finance Bill, Deputy McDowell pushed for changes to the capital gains tax as if to imply that unless a lobby group seeks changes in a specific area the job of the Minister is to do whatever his Department officials tell him and to respond likewise to other groups. That may be the way a number of Ministers, perhaps of all Governments, have operated and perhaps it is the way some would like them to operate in the future.

I do not hold that view on the role of a Minister, indeed it is no secret that I am strongly against it. In this regard, I was heartened to hear remarks, which did not get much publicity, by a former Minister of the Fine Gael Party when called as a witness in court proceedings last year which, inter alia, dealt with telecommunication changes. When it was put to him that a decision he had taken was not what his officials had recommended he replied he was proud to have done the opposite. He was right. A former official in my Department who is well known recently spoke to me of a certain matter many years ago which officials in the Department had opposed. He went on to say that, as usual, they were wrong.

I recently referred to the tyranny of consensus as an approach to dealing with matters as if it is the role of Ministers merely to reflect the views of lobby groups and others and put them into effect or to debate matters for weeks, months and years before arriving at a consensus which is then implemented. While that can be effective in some areas, in many others it is a recipe for making no decision or making one which is an amalgam of the lowest common denominator of all the different opposing groups.

If I had taken that approach many measures I have taken would not have been introduced. For example, had I waited to achieve a consensus on tax credits they would not have been introduced in this budget, nor in any foreseeable one. Similarly with my proposals on pensions and the betting tax. Nor did my officials recommend the changes I introduced to the capital gains tax last year. However, decisions such as these are political, to be taken by the Minster and Government of the day. If one looks at the decisions I have taken as Minister it will be apparent that in many respects I did not wait for consensus, nor do I intend to.

Opposition Deputies and others hold the view that the only way to proceed is by reflecting the views of one group or another. While I am probably in a minority in the House on this issue, I do not subscribe to that method of decision-making and there is no point in people fooling themselves otherwise. They will have to put up with my way of operating for my period in office. It must be borne in mind that people can decide on taxation changes at the ballot box.

Deputy McDowell referred to multi-annual budgeting. Recently he has been building a dossier of replies to parliamentary questions in an attempt to plan forward. He is right to say it leads to good government and budgetary planning to plan expenditure and taxation changes for the future. I am committed to the multi-annual budgeting approach on the spending side and in my Budget Statement I said I would develop it further this year.

At present, no policy change projections are made. This year I have also indicated the total financial envelopes for coming years on the spending side. The next logical step is to break that down on a departmental basis, whereby each Department will have a financial envelope from which they will decide their priorities.

Deputy McDowell referred to the traditional approach to the budgetary process, where Departments keep returning to Ministers for Fin ance with their agendas and priorities until they are implemented. Under the new approach they will be advised of their total financial allocation for three years which they can then work on. This process will take time and new ways of thinking will have to evolve in Departments to ensure its success, similar to what happens in private business. It is a more logical approach to the spending side.

The commitment to a cash limit in the programme for Government, developed by me when in Opposition, is effective in this approach. Deputy McDowell has argued against the 4 per cent spending limit and has questioned the way it is defined and implemented. However, it is a good thing, at least for planning purposes because it is an exact sum. It enables precise amounts to be calculated forwards, which is a more exact science than the previous methods, calculated on the basis of growth in the economy plus inflation. While my method may be crude it is effective because it can be worked forward and it lends itself to this type of approach. Agreeing with the concept is a separate matter.

Deputy McDowell also referred to the recently leaked document produced by the Economic and Social Research Institute regarding what should be included in the next national development plan. The document will be published formally in the coming week. It would be a good idea for the Committee on Finance and the Public Service to make a contribution to the next plan because I do not want it merely to consist of what official agencies or Departments want. Politicians on all sides should have an opportunity to have their priorities included as well. The timetable for that must be assessed by the chairperson of the committee.

If agreement is reached at the end of this month when the Heads of State and Government meet on the Agenda 2000 package and the regulations are put in place, the Government will have three months to produce and submit its national development plan. If everything goes according to the German plan, that should happen by the end of June. I have no objection to the committee making its contribution. When the ESRI document is published in the next week or two, it might form the basis for developments in the committee. I will relay those views to my Department because we would like to assist in that area.

Deputy Noonan and Deputy Deenihan, whose idea it is to have a grand strategy, have raised questions about the various tax heads, such as corporation tax, gift tax, pensions, powers to the Revenue, etc. An Action Programme for the Millennium sets out some of these taxation matters. The Minister for Finance and the Government of the day decide in the context of each budget on the appropriate ways forward in this area. I intend to continue with that method. As I said earlier, a grand strategy in these areas is not the best way forward. Taxation policy is a matter for the Government of the day on foot of electoral decisions made by the people.

Mr. McDowell

I am grateful to the Minister for what he said about the national plan. It is useful that we should have a discussion before the Government signs off on it.

What the Minister said about the decision-making process is interesting and instructive and I do not disagree with most of it. It is fine for a Minister to seek advice, reject it and do what he wants. However, it is different when he comes into the House and says he was advised by the Department not to do what he is doing in terms of pensions or it opposes what he is doing in terms of capital gains tax. I do not have a problem with the Minister rejecting advice, but he is making a distinction between himself and his Department.

I do not believe the notion that there is a corporate view in any Department about anything. Individuals in a Department who deal with a particular issue have views and I have no difficulty with the identity of those individuals being known or their accounting for those views, in so far as is necessary, to committees of the House. However, I have a problem when a Department produces a huge amount of material, such as the stability programme, the convergence programme, the structural reform programme and the national plan and has an input into the credit union working group and the Pensions Board report and then the Minister says that is not his view. If it is not the Minister's view, that should be clear upfront or he should ensure the stability programme reflects his view.

The Minister does not have time to deal with all issues. The result of the decision-making process the Minister described is that a lot of material is produced by his Department which he then feels at liberty to disown. The stability programme, for example, commits the Minister to a tax reduction programme of £350 million over the next three years. Is that his view?

Mr. McCreevy

The Deputy asked a specific question about the stability programme. The sum of £350 million is an indicative figure for the tax reductions during the years of the stability programme. It does not bind the Government to a figure greater or less than that amount. That figure was included to produce the stability programme.

Mr. McDowell

What does that mean?

Mr. McCreevy

That means what it means.

Mr. McDowell

Of what is it indicative?

Mr. McCreevy

The stability programme outlines the proposed Government budgetary surplus over the coming years and is based on an indicative figure of tax reductions of £350 million. That does not commit the Government to a figure greater or less than £350 million.

Mr. McDowell

It is a hypothetical case.

Mr. McCreevy

Yes.

Mr. Noonan

I thank the Minister for his reply but it was inadequate. He uses the phrase "grand strategy" as a pejorative term as if we were suggesting anything more than would be prudent to plan the affairs of the nation properly, including planning taxation matters. We have a great opportunity going into the next decade but we also have an opportunity to wreck the country with all the problems of growth. Any reflection on what is proposed in the Bacon report, which was received by Deputies this morning, would indicate that it can go in one of two directions.

One of the biggest flaws in public administration is the lack of medium and long-term planning across a range of activities. Pressure from the European Central Bank and the European Commission means we must plan ahead for expenditure. Deputy Quinn, when Minister for Finance, introduced multi-annual budgeting which has been taken a step further by the Stability and Growth Pact. We must now indicate to Europe our intentions for the next three years. While it is hard on the expenditure side, it is light on the taxation side. It would be prudent to plan ahead for tax as well.

I met someone recently who had listened to Committee Stage of the Finance Bill and said they did not know anything more about the Bill afterwards but knew a lot about the Minister. I hope we do not go through Report Stage with a series of night light sermons mixed with autobiographical detail from the Minister. He should address the issues.

The Minister's response was inadequate. It is not true that the Government's taxation policy is set out in the programme for Government. What the Minister did in his first budget in terms of income tax and the distributive effects of reliefs, he completely reversed in his second budget. It is clear from the papers we received last night and this morning that there was no real intention of moving towards tax credits in the discussions of the tax strategy group prior to Christmas. A political decision was taken prior to the budget, which I presume was driven by the Progressive Democrats. It was clear from replies to two parliamentary questions tabled to the Minister before Christmas that he was a lukewarm participant in the tax credit idea. He has not driven the tax credit agenda forward.

The Minister and Administration of the day decide tax policy. However, it would be a relief to the populace if views on taxation policy, as on many other matters, were not made up as we go along and if there was a tax strategy which spanned a number of years. Most of the problems in this country are due to the fact there is no medium-term strategy about anything and people are racing hard to catch up. This is an opportunity to allow the Minister to deal with issues with which he has not dealt.

One of the major taxation issues we must face is green taxes, which will be driven by Europe. What is the Government's position on green taxes? A discussion paper on that alone would be of benefit. We know the tax strategy group has certain views on it but is there any policy view on green taxes?

The Minister has not met my proposal. He has made a series of political points with which no one fundamentally disagrees, but he has not addressed the issue. He wants to reserve the right to make it up as he goes along. The Minister headed off in one direction in his first budget but reversed that in his second budget. He has now taken a number of initiatives. The Minister prides himself on taking a separate stance from the advice he gets from his Department. It has never been the tradition in this House for Ministers to distinguish between themselves and their Department on policy issues. It has never been the practice for Ministers to say in this House that their officials wanted them to do the opposite but they did not go along with them. That is not the way to run the shop.

The type of debate the Minister has with his officials should be internal to the Department of Finance. The Minister should come out with Government policy, having been advised by his officials, and not take the macho approach where he appears to be saying that he is in touch with the ordinary people while his officials are not, that this is a very good proposal and that he rejected the advice he was given. The Minister should not proceed along those lines. If he believes that, he should keep those views to himself. The policies that emerge are Government policies proposed by the Minister and I have no doubt they have the support of his officials. We do not know where the Minister is going in the pension area, tax credits or green taxes and in this, as in other matters, it would be a good idea for the Minister to start planning forward.

Some light should be shed on the whole question of reliefs, particularly with the difficulties being experienced in Brussels over urban and rural reliefs in terms of double rent allowances and rates relief. For the past 20 years various lobby groups have put forward a series of schemes to different Ministers to turn income into assets. If one has money in this country the name of the game is to turn income into assets by not paying tax. That ranges across the whole area of relief, and there are some creative people who always have a new scheme to turn another tranche of income into an asset by not paying tax. The strategy on this whole area must be laid out in full.

The Minister made remarks in his first budget which indicated that he intended to trim most allowances out of the system and go for a lower tax regime overall. I do not know whether that remains his position. Whatever the mechanism, there is a serious gap in the manner in which the Minister does business. We must have an overview of certain heads of taxation, either by way of a White Paper or otherwise, and the Minister should attempt to project forward at least to the end of this Administration. I put this down for debating purposes only. I do not intend to press the amendment.

Amendment, by leave, withdrawn.

Acting Chairman (Mr. Briscoe)

Amendment No. 2 arises out of Committee proceedings.

Mr. McDowell

I move amendment No. 2:

In page 15, line 28, to delete "£8,200" and substitute "£9,000".

We had a lengthy discussion on this and the other tax related amendments on Committee Stage and we would not be using our time well if we repeat too much of that. This amendment deals with exemption limits. The Minister pointed out in his response on Committee Stage that the number of people on marginal relief has diminished considerably and, to that extent, the aim of TWIG is largely being met. I tabled the amendment because I wanted to ask the Minister, in light of the imminent introduction of a national minimum wage, if we should seek to marry the exemption limit with the national minimum wage.

Mr. McCreevy

The amendment by Deputy McDowell proposes to increase the general exemption limit to £4,500 for a single person and £9,000 for a married couple. The current exemption limit is £4,100 for a single person and £8,200 for a married couple. The cost of the amendment would be £1.6 million in 1999 and £3.9 million in a full year.

As I indicated in response to a similar amendment on Committee Stage, I did not increase the general exemptions this year arising out of the recommendations of the Tax and Welfare Integration Group, TWIG, report some years ago. The TWIG report examined in some detail the exemption system and its associated marginal relief. While recognising that the system had both advantages and disadvantages, it felt that the disadvantages outweighed the cost efficiency /targeting advantages the system had to offer. In particular, it referred to the application of a high marginal rate of tax to low incomes in the context of employment incentives. It concluded that displacement of the marginal relief system by the normal tax system is a desirable objective in terms of its impact on incentives, reduction in costs of employing people within the marginal relief range of incomes and the ending of a progressive encroachment of a second tax system on the ordinary tax system. These comments would have more relevance to the general exemption limits as opposed to the age related limits for those aged 65 years or over which I have substantially increased in the Bill.

Substantial increases in personal allowances are provided in the Bill. These ensure that a single person on PAYE will pay no tax on income below £100 per week – this contrasts very favourably with the exemption limit of less than £87 per week as envisaged by the amendment. The number of people on marginal relief has fallen dramatically as a result of the budget changes. The numbers have fallen from 81,495, or 6 per cent of taxpayers, to 24,400, or 2.2 per cent of taxpayers. For these reasons, I am not prepared to accept the Deputy's amendment.

The Deputy asked me a separate question on raising the exemption limits to the level of the national minimum wage. In this year's budget I moved substantially to a system of tax credits and in future budgets I will complete the changeover to the tax credits system in its entirety. The allowances method referred to by the Deputy is more or less redundant in that context. The proposed national minimum wage is £4.40 per hour and in a 40 hour week that is a fairly sizeable sum. There is no intention to have an exemption limit in next year's budget of that magnitude for a single person. The changeover to the tax credits system will allow the Minister for Finance to focus more clearly on any direction he desires at that time. This is now accepted as the fairest way to approach these issues.

Mr. Noonan

Arising from a point made by Deputy McDowell, is it the Minister's intention that the minimum wage, when it is introduced, will be taxed or is it the policy position that exemptions or credits will be increased sufficiently to ensure the minimum wage is tax free?

Mr. McCreevy

We should not make the mistake of mixing up two different concepts. The issue of a national minimum wage is being decided upon by the Government and taxation matters are a separate issue. We should not attempt to engage the two together. It would be the intention of the Government, over a period of years, to eliminate as many people on low incomes as possible from the taxation net, subject to the overall requirement of the public finances and the Government's intention on taxation changes.

Mr. McDowell

I am interested to hear what the Minister has to say on this. The Minister disavows his Department – perhaps I should distance myself from my party a little on this one. Most people should contribute by way of taxation or PRSI to the running of the State. To that extent I am not in favour of exemption limits. In many cases the contribution might be slight but as a principle it is a good one. We need a certain predictability in assessing the value of the minimum wage. People must know what the impact of taxation will be on that. This is doubtless an issue that will come up over the remainder of the year when the negotiations on the successor to Partnership 2000 are taking place. It would be useful – that is the reason I tabled the amendment – if the Minister would indicate how he sees the taxation treatment of the minimum wage progressing over future years, because that will help him progress in those negotiations. I will not press the amendment.

Amendment, by leave, withdrawn.

Acting Chairman

Amendment No. 4 is related to amendment No. 3. Amendments Nos. 3 and 4 may be discussed together. Is that agreed? Agreed.

Mr. Noonan

I move amendment No. 3:

In page 16, line 15, to delete "£14,000" and substitute "£15,000".

In the budget the Minister increased the application of the standard rate band by a small amount. In the case of single people, only £50 extra of earned income per annum can be taxed at the standard rate. Afterwards, the 46 per cent marginal rate is applied. At present, about 45 per cent of all taxpayers pay tax at the higher rate. In an overview of taxation and how it impacts on the labour force it is clear the application of the higher level of income tax on such low levels of income, particularly for single people, is a major disincentive.

One of the pressures developing in the economy is the lack of skilled labour. In certain areas the skills required have dried up. Throughout the economy vacancies are not being filled. They can only be filled from three or four areas. For the first time in a long time there are sufficient employment places for school and college leavers in the labour market. Additional workers can also be secured by moving people from welfare to work. A significant amount has been done in that regard. The higher exemption limits in the budget will be of further assistance, particularly the fact that the first £100 of income is tax free. It will be of great benefit in moving more groups of people from welfare to work.

If women are to be attracted to return to the labour force, the 46 per cent rate will be a key factor. There is also the issue of child care and the availability of crèches and child minders, which we discussed previously. I am disappointed the Minister and the Government, who have received a report on this subject, have not acted on it but kicked it to touch again. However, the combination of those issues will decide whether the participation of women in the workforce will reach the European average over the next few years.

If it does not, the predictions of continuing growth at 5 per cent or 6 per cent over the decade will not be fulfilled. Sources of wealth are limited and if the labour source dries up, growth rates will decrease. The other source of skilled labour is returning emigrants. Again, a combination of factors attract people back to this country or inhibit their return. One is the high marginal rate of income tax at 46 per cent.

Amendments Nos. 3 and 4 were put down for debating purposes and to indicate that the Minister made no progress in this area in the budget. The issue must be addressed but it will become quite difficult to do so. I am anxious to hear the Minister's reflections on this. As a result of the movement to tax credits, the negotiators on social partnership will insist not only on a global amount of tax relief in the end package but also – this will be the aim of the Irish Congress of Trade Unions in particular – will seek to apply the global amount so that every worker will get the same relief. In the first year they will seek the return of £5, £8 or £10 a week. If it is a three year programme I anticipate a negotiating position where they will say: "We do not want percentage reductions; we have a tax credit system and there can be £200 or £400 extra in everybody's tax credit".

Does the Minister have a ready reckoner to estimate what each £100 of tax credit would cost in the year of introduction and in a full year? The negotiation process in the next social partnership agreement will suck up most of the Minister's available resources in terms of tax relief. It will certainly suck up the £350 million to which Deputy McDowell referred. The Minister could find himself in a situation where the exigencies of the negotiation process tie him into relief through the tax credit system, whose application would be equal across the range of income, and leave him with no resources to address this very serious issue, which will have to be addressed.

I put a question to the Minister on Committee Stage to which he did not have an opportunity to reply. Has he considered the possibility of introducing another rate of tax at about 35 per cent? He will not have the resources to reduce significantly the 46 per cent rate. Even if the rate is reduced by a couple of points it will not address the issue anyway. The issue is not the level of the higher marginal rate – whether it is 45 per cent or 46 per cent is not a huge issue – but that people must pay 46 per cent rather than 24 per cent across a tranche of income which most people would consider a moderate rate of remuneration.

Is there a paper in the file of papers from the tax strategy group which postulates that more progress might be made if the jump in rate was not so extreme from 24 per cent to 46 per cent? Has the Minister examined the potential of a middle level rate where a tranche of income which is now subject to tax at 46 per cent would be subject to the middle rate and has he run any numbers on it?

Mr. Deenihan

We debated this issue at length on Committee Stage when I asked the Minister to consider a transitional tax rate between the lower and higher rates to ease the shock of moving from the 24 per cent rate to the 46 per cent rate when one's income reaches £14,000. The Minister did not respond.

Despite the improvements that have been made in the tax regime in the past three budgets, we still have a penal tax regime on work when one compares it to that of our nearest neighbours. The Chancellor of the Exchequer announced his budget yesterday but I have not had an opportunity to study it. However, according to media reports this morning further improvements have been made in the UK tax regime. A single person in England can earn £190 a week before being taxed whereas in Ireland the figure will be £100.

Mr. McCreevy

Ours is better.

Mr. Deenihan

We must improve and strive to reach the English level. This is a matter of competitiveness. Many SMEs are barely surviving. There were some casualties in recent weeks. They cannot afford to pay extra wages to staff in many instances because the banks are squeezing them. Banks squeeze small companies and individuals in particular.

Many SMEs are owned by one or two people. They are under considerable pressure; they are not multinationals. The only way their workers can be rewarded is through the taxation system. We should put more money in their pockets through a more acceptable and friendly taxation system. In the case of lower and middle income workers, we are not moving fast enough in that respect, given the latitude available to the Minister to deliver a better tax package. We are anxious to encourage people to work. One of the main ways of doing that is through the taxation system but we are not responding to that need.

Has the Minister any figures to estimate what a hypothetical medium rate of tax at 35 per cent would cost? The public would accept the introduction of such a rate.

When I tabled an amendment on VRT on Committee Stage seeking to remove the 25 per cent band, the Minister specifically said the jump from 22.5 per cent to the higher rate of 30 per cent would be too great. In this case there is a jump in the rates from 24 per cent to 46 per cent. That is not consistent with the argument put forward by the Minister on Committee Stage in response to my amendment on VRT. I would like him to consider these points and to comment on our competitiveness vis-à-vis our tax regime.

Mr. McDowell

This amendment is specifically intended to target one group. I do not support the view that our marginal rates of tax are particularly high and that is the urgent issue we need to address. This amendment seeks to address the position of single people earning £14,000 to £20,000 per annum. They should pay tax at the standard rate, but they must pay it at the higher rate. I was interested to hear what Deputies Noonan and Deenihan said about a middle rate of tax, but I was not persuaded by their argument. Effectively, we have two higher rates of tax, taking into account the cumulative effect of PRSI, PAYE and income tax. The marginal rate of tax payable by an employee earning less than the PRSI ceiling is higher than for employees earning more than it. I never understood why there is a PRSI ceiling. There is merit in examining the issue of equalising the tax treatment of employees on the higher rate, when account is taken of the tax and PRSI total, which is the way most people view it.

I agree fully with Deputy Noonan on the thrust of how matters will proceed in the future. The Minister is fighting on two fronts. There is a commitment in the programme for Government to reduce the rate of tax, which he strongly supports, and he introduced a fairer system, which has received wide acclaim publicly but which will tend to direct all the resources available for reduction of income tax equally at each taxpayer. The workers who are losing out are those caught in the structural trap. They are largely single people who earn slightly more than the standard rate band. While married people who earn £25,000 or £26,000 do not earn a great amount of money, they still earn significantly more than the average industrial wage. Single people who earn less than the average industrial rate should not pay tax at the higher rate. That structural problem needs to be addressed as well as the two fronts the Minister opened up.

Mr. McCreevy

These amendments are a repeat of the amendments tabled by Deputies Noonan, Deenihan and McDowell on Committee Stage. They propose to increase the standard rate band by £1,000 for single persons and £2,000 for married couples. This is proposed in addition to the substantial increase in the standard band provided for in the Bill and it would result in an additional cost of £85.2 million in 1999 and £144.6 million in a full year.

This year I concentrated on a major reform of the tax system to remove as many people as possible from the tax net and to maximise the incentive to work. This is the first step towards a tax credit system. While it is true that the increase in the standard band is mainly to compensate higher rate taxpayers in the initial move to tax credits, there are also substantial increases in personal allowances which benefit all taxpayers. Accordingly, the additional relief available this year has been put into allowances rather than rates or rate bands.

The cost of the personal tax reliefs provided for this year comes to a substantial £581 million in a full year and is the most that can be afforded. The changes I introduced in this year's Finance Bill will mark a fundamental departure in personal taxation. A single person on PAYE will not have to pay tax on income below £100 per week and more than 80,000 taxpayers will be removed from the tax net altogether. These changes will unquestionably improve the incentive to work. Furthermore, these changes will pave the way for future changes to be made more easily over the next few years.

One of the Deputies asked a question as to the cost of increasing a tax credit by £100. My experts inform me that it would cost approximately £154 million in a full year, but that is subject to further analysis.

Deputy Deenihan raised the issue of an intermediate tax rate between the 24 per cent rate and the 46 per cent rate. He also raised that issue on Committee Stage. In the run up to the budget each year I give consideration to a wide variety of taxation proposals. I have been long enough in politics and certainly in business to remember a time when there were a number of tax rates. At one time there was a surcharge on top of the highest tax rate. There was a range of tax rates up to a rate of 70 per cent on which there was a 10 per cent surcharge, making 77 per cent the top rate. In recent times the tax rates were reduced to two, but 25 years ago there were a number of tax rates starting at 26 per cent, then a 35 per cent rate followed by a range of rates up to the higher rate. It is relatively a new departure to have only two rates. I am not signalling any possible change in this area, but my mind is not closed to any changes that might be beneficial, although this is not on my agenda.

Deputy Noonan raised a question about encouraging people, particularly married women, back into the workforce. The percentage of married women participating in the workforce has increased in recent years vis-à-vis the low percentage of married women who participated in the past, but it is still not up to the EU average although it is approaching it. There is a need to create an incentive for people to come back into the workforce.

The Deputy also raised the question of child care. In the budget I referred to the forthcoming report on child care which has now been published. As I said on Committee Stage, the debate on child care has broadened. It is not narrowly focused on the taxation changes demanded before the budget. Since the budget the debate has widened considerably and the difficulties and different approaches to tackling this problem are more in the public domain than they were prior to the budget.

I agree that the 46 per cent tax rate does not encourage people to return to the workforce. It also influences the decisions of Irish people living abroad who wish to return here. The fact that employees reach the higher rate of taxation so early compared to the position in the United Kingdom is also a disincentive to many people returning home.

Mr. Deenihan

The Minister is coming round to our way of thinking.

Mr. McCreevy

I do not believe in high nominal rates of taxation. Irrespective of whether they apply to income tax, capital gains tax or any other taxes, they are a disincentive. That is proved by worldwide experience.

Deputy McDowell raised a question about PRSI ceilings. They have been there for some time. The logic behind them is that they are increased every year, but there is a case for exam ining them. I am sure everyone would not agree with the Deputy's view, but I agree with it. In an earlier contribution he said everyone should make some small contribution to the State. It may surprise him that I also agree with him on that, but this view is not universally held. I would say we are in the minority in regard to our shared view on this issue.

I cannot accept the Deputies' amendments because the cost of so doing would be substantial. Furthermore, this year I concentrated on tax credits but also increased the personal allowances significantly.

Question put: "That the figure proposed to be deleted stand."

Tá

Ahern, Bertie.Ahern, Dermot.Ahern, Michael.Ahern, Noel.Ardagh, Seán.Aylward, Liam.Blaney, Harry.Brady, Johnny.Brady, Martin.Brennan, Matt.Brennan, Séamus.Briscoe, Ben.Browne, John (Wexford).Callely, Ivor.Carey, Pat.Collins, Michael.Cooper-Flynn, Beverley.Coughlan, Mary.Cowen, Brian.Cullen, Martin.Daly, Brendan.Davern, Noel.de Valera, Síle.Dempsey, Noel.Dennehy, John.Doherty, Seán.Ellis, John.Fahey, Frank.Fleming, Seán.Flood, Chris.Foley, Denis.Fox, Mildred.Gildea, Thomas.Hanafin, Mary.Harney, Mary.Haughey, Seán.Healy-Rae, Jackie.Jacob, Joe.

Keaveney, Cecilia.Kelleher, Billy.Kenneally, Brendan.Killeen, Tony.Kirk, Séamus.Kitt, Michael.Lawlor, Liam.Lenihan, Brian.Lenihan, Conor.McCreevy, Charlie.McDaid, James.McGennis, Marian.McGuinness, John.Martin, Micheál.Moffatt, Thomas.Moloney, John.Moynihan, Donal.Moynihan, Michael.Ó Cuív, Éamon.O'Dea, Willie.O'Donnell, Liz.O'Donoghue, John.O'Flynn, Noel.O'Hanlon, Rory.O'Keeffe, Batt.O'Keeffe, Ned.O'Rourke, Mary.Reynolds, Albert.Roche, Dick.Ryan, Eoin.Smith, Brendan.Smith, Michael.Treacy, Noel.Wade, Eddie.Wallace, Dan.Wallace, Mary.Woods, Michael.Wright, G. V.

Níl

Ahearn, Theresa.Allen, Bernard.Barnes, Monica.Barrett, Seán.Bell, Michael.Belton, Louis.Boylan, Andrew.Bradford, Paul.Broughan, Thomas.Browne, John (Carlow-Kilkenny).Bruton, John.Bruton, Richard.Burke, Liam.Burke, Ulick.Carey, Donal.Clune, Deirdre.Connaughton, Paul.Cosgrave, Michael.Coveney, Simon.Crawford, Seymour.Creed, Michael.Currie, Austin.D'Arcy, Michael.

De Rossa, Proinsias.Deenihan, Jimmy.Durkan, Bernard.Ferris, Michael.Finucane, Michael.Fitzgerald, Frances.Flanagan, Charles.Gilmore, Éamon.Gormley, John.Gregory, Tony.Hayes, Brian.Higgins, Jim.Higgins, Joe.Higgins, Michael.Howlin, Brendan.Kenny, Enda.McCormack, Pádraic.McDowell, Derek.McGahon, Brendan.McGinley, Dinny.McGrath, Paul.McManus, Liz.Mitchell, Gay.

Níl–continued

Mitchell, Jim.Mitchell, Olivia.Moynihan-Cronin, Breeda.Naughten, Denis.Neville, Dan.Noonan, Michael.O'Keeffe, Jim.O'Shea, Brian.O'Sullivan, Jan.Penrose, William.Perry, John.

Quinn, Ruairí.Rabbitte, Pat.Ring, Michael.Ryan, Seán.Sargent, Trevor.Sheehan, Patrick.Shortall, Róisín.Stagg, Emmet.Stanton, David.Timmins, Billy.Wall, Jack.Yates, Ivan.

Tellers: Tá, Deputies S. Brennan and Callely; Níl, Deputies Barrett and Stagg.

Question declared carried.

Amendment declared lost.

Amendment No. 4 not moved.

Mr. McDowell

I move amendment No. 5:

In page 16, between lines 22 and 23, to insert the following:

4.–Where a claimant proves for a year of assessment that income received by him or her consisted of dividends paid by a credit union within the meaning of the Credit Union Act, 1997, the first £750 of such income shall be disregarded for the purposes of calculating his or her liability to income tax for that year of assessment.

This amendment seeks to implement one element of the recommendations of the working group on the credit union report. My intention in putting down the amendment was that the full report of the working group should be implemented. However, because of the rules of the House, I am not permitted to put down the other amendments which were ruled out of order on Committee Stage. I intend to relate my contribution to the full report and all its recommendations, not specifically the element of this amendment. We have gone down this road before. The Minister went down this road last year and got his fingers badly burnt. He has now clearly decided, unless I am misreading the signals completely, that he will not touch this forever and a day. That is not good enough. There is an overwhelming case, accepted by almost every Member, for the tax treatment of credit union savings, whether that is deposit interest or dividend, to be distinctly different from that of other financial institutions.

The arguments for this are well known, and all Members have received considerable representations on the matter in recent weeks. These arguments refer to the diffuse nature of the credit unions, which are spread throughout the country, and though there are small and large credit unions, it is a legal requirement that each credit union's members all share a common bond. They serve different types of customers, though not radically different socio-economic groups from those served by the former mutual societies or the banks. They are also largely, though not entirely, staffed by volunteers rather than professional people. Perhaps most importantly of all, their primary purpose is not to make profits; their primary purpose is to serve the interests of their members rather than to make a profit for the corporate group.

If we were to implement the working group report, we would increase the tax take to the Revenue while treating savers in a fairer way. We all know that the current rules are not implemented, nor can they be implemented, and we should not hide that fact. We all know that a significant number of people, probably the majority, makes a certain amount of money by way of dividend – a small amount in most cases – and does not declare that for income tax purposes. I suspect that quite a few people who earn money by way of dividend do not know they are meant to declare those dividends for income tax purposes. It is not fair that somebody who has a relatively small amount of money on deposit with a credit union might have to pay tax at the marginal rate of 46 per cent. If they had the same amount of money in a bank, the DIRT would be deducted at source.

The case is overwhelming, and it is one virtually every Member accepts. On Committee Stage, I asked the Minister if he accepted the statement included in the working group's report under the title "Statement on the part of the Department of Finance". If he does, then he should say so, as that statement makes it clear that the Department sees no case for further favourable tax treatment of credit unions. If that is the Minister's view, let him put it up front, and let us have a debate on it. Let him try to justify his case to his colleagues and to the country. If he does not agree with the statement, it is incumbent on him to say so rather than to hide behind the catch-all phrase, "he is considering his position." We all know well that he has no intention of moving on the working group's report.

The Minister set up this working group last year when he got his fingers burnt. It debated through last summer and came up with recommendations accepted by all its representatives – including the Department responsible for administering credit unions, the Department of Enterprise, Trade and Employment – except the representatives of the Revenue and his Depart ment. The Minister has sat on it since. He has had four or five months to consider if he wants to implement this. I believe he should, but at the very least he should tell us what he intends to do.

Mr. Noonan

I support this amendment, and I am glad Deputy McDowell discussed the working group's recommendations. I put down an amendment on Committee Stage and again on Report Stage which has been ruled out of order. I do not understand the ruling. I understood one could not propose an amendment which imposed a charge but that one could table one which recommended a relief. The amendments I tabled would have the effect of exempting some dividend income from tax completely and would have the effect of having the balance subject to DIRT tax at 20 per cent, which would be full and final settlement. The present position is that there is a tax liability on both interest on deposits in credit unions and on dividends paid on shares in credit unions which applies at the marginal rate of tax. For many of the depositors this is 46 per cent. Frankly, I do not understand how what to any lay person is a reduction in tax can be presented as a charge. I did not fully understand the letter of explanation I got either. Be that as it may, Deputy McDowell has been more skilful in drafting than I have.

It is now part of political folklore that the Minister got his fingers burnt when he dealt with the credit unions in the past. When the full history of this matter is written by the credit union movement, it will probably admit that the Minister was of the view that he had an agreement with the credit union movement before he moved to make certain tax changes in respect of their debited income and the income of depositors. It gave rise to an unwholesome and unholy row, and the Minister pulled his fingers out of the fire politically by setting up a working group. At the time it looked as if he would legislate on foot of the report of the working party, but now he refuses to do so. What is more relevant is that he not only refuses to accept the views of the working group, but he refuses to tell us why he finds those views unacceptable. On Committee Stage we were given no reason apart from phrases such as "once bitten, twice shy".

There is a very strong case to be made here. The credit union movement is different from other financial institutions. There are more than 40,000 volunteers giving freely of their time to put small savings schemes in place for their neighbours and others in their communities, and they should be treated differently. More importantly, the depositors and shareholders in credit unions are not complying with the law at the moment. The Minister is making tax criminals out of many small people throughout the country. He is making tax criminals of the little people because he will not move along the lines we are suggesting. Deputy McDowell's amendment and the amendment I tabled on Committee Stage are acceptable to the credit union movement. The Minister could use my Committee Stage amendment to remove a political problem from his desk and introduce a fair tax regime for the credit union movement. I have had no representations to the contrary, even from the other financial institutions.

There are limits, ever since Deputy Rabbitte brought in amending legislation, to the amount of money that can be put on deposit in credit unions and the amount of shares which can be held by an individual. However, when one matches the Minister's reluctance to legislate in this area with the powers now being given to the Revenue and which they will no doubt have as soon as the President signs the Bill, we have a situation where there is a prima facie case for saying that most depositors in credit unions are evading tax. A Revenue Commissioner could sign an order to give an inspector access to credit union accounts. Against the background of tribunals, the Tánaiste's investigation into National Irish Bank, the Comptroller and Auditor General's investigation into the payment or non-payment of DIRT by Allied Irish Banks before 1992, it would be ironic if the most obvious application of the new powers would be against the small savers in credit unions.

Deputy McDowell is right; extra money will be collected if the Minister does this. I do not believe the Minister is getting much in the way of self-declaration by depositors in credit unions, as by and large the savers are small savers who are not making returns on the tax liabilities due on their interest or dividends to any great extent. Some are compliant, but many of them do not realise they have an obligation. If the Minister moved along the lines suggested and took 20 per cent DIRT on the bulk of the money which is on deposit in credit unions, there would be an additional return to the Exchequer. If the Minister does not propose to do that, will he explain the reason other than by saying he must be cautious given that he was caught before? That is not a sufficient explanation. He has to deal with the merits of the working party proposals and explain in detail if he is turning down those recommendations. If he is rejecting them, there is still a problem in respect of the credit union issue and he will have to propose an alternative.

Mr. Deenihan

If the same commercial operating rules are applied to credit unions as to mainstream banks the effectiveness of credit unions will be diluted nationwide. Deputy McDowell explained the benefits of credit unions, the voluntary element and their commitment to urban and rural areas. As Deputy Noonan said, they took on the little people, those whom the banks would not entertain and those who would be intimidated by going into banks. They provided a service. There is a perception that the Minister has an agenda against credit unions. It may be exaggerated to some extent. By not accepting this minimalist amendment in the name of Deputy McDowell and the amendment in the names of Deputy Noonan and I, which was ruled out of order, the Minister is confirming he is not sensitive to the needs of credit unions.

The credit union movement can be compared to the co-operative movement. Both movements have involved volunteers and have made a greater contribution to the whole of Ireland than any other similar movement. That is the reason the Minister should be more sensitive to the needs of credit unions and should not dismiss what they are seeking.

When the credit unions agreed to set up the working party it was one way for the Minister to save face. The credit unions expected that whatever the recommendations of the working party, they would be put in place afterwards. They were prepared to accept the recommendations, irrespective of how unpalatable, of the working party. Having set up the working party, it is mind-boggling that the Minister rejected its recommendations. There is much annoyance in credit unions. While I admire the Minister for his independence, in this case it is the little people, the small investor, those who would be intimidated by going into a bank and those whom the bank would not entertain – not the fat cats – who are being penalised. This is an attack on a section of the population which was marginalised in the past and which has found a new independence by virtue of the availability of, and accessibility to, credit unions. The Minister should not apply the normal commercial rules to credit unions but should adopt a different approach.

Mr. McCreevy

I set up a working group last year to examine the taxation of returns on credit union savings. This group, under the chairmanship of Mr. Terence Larkin, was comprised of members of the League of Credit Unions, the Registrar of Friendly Societies and senior officials from the Department of Enterprise, Trade and Employment, my own Department and the Revenue Commissioners. I received the report of the working group last October and I recently made it publicly available.

Anybody who reads the report will see there are apparently good arguments for and against special tax breaks for investment returns on credit union savings. After six meetings of the working group it was not possible for members to reach a consensus and, in the absence of an agreed position, the chairman made a number of recommendations, namely, that credit union surpluses should continue to be exempt from corporation tax; 20 per cent DIRT should apply to interest on all credit union deposits; 20 per cent DIRT should apply to all dividends from shares except where the dividend in any year is £750 or less, and in such cases only the first £375 would be exempt; and there should be no reporting to Revenue of interest or dividends on credit union savings. Two of the group members did not support these recommendations.

I am still considering this report. There are important issues to be decided, including issues of tax equity and Exchequer cost, particularly if tax breaks given to credit union savers have to be extended to savers in other financial institutions.

There is also an EU dimension. The corporation tax exemption for credit unions has been questioned in Brussels as constituting a possible State aid. One consideration apparently influencing the Commission in taking a benign attitude to the corporation tax exemption from a State aid standpoint is that the members themselves are liable to income tax on the dividends. However, this benign attitude might change if we were to exempt dividends from income tax.

Also on the EU front, we have proposals for a directive on the taxation of interest on savings, including credit union savings. The proposal here is to have either a withholding tax, at a proposed rate of 20 per cent, or reporting to the Revenue authorities in the country of residence.

All these issues need careful consideration. The different views in the working group reflects the complexity of this issue and the need to examine carefully all the implications before coming forward with firm proposals. In the meantime, I am not in a position to accept Deputy McDowell's proposed amendment.

Deputy McDowell said that forever and a day I had closed my mind on this issue. Forever and a day is a very long time in life, but in politics it does not bear contemplating. It is akin to grappling with how one defines infinity. Forever and a day is too strong a phrase. Deputy McDowell and others said many innocent taxpayers are unaware they should return their credit union interest. For the information of the House, on form 12 there is a box which refers to this matter and it should be filled in. That box has been there for some time. It is interesting to note that Deputies from all sides are putting forward their views and agreeing with the working group report. However, when the report was leaked last October there was no agreement among the Labour spokesperson, Deputy McDowell, the Democratic Left spokesperson, Deputy Rabbitte, and the Fine Gael spokesperson, Deputy Noonan. Each had different advice to offer.

Deputy McDowell's approach has been consistent. He called on the Minister to implement the recommendations of the working group. Deputy Rabbitte took a totally opposite view when he described them as a penny-pinching exercise that would serve only to limit the capacity of credit unions to invest in their own communities and was vehemently opposed to the working group's proposals. It does not take much for Deputy Rabbitte to change sides because the party to which he now belongs has been changing its name for at least 28 or 30 years. Given that he has joined the Labour Party, he will have no difficulty changing his views on this matter since his party has a history of changing sides.

Mr. Noonan

It is like an assault on a tunnel to attack a Deputy when he is not present.

Mr. McCreevy

On Committee Stage Deputy Noonan raised a similar point. Has it ever crossed Deputy Noonan's mind, as it has mine, that it is only the Fianna Fáil and Fine Gael parties which have a history and that mistakes we made ten, 20, 25 or 30 years ago are always referred to? Has the Deputy noticed that parties of the left can change their names and their past is obliterated? That happens not only with parties of the left; there is at least one other party whose members have no past at all. Has Deputy Noonan come to the same conclusion that it is only Fianna Fáil and Fine Gael Deputies who have to live with their past, whether it be 1926, 1956 or 1976?

Acting Chairman (Mr. Browne (

Carlow-Kilkenny): I do not like to interrupt the Minister, but amendment No. 5 does not relate to that.

Mr. McCreevy

Perhaps a man of discernment like Deputy Browne would have views on this matter. It certainly crossed my mind.

Acting Chairman

I am gagged at the moment.

Mr. McCreevy

On amendment No. 5, I refer to the working group report to which the League Credit Unions now subscribes which recommends DIRT at 20 per cent on interest. When I hear members of the League of Credit Unions getting headlines on "Morning Ireland" or in the newspapers saying they seek this DIRT on interest, then I will look at the matter again. Amazingly, despite all their comments on this, I have not seen headlines on this particular issue. When I hear their spokespersons shouting on the airwaves for extra taxation, which is part of the working group document to which they subscribe, I will give it further consideration.

It is important to be cautious in this regard because there is also an EU dimension to this matter. The EU looks as if it will take a benign attitude to the corporation tax exemption on credit unions but only on the understanding that members are taxed on the way out. It regards it as a circular flow of money. If that was to change, the EU is likely to take a different view on this matter. That must be borne in mind in any changes we are likely to make and also by people who advocate agreeing to the working group's recommendations.

Deputy Noonan and Deputy Deenihan said it is only the little people who subscribe to credit unions. The survey done by the League of Credit Unions on the socio-economic profile of members is not testimony to that view. The breakdown of membership of credit unions is, to all intents and purposes, the same as the breakdown of the population. Like all statistics, I could pick elements which suit my arguments, while the credit unions could pick ones to suit theirs. Any objective consideration would lead one to believe that membership comprises a fairly wide representative cross section of the people. I am sure people in the Law Library and RTE, which have credit unions, will be delighted to have been referred to as the little people. I am certain they think of themselves in those terms and that their earnings are the same as those of the little people of Ireland. There are tremendous credit unions in both RTE and the Law Library.

For the reasons I outlined in my reply, I will give this matter further consideration, taking on board the very sound advice given by Deputy Noonan when the report came out last October and despite the fact Deputy McDowell said the opposite to Deputy Rabbitte. Deputy Noonan advised me on behalf of the Fine Gael Party to be very cautious in my approach and I am glad to accept his advice.

Mr. Boylan

I am interested in this discussion, being a supporter of credit unions. I go along with Deputy Deenihan in terms of it being a small savers club. Big business people are not customers of credit unions that have helped many families to save money for a rainy day, which is extremely important. Credit unions may attract customers other than the traditional small householder, business or farmer because of the success they have achieved over the years by working on a voluntary basis encouraging and advising people who wish to borrow for a special occasion such as a wedding, funeral or another family expense.

The credit union system is not the same as the banking one; they do not operate in the same way and should be treated differently. The Minister should reconsider his approach to credit unions and have a more sympathetic view of the role they have played and the work they have done over many years in helping people. Maybe the country is experiencing good times but the Celtic tiger has not appeared in every household, many of which still face difficulties. The costs which arise for those with young families and children at school must be met and credit unions play a part in that regard. I ask the Minister to consider the recommendations made to him, treat them in a positive manner and to give encouragement to the credit unions to continue the work in which they have been involved.

Mr. McDowell

Are figures available for the current tax take on dividend interest? I asked this question on Committee Stage but do not believe we got a response.

Mr. McCreevy

There are no figures.

I want to scotch the notion that I am not sympathetic to the credit union movement. The credit union movement is wide-ranging and it is impossible to compare the credit unions, to which I referred in my reply to Deputy Deenihan, with some of those about which Deputy Boylan spoke. It must be borne in mind that I referred to the EU angle. There was a corporation tax exemption in the previous Finance Bill and to make further changes at this time might put that at risk.

I am sympathetic to the credit union movement. Prior to the movement coming to see me at its request and to last year's Finance Bill, I told the person who had asked to meet me that I had no intention to impose taxation on the credit union movement and would exempt it from corporation tax. To oblige the individual organising the meeting, I said I would meet them in any event. It was not my intention to impose any changes prior to last year's Finance Bill. It was when the credit union movement came to see me at their request that this particular hoo-ha started last year. That is what the record will show. I had no proposals to impose any taxation changes whatsoever on the credit union movement prior to the Finance Bill, 1998. I pointed that out to the person who requested the meeting. In order to oblige the individual acting on behalf of the credit union movement, I agreed to see them and they put forward their proposals.

I am very reluctant to revisit this matter because, when I did what they asked me to do, I did not find many people in my corner. Deputy Noonan is right in that I am extremely cautious about revisiting this matter and even more cautious about doing so in the light of noises coming from Europe. While I want to put to rest the claim that I am not sympathetic to the credit union movement, I have learned to be very wary of the said leadership.

Mr. McDowell

As an aside, perhaps you will permit me, Chairman, a couple of sentences in response to the Minister's interesting reflections about left wing parties. The Minister seems to forget that the Labour Party is still the oldest party in the State, and the name has not changed.

Mr. McCreevy

It seems to be proud of it, Deputy.

Mr. McDowell

Absolutely. Having said that, we are open to offers from anybody in this House, not that I expect one soon from the Minister, but perhaps there are others here present or in the general precincts who might be willing to subscribe to the values and ethos of the Labour Party in future.

The Minister makes two arguments in favour of the current position. He says that we have to look at the tax equity issue and the tax take. Both Deputy Noonan and I have argued, without proper riposte from the Minister, that the tax take would actually increase because at the moment people sim ply do not make returns. I do not think that argument stands up and we do not need to delay further upon it. The rest of the argument we have been having on and off over the past year has been about equity and whether it is fair to treat credit unions in a particular way. This is the whole argument that revolves around amendment No. 5 and the working group report published six months ago. The argument we are making is that tax equity demands that we treat credit unions in an entirely different fashion.

Interestingly enough, the Minister is homing in at this stage on the European aspect. The case will stand or fall in Europe on the very nature of the credit union movement. The credit union movement will, no doubt, make the case that it is different and not competing with the other financial institutions which are bringing this case. Without wishing to second guess what the European Commission might think, if one looks at the hundreds of millions of pounds in profit that the financial institutions are making, I find it difficult to see how they can realistically make the case that they are suffering because of competition from a non-profit institution like the credit union movement. That argument does not stand up.

The Minister is doing an injustice to the Irish League of Credit Unions. Let us not go back over last year because we all know what happened, roughly speaking. Given what has been said by representatives of the Irish League of Credit Unions over the past four or five weeks, it is quite clear that it has been up front with its members and its individual credit union institutions. I have seen the correspondence and its latest bulletin to individual credit unions which makes it clear exactly what the position is. All the credit unions that are making representations at the moment to Members of this House know the consequences of implementation of the working group report. They know that this will impose, although not in practice, a tax on people who are currently not paying tax. The Minister is doing them an injustice by suggesting that they are trying to pull the wool over the eyes of their members or the public.

It is clear from the tone of the Minister's response that he has no intention of acting on this. He says he is not sitting on the matter forever and a day but I will happily take a wager with him that he will sit on it at least until the end of his tenure as Minister for Finance. I intend to press this amendment.

Amendment put.

Tá

Ahearn, Theresa.Allen, Bernard.Barnes, Monica.Barrett, Seán.Bell, Michael.Boylan, Andrew.Bradford, Paul.Broughan, Thomas.

Browne, John (Carlow-Kilkenny).Bruton, John.Bruton, Richard.Burke, Liam.Burke, Ulick.Carey, Donal.Clune, Deirdre.Connaughton, Paul. Tá–continued

Cosgrave, Michael.Coveney, Simon.Crawford, Seymour.Creed, Michael.Currie, Austin.D'Arcy, Michael.De Rossa, Proinsias.Deenihan, Jimmy.Dukes, Alan.Ferris, Michael.Finucane, Michael.Fitzgerald, Frances.Flanagan, Charles.Gilmore, Éamon.Gormley, John.Gregory, Tony.Hayes, Brian.Higgins, Jim.Higgins, Joe.Higgins, Michael.Howlin, Brendan.Kenny, Enda.McCormack, Pádraic.McDowell, Derek.McGahon, Brendan.McGinley, Dinny.

McGrath, Paul.McManus, Liz.Mitchell, Gay.Mitchell, Jim.Mitchell, Olivia.Moynihan-Cronin, Breeda.Naughten, Denis.Neville, Dan.Noonan, Michael.O'Keeffe, Jim.O'Shea, Brian.O'Sullivan, Jan.Owen, Nora.Penrose, William.Perry, John.Quinn, Ruairí.Rabbitte, Pat.Ring, Michael.Ryan, Seán.Sargent, Trevor.Sheehan, Patrick.Shortall, Róisín.Stagg, Emmet.Stanton, David.Timmins, Billy.Wall, Jack.Yates, Ivan.

Níl

Ahern, Bertie.Ahern, Dermot.Ahern, Michael.Ahern, Noel.Ardagh, Seán.Aylward, Liam.Blaney, Harry.Brady, Johnny.Brady, Martin.Brennan, Matt.Brennan, Séamus.Briscoe, Ben.Browne, John (Wexford).Callely, Ivor.Carey, Pat.Collins, Michael.Cooper-Flynn, Beverley.Coughlan, Mary.Cowen, Brian.Cullen, Martin.Daly, Brendan.Davern, Noel.de Valera, Síle.Dempsey, Noel.Dennehy, John.Doherty, Seán.Ellis, John.Fahey, Frank.Fleming, Seán.Flood, Chris.Foley, Denis.Fox, Mildred.Gildea, Thomas.Hanafin, Mary.Harney, Mary.Haughey, Seán.Healy-Rae, Jackie.

Jacob, Joe.Keaveney, Cecilia.Kelleher, Billy.Kenneally, Brendan.Killeen, Tony.Kirk, Séamus.Kitt, Michael.Lawlor, Liam.Lenihan, Brian.Lenihan, Conor.McCreevy, Charlie.McDaid, James.McGennis, Marian.McGuinness, John.Martin, Micheál.Moffatt, Thomas.Moloney, John.Moynihan, Donal.Moynihan, Michael.Ó Cuív, Éamon.O'Dea, Willie.O'Donnell, Liz.O'Donoghue, John.O'Flynn, Noel.O'Hanlon, Rory.O'Keeffe, Batt.O'Keeffe, Ned.O'Rourke, Mary.Roche, Dick.Ryan, Eoin.Smith, Brendan.Smith, Michael.Treacy, Noel.Wade, Eddie.Wallace, Dan.Wallace, Mary.Woods, Michael.Wright, G. V.

Tellers: Tá, Deputies Barrett and Stagg; Níl, Deputies S. Brennan and Callely.

Amendment declared lost.