Finance Bill 2004: Second Stage.

Minister for Finance (Mr. McCreevy)

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

This Finance Bill implements the tax changes announced in the budget and provides for a range of other measures. In particular, the Bill includes measures that will continue to foster an environment which will stimulate investment and provide more jobs. The budget and this Finance Bill lay the foundation for an early return of significant economic growth. All the indicators point that way at home and abroad. Our finances are in good hands, as the EU agreed yesterday at ECOFIN when it gave us a clean bill of health under the Stability and Growth Pact. The economy too is in safe hands and will continue to be so under this Government.

The Bill runs to 91 sections and four Schedules. I propose to outline the main provisions in the time available to me. The Committee Stage will provide an opportunity to debate the Bill in detail. I look forward to hearing the views of Deputies.

Part I of the Bill, which runs from section 1 to 42, deals with income tax, corporation tax and capital gains tax. In my period in office the income tax burden has reduced significantly. Since 1997, average tax rates have fallen for all categories of taxpayer, including those on lower incomes. After budget 2004, for a person on the average industrial wage, the average tax rate will be ten percentage points lower than it was in 1997. An increasing proportion of those on the income tax record, over 35% of all income earners, pay no tax at all. The number of such income earners increased by over 75% from 380,000 in 1997-98 to 669,000 after budget 2004.

After budget 2004, the percentage of the income tax yield coming from those earning at or under the average industrial wage is estimated to be 6% as compared with over 14% in 1997. That in a nutshell is the answer to some Deputies' recently discovered concerns for those on the average industrial wage. We have helped those on both low and middle incomes during our periods in Government by an enormous amount, unparalleled by any other recent Government of whatever political complexion.

Now is a period to consolidate the gains we have made. Available resources have been concentrated on continuing progress towards removing those on the minimum wage from the tax net. When the statutory minimum wage came into effect in April 2000, less than 64% of the minimum wage was exempt from tax. Section 3 increases the entry point to taxation of a PAYE worker by €240 per year to 90% of the increased new minimum wage annualised. Thus, for a single PAYE person, the first €12,800 per annum, or €246 per week, of earnings will be tax free. All PAYE workers will benefit from this increase of €240 in the employee tax credit.

Section 2 increases further the exemption limits from income tax for persons aged 65 and over to €15,500 single and €31,000 married. Since I became Minister for Finance the income tax exemption limits for the elderly have increased by more than 135%. In that period more than 81,000 income earners aged 65 or over have been removed from the tax net.

Section 4 increases the standard-rated allowance for trade union subscriptions from €130 to €200. Section 6 puts beyond doubt that income arising from the investment of personal injury awards made by the Personal Injuries Assessment Board for permanently incapacitated persons will be exempt from income tax in the same way as if the awards had been made by a court. This applies where the income in question forms the sole or main income of the individual.

Section 7 exempts from income tax compensatory awards where an individual's rights under employment-related legislation have been infringed, for example, in the case of discrimination, harassment or victimisation. Up to now, the position has been that such awards have been subject to income tax.

In the Finance Act 2003, I provided for the direct application of PAYE to taxable benefits-in-kind. Taken together with the changes in the Social Welfare Act 2003, this has ensured the application of PAYE and PRSI, including the training and health contribution levies, to these benefits from January this year. Some further legislative provisions are required now to bed down the new regime and these are provided for in sections 8 and 9. They include an exemption for mobile phones as well as for computers and high-speed Internet connections provided by an employer to an employee in their home for business use. An exemption in respect of certain company vans parked at home by employees is also provided for. This takes account of representations made to me by both employers and employees, and I was happy to respond favourably.

Section 9 also extends the existing BIK tax exemption for employer-provided travel passes to include Luas services, which are due to commence this year, while section 10 confirms the budget day announcement that the specified rate used to calculate the benefit-in-kind charge on certain preferential rate mortgage loans will be reduced from 4.5% to 3.5%.

Section 11 extends the existing standard-rated tax relief in respect of health insurance policies which cover non-routine dental treatment to policies issued by insurers providing dental insurance only. The budget announcement of an income tax exemption for income received by Gaeltacht households under the summer college student scheme is provided for in section 12.

Section 13 provides for an updating of the qualification requirements in respect of the 100% stock relief for young trained farmers to reflect changes in the underlying academic courses. It also provides that, in general, it is the achievement of certain standards that is mandatory rather than just attendance at courses. Similar provisions are included in sections 68 and 69 in respect of stamp duty relief for young trained farmers.

Under section 14 the income tax exemption to encourage farm leasing is being improved by increasing the annual amount of leasing income exempted from tax and reducing the age limit for qualifying lessors. These improvements in the relief will encourage the higher utilisation of our agricultural land, which will become all the more important in view of the changes in the Common Agricultural Policy.

Section 16 facilitates occupational pension schemes in their investment activities by providing that any such schemes which borrow for investment reasons can be approved pension schemes for tax purposes.

Section 17 gives a capital gains tax exemption to certain individuals on the disposal of assets where the individuals already have an income tax exemption on the income derived from those assets, for example, persons in receipt of court compensation arising from incapacity where the gains and income from those assets are their principal source of income and gains. This will facilitate the use of a wider range of investments by these individuals.

The business expansion scheme and seed capital scheme reliefs are good schemes as long as they remain focused and targeted. Having reviewed the schemes in the lead-up to the budget, I am satisfied they continue to serve their purpose as now focused and section 18 provides for an extension to these schemes for a further three years until 31 December 2006. It also provides an increase in the maximum amount a company can raise under both schemes, from €750,000 to €1 million as announced.

The increase in the limit and extension in time from 5 February 2004 to 31 December 2006 and certain other changes to the schemes will be subject to a commencement order to allow for clarification of potential EU state aid issues raised by the European Commission. Other changes include an increase in the non-PAYE income limit for investor eligibility for the seed capital scheme and the phasing out by end-2004 of the application of the seed capital scheme to trading activities in an exchange facility established in the Custom House Docks area in Dublin.

Separate to the commencement order, an initial extension of the scheme to 4 February 2004 is provided for and sections 18 and 19 provide for transitional measures, including for arrangements and investments made before 4 February 2004.

Section 20 provides for a register of principal contractors for the purposes of relevant contracts tax, the tax which principal contractors are obliged to deduct at a rate of 35% from payments made to certain sub-contractors in the construction, meat processing and forestry sectors.

I have stated previously that it is essential that tax avoidance schemes and loopholes are tackled vigorously. In a press release last March I made clear my intention to close a loophole which had come to my attention. It related to the relief available to individuals in respect of interest paid on money borrowed for the purposes of acquiring an equity stake in, or lending money to, a company where the moneys are used to acquire certain premises. This is provided for in section 22.

Section 23 amends the scheme of capital allowances for qualifying residential units associated with registered nursing homes. The minimum number of qualifying residential units is being reduced from 20 to ten. The condition for buildings to be two-storey at maximum is being amended to allow that the units may be in a building of any number of floors where a fire safety certificate is issued.

Section 24 redrafts one of the eligibility conditions for investors in private hospitals to bring it into line with other reliefs by removing an unintended effect of disqualifying all investors in a project where one is ineligible.

Sections 25, 26 and 27 provide for an extension of various tax reliefs as outlined in the budget and set out transitional provisions where appropriate, as well as clarifying the conditions associated with the reliefs, for example, where planning issues arise.

I have always held the view that targeted, well designed tax incentive schemes can be a useful instrument in achieving desirable public policy objectives. Indeed, many places in Ireland have enjoyed a regeneration directly arising from area-based tax reliefs. The value of such schemes must be balanced against the important objective of ensuring a wide tax base if we are to maintain low rates. Accordingly, these reliefs are being phased out. However, arising from concerns expressed by various individuals and groups, including various local authorities, I felt that, on balance, there was a rationale for allowing a longer wind-down of the various tax reliefs referred to in these sections. This will allow for a more orderly completion of projects where delays had arisen for various reasons.

Section 28 confirms my budget announcement that the termination date for film relief is being extended from 31 December 2004 to 31 December 2008 and the cap on the amount that can be raised under the section in respect of any one film is being increased from €10.5 million to €15 million per film. Changes to address instances of abuse are provided for in the section and these include the revision of the certification procedures, provisions to deal with over-complicated financial structures and enhanced requirements in respect of record keeping by film production companies. Deputies will be aware of the intense lobbying from the film industry aimed at convincing all parties that film relief should be retained, and my decision was broadly welcomed across the political spectrum. Those who greeted this decision from political parties other than my own should bear in mind that its continuation will mean that higher earners can reduce their tax bill through investment in qualifying films. European Commission approval will be needed for the continuation of the scheme and the increase in the overall investment.

Ireland has excelled in attracting foreign investment in recent years, with some of the world's leading companies choosing to locate here. However, we cannot rest on our laurels and we must always be vigilant in ensuring that Ireland remains competitive in this regard. The Bill provides measures that enhance the prospect of attracting further high quality investment projects to Ireland leading to additional future employment opportunities.

Sections 31, 34 and 42 are designed to encourage multinational corporations to locate their regional headquarters and holding companies in Ireland. The Bill provides for an exemption from tax on gains for holding companies on the disposal of a shareholding in a subsidiary, whether Irish or foreign, and makes a number of related changes to the scope of our provisions for relief against foreign tax in respect of dividend income paid to parent companies. Specifically, sections 31 and 34 amend the provisions on relief for foreign taxation in the case of dividends paid by a subsidiary to a parent company.

To qualify for relief for foreign taxation in the case of dividend income under a unilateral credit relief provision where no double taxation treaty applies, the shareholding involved must, up to now, have been at least 25% of the subsidiary company. This is being reduced to 5%. Relief is also being made available for foreign tax imposed on company tiers lower than the immediate subsidiary. Section 34 will implement Ireland's obligations under the EU parent and subsidiary directive. Section 31 will also allow companies to average the credit tax for foreign tax across dividend streams on shareholdings of 5% or more for the purpose of calculating the relief. The section also extends the credit mechanism to certain sub-national taxes imposed in tax treaty countries where those taxes are not covered by the relevant tax treaty. This issue arises in particular in the case of the US and Canada where non-federal taxes are not covered by the relevant tax treaty.

The capital gains tax exemption provided in section 42 will only apply where the shareholding held by the holding company is a minimum of 10% of the subsidiary concerned and at least €15 million in value, or where the shareholding held is a minimum of 5% of the subsidiary concerned and at least €50 million in value. It is also a requirement that the subsidiary is primarily a trading company or, taken together, the holding company and its subsidiaries are primarily a trading group. It is also a condition that the minimum shareholding has been held for a continuous period of 12 months in the three years prior to the disposal.

These measures will encourage foreign direct investment by facilitating multinational companies with operations in a number of different countries to set up holding companies in Ireland. The objective is to bring regional headquarters companies to Ireland, which would include corporate functions such as control of regional operations, group treasury, and centralised administration.

The programme for Government includes commitments to build the capability of firms to carry out and manage research and development in Ireland and work to ensure that Ireland develops a world-class research capacity. Following on from my announcement in the budget, section 33 provides for a 20% tax credit for companies for qualifying incremental expenditure on research and development.

There is a need for the economy to make a decisive transition from high volume, lower value enterprise to high value, high innovation, knowledge intensive enterprise, and research and development activities can encourage such enterprise. In addition, increased research and development activities can help embed an existing firm's activities in Ireland as well as develop additional high quality employment. Deputies might be interested to note that tax incentives are widely used to stimulate research and development in other advanced economies. Their effectiveness in doing so has been established by a series of empirical studies, especially among large firms in high-tech sectors, and this is where the need in Ireland for greater research intensity is most pronounced. As with all tax reliefs it is important that the measure be focused. Accordingly the measure is targeted at encouraging additional research and development by basing the scheme on incremental expenditure rather than permanent additional tax deductions for all research and development activities.

Full details of the scheme, including a core definition of research and development activities, are set out in section 33 and detailed guidelines will be issued by my colleague, the Minister for Enterprise, Trade and Employment, on what activities will constitute research and development activities for the purpose of the credit. Companies will be able to deduct 20% of the incremental spend on research and development from their corporation tax bill in addition to its normal deduction as an expense. Incremental spend will be calculated by reference to a base year. For expenditure in 2004, 2005 and 2006, incremental spend will be calculated by reference to expenditure in 2003. In 2007 the base year will be 2004: in 2008, 2005 will be the base and so on. Capital investment on construction and refurbishment of building will be treated separately, with a 20% credit made available irrespective of its incremental nature.

Section 35 is aimed at assisting the leasing sector of our financial industry and it provides that lessors engaged in finance leasing may elect to pay tax on income from the finance leasing of short-life assets on the basis of accounting income rather than income based on income tax rules. The option will be subject to a number of conditions detailed in the Bill. Section 39 extends the qualifying period for the scheme of tax relief for corporate investment in certain renewable energy projects from 31 December 2004 to 31 December 2006.

An EU directive dealing with the taxation of interest and royalties was agreed in 2003. The purpose of this directive is to eliminate withholding taxes on cross-border interest and royalty payments between associated companies and branches in different member states. The directive was transposed by way of statutory instrument in late 2003 and its provisions are being repeated in section 41 and Schedule 1 with a number of minor technical additions.

Part 2 deals with excise duties. Sections 45 and 48 confirm, respectively, the budget increases of 25 cent including VAT in the excise duty on a packet of 20 cigarettes and 5 cent per litre including VAT in respect of petrol and diesel. As indicated in my budget, changes to indirect taxes were limited this year and have contributed to our goal of reducing inflation.

Section 46 enables certain quantitative restrictions on cigarettes and tobacco to be retained in respect of travellers from the new EU member states after 1 May next. In effect, the regime applying to travellers from other existing member states will not be applied to cigarettes or tobacco acquired by travellers from the new member states in question during the transitional arrangements for accession states.

Sections 49 and 50 provide for a qualified exemption from the excise duty on biofuels for use in certain approved pilot projects, including those undertaken to test the technical viability of using biofuel as a motor fuel.

Part 3 deals with VAT. Sections 55, 56 and 58 provide for the EU directive on the VAT treatment of cross-border supplies of gas and electricity to be transposed into Irish VAT law. Increased liberalisation of the electricity and gas markets and increased cross-border trade between member states required a change in the rules to clarify that supplies of gas and electricity were taxable in the member state of final consumption, avoiding the need for a supplier to register in every member state which he or she supplies.

Section 57 confirms that, where a house and site are sold together, the VAT treatment is that both the house arid the site are subject to VAT. An interpretation of the VAT Act 1972 has been used to attempt to exempt the sale of developed sites, where a site and new house or apartment are being sold together. The Bill provides that, where a developed site is sold in such circumstances, it is subject to VAT.

Sections 59 and 61 confirm the budget night financial resolution to increase the farmers' flat rate addition for VAT purposes from 4.3% to 4.4% with effect from 1 January 2004. There is a corresponding increase to 4.4% for the sale of livestock by VAT registered farmers.

Section 63 clarifies that, where a trader in Ireland supplies goods or services to a trader abroad in a situation where the recipient in the other member state is liable for VAT on a reverse charge basis, then the Irish trader must issue a VAT invoice. This will not impose any extra burden on traders and reflects existing commercial practice. Sections 64 and 65 contain a number of technical amendments to clarify the VAT treatment of fund management and administration services provided to Irish and foreign investment funds.

The stamp duty provisions are contained in Part 4. The stamp duty exemption for owner-occupiers of new houses and apartments has up to now been dependent on a floor area certificate from the Department of the Environment, Heritage and Local Government indicating that the building is not greater than 125 square metres. However, this particular certification process is linked with the now abolished new house grants and will cease on 2 April 2004. Consequently, section 71 provides for a new floor area compliance certificate for such houses and apartments, which will also certify that the property conforms to approved building standards. The certificate will be issued by the Department of the Environment, Heritage and Local Government for the purpose of the stamp duty exemption.

Section 73 replaces the current section of the Stamp Duties Consolidation Act 1999 which provided for a stamp duty exemption for certain international trademarks. I announced in the budget that I would introduce a stamp duty exemption for transfers of various types of intellectual property. This new wider and more comprehensive section provides for an exemption from stamp duty on the sale, transfer or other disposition of intellectual property. Intellectual property includes any patent, trademark, copyright, registered design, design right, invention, domain name, supplementary protection certificate or plant breeders' rights. This measure is aimed at making Ireland a more attractive place for the location of such intellectual property.

Section 76 provides for an extension of capital acquisitions tax business relief to the situation where two or more companies hold shares in family-owned businesses. The current legislative provision only covers situations where there is one holding company.

Sections 77 and 80 provide for an extension of the legislative framework that underpins tax information exchange agreements with certain jurisdictions to include gift and inheritance tax. An amendment is also being made to the relevant legislation to apply the existing Revenue powers to encompass the foreign equivalent of estate, inheritance and gift tax.

Section 83 amends the scheme of tax relief for donations of heritage items to cultural institutions of the State. The minimum value of an item or collection which can qualify is being increased from €100,000 to €150,000 with the additional requirement that, in the case of a collection, at least one item in the collection must have a minimum value of €50.000. In addition, there are detailed changes in the rules governing the selection of heritage items. These changes are designed to facilitate the work of the selection committee which comprises representatives of the cultural institutions and bodies concerned.

Subject to certain conditions, the Revenue Commissioners already have the power to apply to the High Court for an order requiring a financial institution to make records available for inspection or to furnish information relevant to the tax liability of a taxpayer, including a group or class of person whose individual identities are not known to Revenue. Section 84 extends this power so that it can apply in respect of information and records held by certain foreign financial entities which are under the control of a domestic financial institution. This is a recommendation made in the Revenue powers group report which is being proceeded with now because of the current Revenue initiative in regard to offshore accounts. I published the report of the Revenue powers group on 4 February 2004 with a view to allowing time for all interested parties to discuss and debate the issues raised by the group. I will consider the various recommendations made in the report in the context of next year's Finance Bill.

Section 87 and Schedule 4 confirm the transposition into Irish law of the EU savings directive on the taxation of savings income in the form of interest payments. The aim of the directive is to enable savings income in the form of interest payments made in one EU member state to individuals resident for tax purposes in another EU member state to be taxed in accordance with the laws of the latter member state.

Section 88 provides for the carrying over from one year to another of unspent Exchequer capital allocations up to a limit of 10% of each year's total capital allocation under the rolling five year multi-annual envelopes for Departments announced in the budget. The Government is committed to keeping capital investment at 5% of gross national product over the period 2004 to 2008. Under the capital envelopes, a total of €33.6 billion will be available for capital investment to support the economy's future growth potential. The ability to carry forward from one year to another unspent Exchequer capital is an important element of multi-annual budgeting for capital purposes and for the management of capital programmes.

As Minister for Finance, I have managed in successive budgets and Finance Bills to create a low tax rate environment, a policy which has boosted investment and created jobs. Probably the most telling statistic is that, over the past six years, the numbers at work have increased by more than 300,000. Unemployment today remains at historically low levels. Whatever one's ideology in this House, it must be accepted that the onus is on us, as policymakers, to create conditions that reduce unemployment. However, while much has been achieved in this respect, we cannot take future prosperity for granted. This Bill includes significant measures that ensure further investment for Ireland and jobs for its people.

I hope the House has benefited from the outline I gave of the provisions in the Bill. I look forward to the debate on it and commend the Bill to the House.

Mr. R. Bruton

I agree with the Minister that there is an onus on all Members to focus on the preservation and growth of long-term, sustainable jobs in this community. That legacy is now at risk and all the indications are that we are losing competitiveness in significant areas. There are serious problems in regard to infrastructure, our technology lead has been lost and, in the area of telecommunications where we had been considered leaders, we have lost that lead following the botched handling of the telecommunications network by the Government.

What is missing from this Finance Bill and the Minister's finance strategy is the means by which we are to address the serious challenges ahead. I would have liked to see the Minister dwell more on those real challenges, about which I know he is preaching to the rest of Europe on the basis of the Lisbon agenda. We need to learn quickly some of those lessons ourselves because serious problems are coming up the track.

This Finance Bill is very much for the insiders in society and does nothing for ordinary workers and their families. It extends and tweaks a series of generous tax breaks for the well-off without any justification being offered for these changes. There is an uncomfortable feeling which remains after reading this Bill that many of these changes are designed for well-placed people who have had the ear of Ministers over the past year. There is nothing in the Bill for ordinary families.

Personal tax credits have been frozen and stealth taxes and charges abound. The most recent manifestation of this is that it is said to young families trying to buy a home or those trying to establish businesses that they must pay substantial development levies for the privilege of getting on the first rung of business or family life. That is a highly negative approach to young people who are the key to our future, whether in terms of future competitiveness or the future quality of our society.

The Bill has remained silent on many important issues which will arise within the narrow finance brief, although I realise that the Minister has influence on much beyond that brief. It came as something of a bolt from the blue to discover during the week, when reading replies the Minister made to Deputies Paul McGrath and Deasy, that the Revenue found itself unable to prosecute those who breached the 1993 tax amnesty. It has also found itself unable to find evidence against any financial advisor within a financial institution which assisted people to set up bogus non-resident accounts. These have been seen as serious public issues in respect of which we need to prove to the community that we have a tax code and that those who do wrong will be pursued. Despite this, the Revenue Commissioners slip out through such replies that they are unable to pursue these cases.

It is ironic that, in the same week this information emerged from the Revenue Commissioners, a report commissioned by the Minister was published regarding Revenue powers. The report is silent on the issue of evidence problems which the Revenue Commissioners apparently encounter. Was this due to a failure in the terms of reference the Minister offered to this Revenue power group? I would have liked that group to discuss the problems of obtaining evidence and pursuing cases because, ultimately, that is the test. We need to pursue this as the crime it is. The review group should consider afresh this serious issue.

I accept that the Revenue powers group has come forward with some new suggestions. One which I am glad is included in the Bill is the obligation on financial institutions which control another company overseas to release documentation to the Revenue Commissioners. That is a significant issue in regard to assisting Revenue to pursue unpaid tax.

Measures dealing with access to phone records and the ability of the Revenue Commissioners to question persons in Garda custody are not getting to the root of the problems of evidence collection, and unfinished business in this regard must be considered. It has been suggested in the newspapers that the success of the Criminal Assets Bureau came from pooling the powers of different agencies, specifically the Garda, Revenue and some of the other enforcement agencies, and that this produced results and performance which the Revenue Commissioners have not to date been able to achieve in respect of prosecutions. It seems that the Revenue powers group did not consider the CAB specifically. The group had discussions with many other groups but not the CAB, which surprised me.

I question the suggestion that we should drop certain penalty features of the existing code. I note that there is a suggestion to drop penalty interest features and the 200% tax liability penalty. The group asserts that this should only be used in what they call "legacy cases" such as Ansbacher and so on. While this has the rather touching implication that large-scale tax evasion is now a thing of the past, I am not sure that stands up to scrutiny. These will be important issues of debate during the course of the year. I am sorry the Minister has been remarkably silent on such issues which have come prominently into the public domain in the past week.

Another important issue which should have been addressed in the Bill and which has existed for a long time is the bizarre feature that a proposal to spend as little as €1,000 by a Department on some scheme will be subject to careful scrutiny, in general, although there have been remarkable cases in respect of which that did not happen. However, the relevant Department, with the Department of Finance looking over its shoulder, will scrutinise whether the scheme is a good one, its long-term implications and so on. There is a considerable degree of scrutiny of even a small €1,000 scheme. By contrast, the House can vote through tax allowances and concessions worth hundreds of millions of euros without any such scrutiny having been undertaken in advance of the decision. It is time we introduced a strong protocol regarding all reliefs in our tax code.

The protocol should include a detailed annual statement of the cost of the concession, an annual statement of the activities generated under it and the beneficiaries receiving it. It should have a sunset clause, so that each tax relief would have to be explicitly renewed on a regular basis by the Minister in a Finance Bill. It should include a cost-benefit review, undertaken on some sort of a five year rolling programme or whatever. There should be a cap on the maximum benefit a taxpayer could derive from this range of tax reliefs which are not related to their personal position as a family unit or whatever. There should be automatic indexation of the elements of the tax code so that Ministers cannot, by stealth, erode critical elements of the tax code, as happened in regard to personal tax credits and capital gains tax, neither of which are desirable in the long term. A new protocol on tax along these lines would go a long way towards creating a far greater consciousness in this House and the Department of Finance that concessions under the tax code are just as much money out of the Minister's pocket and mine as are spending proposals being brought forward by Ministers in spending Departments.

The history has been that tax decisions are almost invariably ad hoc and based on a hunch, not analysis. The Comptroller and Auditor General had to draw to our attention that, of 91 allowances given under the tax code, the Department had accurate estimates of just 48 of them. Huge swathes of tax revenue are being given relief without proper scrutiny. There is the ludicrous provision whereby some taxpayers can bed and breakfast outside the jurisdiction for 183 days and pay no tax. This issue is not being addressed. How do these features of the tax code square with the public interest? I do not think there is serious consideration of that debate in the round. We examine the individual changes the Minister makes from year to year, but there is no structure that generates a serious debate about these issues in the round.

I wish to deal with this year's crop of insiders who appear to have got in under the defences of the Department of Finance and squeezed something out of this Finance Bill, a facility which was not available to ordinary families. Reliefs are being extended for property-based investments. I am puzzled why this should be happening. I do not see evidence that the construction industry is in difficulty whereby there needs to be tax-based incentives for building. The industry is still strong. House prices are roaring ahead. Why should we decide that holiday homes should get tax relief almost within a year of deciding that first-time buyers in the midst of a housing crisis should not get the first-time buyer's grant, a traditional feature of our code? Why should we make such a decision and decide to perpetuate this for holiday homes? If any of the 166 Deputies were asked where their priority lies, I believe they would say it is with first-time buyers.

Multi-storey car parks are another strange feature. Why is it decided to give a tax concession to the construction of multi-storey car parks? I can understand it being provided for park and ride facilities where a social benefit is pursued. It is not the same in respect of multi-storey car parks.

Reliefs are being extended to private hospitals and sports injury clinics. Anyone looking at the health service in Ireland in 2004 would not say private hospitals and sports injury clinics, lucrative ends of the market which are pretty secure, are where the priorities lie in the health service. At a time when public hospitals are starved of investment in bed capacity to deal with emergency and chronically ill people, why do we decide to give concessions to a well-heeled section of the health industry? Apparently private nursing homes — perhaps the Minister will confirm this is not the case — have empty beds because the schemes of support for patients are not sufficient to fill the existing beds, yet it has been decided to extend tax relief to the construction of private nursing homes at a time when there is a twelve and a half year waiting list for beds in public nursing homes while many beds in private nursing homes remain vacant because people cannot afford to go into them. Where is the holistic thinking in the way this is being done?

We should consider how ordinary people are being treated in regard to benefit-in-kind compared with the well-heeled. Benefit-in-kind will now be charged on a medical check-up provided by employers, despite the fact that it is a public good which should be promoted. However, a company director can take home a priceless work of art, hang it up in his living room and enjoy the benefit of it without paying a penny in benefit-in-kind. How can these contrasting treatments be justified?

Investors in private hospitals and sports injury clinics will receive tax relief while chronically disabled drivers have been told by the Minister that a review, which began in 1997 when he first took up office, is needed. He still has not mastered the complex issues involved in giving tax concessions to disabled drivers so that he could have announced a change in the existing scheme which is so niggardly to people in serious need. This is the contrast with the Punchestown decision which was taken within a week and with no assessment. Disabled people, one of the most disadvantaged groups in the community, are being told they must wait seven years.

The Taoiseach conveyed to me today that the Minister believes he must work further on this report. Much work needs to be done in the Department on this issue. It appears much work does not have to be done on sports injury clinics or other businesses that have the favoured ear of the Minister and his advisers. I do not point the finger solely at the Minister by saying he is somewhat deficient where others were holier than thou. I am saying, however, that there is no system for examining these issues as a whole. We are producing ludicrous choices. It is an ad hoc approach at its worst and it needs to be changed.

There are some tax reliefs which people will welcome. Tax relief for the film industry was subjected to much analysis in the committee in which Deputies Burton and Ó Caoláin were involved. Scepticism was also expressed. I take the view that the film industry should not be reliant on a tax-based vehicle for its long-term future. I would like the Minister to use this period to look at ways of taking a more strategic approach to the long-term sustainability of this important industry without being so reliant on tax-based vehicles. It was a serious mistake to pull the mat from under an industry of this scale and importance to the country without prior evaluation by the Department. This became evident as we began to examine the issue. It indicates the inappropriate ad hoc approach to many of these important issues in the tax code.

Many people will be disappointed that small and medium-sized industries, which are considered the seabed of our future, are being effectively excluded. If one does not spend €50,000 on research and development, one cannot benefit from this relief. I like the idea regarding incremental investment. This has been criticised by some people outside the House. The incremental idea is a good one. If this is a tool to be competitive in research and development, perhaps the Minister will inform us on Committee Stage whether we are as competitive as other tax jurisdictions in confining it solely to incremental investments, and is it a workable connection.

The Minister conceded last year that he recognised the credit card levy contained the unwanted feature of trapping people with their existing financial institution, as does the stamp duty on mortgage transfer. Perhaps the Minister will consider for Committee Stage an amendment which would remove these features. If people try to shop around, they must pay twice. They pay twice on their mortgage stamp duty or they pay twice on their credit card stamp duty. The Minister indicated during the year that he would review this aspect but it does not appear to have found its way into the Finance Bill.

Another significant issue which needs to be considered is support for families. The way we conduct our tax business does not encourage this. Recently the Minister for Social and Family Affairs said that it is not the job of the State to favour marriage over other family forms and that she doubted the wisdom of trying to encourage marriage. I take the opposite view. The State should support the framework of marriage because two individuals make an explicit commitment to one another and it is a good environment that should be supported. There is little doubt, however, that the main financial systems do little or nothing to support marriage or, indeed, cohabitation. Our system of tax reliefs offers substantial child premiums to parents who are not living together. When we look at the means tested schemes, it is typical that neither income ceilings nor disregards take account of the fact that supporting two spouses is more expensive than supporting one. The result is that couples are disadvantaged in access to means tested schemes. That is true of housing subsidies, higher education grants, medical cards, family income supplement and unemployment assistance. These are crucial areas of support to family but there is a thread of discrimination running through them and the Dáil has not examined the rationale behind this in a coherent way. It is time we did and I hope that the Minister for Social and Family Affairs, who is doing work in this area, will come forward with sensible proposals that would support families where two parents live together and look after their children. We recognise that families break down and there are many one-parent families who also need to be supported, but we should not systematically set out to discriminate in their favour in financial support.

There is also need to look more seriously at life-cycle burdens faced by families in our tax code. We must question the burden of stamp duty on first-time buyers, the lack of tax relief for child care, the discriminatory basis on which we support people who need long-term care in their old age and the poor treatment of home carers. These are all features on which the Minister has said he will not budge. How does that fit into the Government's family strategy? It is remarkably dissonant with that policy. We should have a serious debate on our disjointed approach to public finances and the family.

I am surprised we are silent on the issue of the carbon tax. We are told that a carbon tax system will be in place by the end of the year. Apart from the discussion document which the Minister has issued, we have received no inkling of his approach on the issue. The Government is obliged to notify its decision on emission trading regimes for Ireland by the end of March. That is intimately wrapped up with decisions we will make on the carbon tax. The Minister has made no provision for debate of the issue in the House and played a cat and mouse game when it came up in the past, turning the question around to ask the views of the Labour Party or Fine Gael, instead of setting out the options for a carbon tax and making a case for the Government's thinking on the subject.

Where is that debate? The deadlines are looming and decisions will be taken without any serious debate. We need to know the impact on the competitiveness of businesses and how we will protect them. We need to see how families on low incomes will be affected and if dirty industries will receive a valuable tax quota they can trade while small businesses have to pay a tax, a very discriminatory approach. We are sleepwalking into the decision on carbon tax. The Minister should lead the debate and have a proper exchange here. He is silent, however, and that is a mistake.

We have grown used to the phenomenon that is budget day. It has its origin in simpler times. It serves to focus attention on the urgent rather than the important much of the time, a feature of many budgets. It pitches important decisions into a secretive, partisan showpiece and it does not help the mature consideration of important issues in this House. It has time and again truncated proper scrutiny by Parliament. The entire system consists of putting the Estimates together secretly and publishing them within a week of the budget, with no opportunity to evaluate them before coming into the House with a slate of tax reliefs that have not been properly evaluated. It is all thrown into a Roman colloseum, where the Minister is champion of the day who must see off his rivals.

This system does not help us to plan for sensible and prudent public finances. The Minister indicated early in this regime how he would radically change that, but it has not happened. We are where we always were, with a serious debate on the Estimates half way through the year in which the money will be spent and this sort of sham debate about elements of our tax code without looking at it in its entirety. We are not going forwards, we are moving backwards.

That approach has also encouraged short-term thinking and ad hoc decisions. The Comptroller and Auditor General has pointed this out to us on a number of occasions and the two most glaring examples are worth repeating. The granting of medical cards to everyone over 70 years of age led to twice the original estimated number of people benefiting according to the Comptroller and Auditor General. The bungled handling of the negotiations after already having announced the decision before any thought was put into it resulted in the cost per patient of the concession quadrupling. It was bizarre.

Mr. J. Bruton

The man in the Chair was able to manage the money better. Things are worse now than when Deputy O'Hanlon was Minister.

An Ceann Comhairle

The Ceann Comhairle should not be involved in debate in the House under any circumstances.

Mr. R. Bruton

That is a feature of what is happening. It conspires against all of us in the House, Government and Opposition, and the Minister's interjection demonstrates that. Ministers are trapped within a system that presents them with an extremely narrow range of options in any given year. We have an antiquated method of putting together spending programmes. The demands of the existing schemes and bureaucracy must be catered for first and it is only the money that is left over that becomes the focus of political choice.

This was evident in the past two years when the Minister has had to curtail spending. What happened? Bureaucracy was not reformed or cut back but the things that come across the counter to the ordinary punter, the home help services, the grants to those with disabilities, the grants to community groups and the community employment schemes, were affected. All the things dependent on discretionary budgets got screwed while the system carried on as ever. That is a failing in the way we put together our budgets. A system of Government that encourages the permanent Government to have what it holds and leaves Ministers to grapple and scramble over the little that is left over is not a good one.

We need to consider more root and branch reform of the way we compile our Estimates and public finances. It would be beneficial to the Minister in resolving the issue. The separation of spending decisions and tax decisions is a false separation. We need to rebuild a coherence into what we are doing. That would have major benefits for our health system. We have some bizarre features in the tax relief that applies to the private sector end of the health system at a time when the public sector end is creaking and unable to cope with real priorities. Not even the smallest business in the land would follow the type of financial procedures with which we have grown up. It is time to make serious changes in this regard.

We in this House would do a good job if we began to put in place some new rules governing public finances, proofed our annual budgets against long-term strategic objectives, presented multi-year costs of any new scheme being initiated, subjected every scheme to value for money audits and put our customers and their needs at the heart of the system rather than the other way around where protecting the system takes precedence over the needs of the people who are dependent on public services.

Ms Burton

Fundamentally, the Bill is a reactionary charter for artificial tax avoidance, a carte blanche for the professional designers of artificial tax avoidance schemes and their rich and powerful clients. It is highly ironic that, at a time when tax evasion had returned as a burning political issue, the Minister for Finance had chosen the occasion of this Bill to create a series of additional and extended tax breaks for the wealthy, facilitating them and their advisers in the construction of a new wave of artificial tax avoidance schemes, thus increasing the burden on tax compliant citizens.

As a result of the Bill, those who have previously been inclined towards tax evasion and overseas bank accounts — some of them have been here previously — may rest easy in their beds because, in section after section, a range of provisions are included for additional, attractive and easy-to-obtain tax breaks, further facilitating and encouraging the construction of highly artificial tax avoidance schemes. It appears there is a clear and conscious strategy on the part of the Minister for Finance, Fianna Fáil and the Progressive Democrats to make artificial tax avoidance so attractive that there is no longer a need to indulge in tax evasion.

The chairman of the Revenue Commissioners was recently quoted as saying to the Committee of Public Accounts that: "In extreme cases, exploiting legal tax loopholes is not very different from a guilty man walking free because of a legal technicality". Yet despite that statement by the chairman of the Revenue Commissioners, the Minister has brazenly decided to make this year's Finance Bill another bonanza for the designers of artificial tax avoidance schemes at a time when the majority of ordinary PAYE taxpayers will pay tax at the top rate.

This fundamental unfairness introduced into the tax code by the Government is destroying the confidence of every PAYE taxpayer in any notion of fairness or equality in taxation. This is the very set of circumstances that gave rise to the tax marches and unrest of the 1980s. When one takes into account that the Government has also presided over shabby cutbacks in social welfare to the tune of €50 million, it makes the Finance Bill giveaways to the rich all the more bitter.

I am especially concerned about the provision in section 16 dealing with retirement benefit schemes for tax purposes. The Minister proposes an amendment to allow pensions schemes approved by the Revenue to borrow money. Apart from the risk element that such gearing introduces, this will more than likely turn these schemes into speculative investment vehicles, in particular the small self-administered pension schemes, or SSAPS, of the very wealthy and some of the executive schemes. This is an unjustified give-away which will become a vehicle for large-scale tax avoidance over and above what these people already receive through the SSAPS. It will fuel property speculation as well as facilitate artificial tax avoidance. There is no good economic reason for this little bonanza in section 16.

A further question arises about whether a participant in a personal retirement savings account, PRSA, or an SSAP can borrow to acquire a specific asset. I would like an answer from the Minister on this. If he or she can, what is to stop a PRSA or an SSAP being used to acquire a specific asset over a taxpayer's working life or a significant part thereof, which in effect would allow a taxpayer to acquire the asset through the mechanism of the tax system effectively for free?

Previous reports by the Comptroller and Auditor General and the Revenue Commissioners have shown that some pension investment vehicles and the more well-known property based investments, holiday cottage investments and so on are eroding the tax base at a time when the majority of PAYE taxpayers pay the higher rate of tax. When dealing with the earlier sections, the Minister referred to headline rates of low taxation while, in effect, most PAYE taxpayers from this year will pay the higher 42% rate. That is the reality. The Minister refers to headline rates of low taxation while most ordinary families face a range of additional charges for health services, education and public transport. We heard the discussion in recent days about the new development levies being introduced by councils in respect of modest house extensions to existing houses, not new developments. Some county councils charge a fee of €120 for permission to erect a grave stone. That is part of this supposedly fairer tax system, backed up by a wide range of charges, impositions and stealth taxes on ordinary families.

Last year the Minister and Fianna Fáil promised faithfully that 2004 would be the final year for the glut of property based tax shelters that have crept into the tax code in recent years. If I remember correctly, we shared a joke about St. Augustine, purity, when it might arise and so on. I believe the Minister was keen on abolishing these property based tax breaks. In this Bill he has decided to offer Ireland's fat cats a wholly unjustified reprieve. It is not clear why he has done so — perhaps he has gone off St. Augustine — but his party's wealthy backers have had a quiet word in his ear at various fund-raisers. The Minister has failed to index the income tax code and more than half of all those who pay tax in 2004 will do so at the 42% rate while the wealthy will get away with the special new schemes.

In sections 23 to 27 a range of provisions are included for additional tax breaks, namely, investments in registered nursing homes in section 23, private hospitals and sport injury clinics in section 24, the extension of the scheme covering holiday camps and cottages in section 25, multi-storey car parks and urban renewal in section 26 and investments in buildings for third level purposes in section 28. Broadly, the Minister has extended the qualifying period for these property-based tax avoidance schemes to July 2006. In the case of nursing homes, he has reduced the size of qualifying developments from 20-bed units to ten-bed units and provided for such nursing homes to be in multi-storey buildings. We have no idea why. The significant widening of this relief is extremely odd in the context of the complaints by existing nursing home owners that these tax breaks are distorting the provision of care for the elderly.

Section 24 provides for an extension of the scheme of tax breaks for investments in private hospitals and private sports injury clinics. This is a further extension of the scheme introduced last year by the Government. An important amendment was presented to the Dáil literally in the last five minutes of the final stage of the debate on the relevant Bill, thus creating a tax shelter of enormous importance to benefit the promoters of a private hospital. It is ironic that today's additional reliefs for private hospital schemes will probably cost the taxpayer many more millions in tax forgone.

Last year, the legislation denied relief to all investors in a private hospital scheme where any of them fell into an excluded category. The Minister spoke at great length last year — Deputies will recall the debate — on why this was critically important in the limiting of tax avoidance. Section 24 of the Finance Bill 2004 will deny the relief only to the excluded person or persons, thus turning the Minister's contributions of last year on their head. The other investors in the scheme can benefit whereas they were prevented from doing so previously. This is a very significant break for private hospitals and sports clinics at a time when €105 million was spent on a state-of-the-art accident and emergency unit in Blanchardstown hospital in my constituency, which cannot be opened although there is a Third World accident and emergency unit next door. We know that last year the scheme was to benefit a constituent of the Minister. What is the reason for the further extension of this already generous scheme this year? The Dáil and the public are entitled to know.

On section 25 of the Finance Bill 2004, the budget ordained that in the case of hotel and holiday camp capital allowances, planning permission had to be acquired by 31 May 2003 to avail of the relief. However, the relief has been extended in cases where a building has been delisted or is not subject to the Planning and Development Act 2000. Deputies should note this wording because it is very strange. The building will qualify for the relief where 5% of the expenditure was incurred before 31 December 2004. Was this section the subject of representations to the Minister? It is highly technical and reads as if it were to benefit a particular case. It is a case of a delisted building being refurbished and now being allowed to qualify for certain reliefs. Will the Minister explain his thinking on this?

We now have lower tax rates and there is no excuse for any person, particularly someone who is well off, not paying his or her fair share of tax. The Minister and the Taoiseach have indicated on more than one occasion that they share this view, yet the small print of the Finance Bill indicates that the reality is otherwise. Any of us could draw up capping measures to make the system more fair but this Bill is silent on any kinds of capping measures concerning the amount, time limit, or qualifying criteria that would limit bonanza tax breaks that are almost exclusively for the very well-off.

The Labour Party is strongly in favour of promoting research and development as vital to the building of a knowledge economy. However, there are some important issues concerning the Minister's proposals to be examined. His favourite child, the national pension reserve fund, now invests world-wide in companies as diverse as Imperial Tobacco, Philip Morris and Halliburton. During his recent appearance before the Oireachtas Joint Committee on Finance and the Public Service, the chairman of the National Pension Reserve Fund Commission was exceptionally proud of the fact that there was no ethical dimension to the fund, which amounts to billions of euro invested world-wide on behalf of the Irish people. He spoke about a miserable €200 million reserved by the trustee for investment in public private partnerships in Ireland. This is a derisory amount in the context of the overall funds available.

What is the Minister for Finance's vision for investing in infrastructure, science and technology in Ireland? The measures included in section 33 of the Bill to support research and development are very modest compared with the investments of the national pension reserve fund world-wide or the property-based tax breaks to which I referred. How effective will section 33 be in promoting existing and new research and development, including in our universities, third level institutions and other research institutions?

Will certain tax breaks, particularly on building construction for research and development purposes, be more of the same property-based tax breaks and will they do very little to promote real research and development? In particular, why is there no verification or certification system for research and development, as now properly applies to film relief, to ensure there is no abuse of this relief and that we have genuine additionality in respect of investing in research and development.

The original section 765 of the Taxes Consolidation Act enabled companies to avail of the normal capital allowances and wear-and-tear reliefs where capital investments were made for the purposes of qualifying research and development activity. The Finance Bill 2004 allows extremely generous tax reliefs for the construction or refurbishment of buildings to house research and development activities. This significant expenditure can be written off over four years. There is no claw-back of relief where the building is sold or its use is changed after ten years. Therefore, the timespan is unusually short. Industrial buildings are generally written off for as much as 25 years for tax purposes. This, again, represents a potential bonanza for research and development construction, which is essentially about property-based investment rather than genuinely carrying out and supporting scientific research and development, which is what all the parties in this House wish to see us supporting.

The minimum threshold of €50,000 is welcome as it will help avoid the problem of incidental activity qualifying for the relief. However, why limit the amount of qualifying expenditure paid to universities to 5% of the amount invested? As the Minister knows, there is extremely important research and development taking place on the part of some of our universities and their related campus companies, particularly in the fields of pharmaceuticals and medical development. Will the Minister explain his thinking in this area?

It would be preferable if there were a certification system. Such certification is required in respect of film investment relief, which falls under section 481. The original section 766, which dealt with research and development tax incentives, provided for certification by Forbairt. A critical point is that the artificial tax avoidance industry lobbied the Minister to allow this new relief to be self-assessed. It was argued by the artificial tax avoidance industry that the original section 766 was not taken up due the certification process. However, the lack of take-up reflected the relatively minor nature of the relief then provided and the fact that the attraction of research and development activity to Ireland was not top of our industrial agenda at the time.

We are now positioning ourselves further up the value chain economically and industrially and the proposed relief is very generous. Surely genuine research and development activity will qualify so why object to a qualification or certification process? The vague references in the Minister's speech today to having his colleague in the Department of Enterprise, Trade and Employment look at it are not good enough. I do not accept the argument that proper certification will delay research and development investment decisions. I have never heard a film maker or studio complain about the time it takes to have a film agreed for section 481. It takes two or three weeks to consider an artistic exemption application. Is this time requirement excessive where one is providing tax breaks to build or refurbish a home for research and development? How long does it take a multinational company to decide where it will locate its research and development operation and recruit its staff? It must be remembered that the relief as set out by the Minister, much to the disappointment of many industries in Ireland, is an incremental relief.

Section 35 details new provisions on the leasing of assets. Leasing has been treated for tax purposes with the bank buying the asset claiming the tax allowances and being allowed to claim a tax deduction for the purchase price of the asset over eight years. The company, usually on a lease, buys the asset over three to five years. Up to now the banks paid tax based on total receipts, including the capital and interest element, minus the capital allowance element. The new provision will mean that only the interest element of the bank's income will be taxed. It will not be subject to the capital allowance regime. Therefore, the bank effectively writes the asset off over the period of the lease, that is over three to five years.

It is surprising the new leasing provisions appear to have gone unnoticed by the media. The explanatory memorandum correctly notes that the total tax take will be the same. This is true, but the time taken to collect that tax could be doubled, and everyone knows that time is money. Effectively the banks will get an accelerated receipt of their tax breaks in this case. The banks will welcome this provision. It is surprising they have not made a statement. Possibly they fear that welcoming a provision at Bill stage could cause it to be revoked once it has been examined.

There is another even more significant aspect of this provision. This is the second time the Minister has allowed accounting practice to determine tax practice. The first such occasion was in respect of the tax treatment of public private partnership agreements. Accounting treatments are generally quicker to recognise costs, as the Minister and I know from past experience, and slower to recognise income, reducing the declared income and therefore the tax take. Second, tax rules often disallow certain expenses which are recognised by accounting rules. Again, the tax take to the Exchequer is reduced. This latter development is very much in evidence in the PPP rules. Revenue has traditionally resisted attempts by accountants to have accounting rules determine tax treatment. There is a very famous case in the UK where Lord Denning said that accountants, no matter how eminent, should not be allowed decide tax law. I agree with him, and the Government should explain this further break for the banks in this Bill.

Revenue is very busy with major investigations which are yielding significant amounts of money. We have not heard yet what has happened regarding a number of banks which are in negotiation with Revenue, nor have we heard about the many hundreds of thousands of accounts not just overseas but in Northern Ireland. Iris Oifigiúil shows a significant number of investigations leading to significant amounts of tax being recovered. It stands to reason that if someone opens an offshore account it is generally not for a legitimate reason. The investigation of the sources of the money lodged to such accounts is providing Revenue with a significant return on its investment and should be encouraged because it more than pays for itself.

Having regard to their resources, the Revenue Commissioners are wise to focus on cases where there is a significant likelihood of a return rather than on random audits. However, where we have a self-assessment system for the self-employed, for partnerships and for small business and company accounts, a tiny number of audits is carried out. This is wholly inadequate. Over the past three years, no more than about 16,000 audits a year were carried out. The Comptroller and Auditor General in his report noted that 50% of the audits carried out resulted in a significant return of additional taxation to the Exchequer. Why can more tax audits not be carried out to ensure that it is not just the PAYE sector who are compliant because they are in an enforced structure but that people in the self-assessment sector are also checked routinely to ensure that they are paying their fair share.

Some years ago the Minister spoke disparagingly, dismissively and insultingly about what he described as the poverty industry. There is little doubt as to what industry the Government actively supports, that is, the wholly anti-social artificial tax avoidance industry. Needless to remark, the Finance Bill is entirely silent on the subject of the taxation of the bloodstock industry and on the position of the offshore status of many of Ireland's super-rich who, while non-resident for tax purposes, still seem able to attend every race meeting and sporting event in the country. The "Cinderella rule", whereby in addition to the number of days they are allowed to spend in Ireland they are also allowed unlimited days in the country provided they are gone by midnight, makes a nonsense of the notion that many of these people are genuinely non-resident for tax purposes. They must choose between being resident and paying their fair share of taxes like the rest of us and getting non-residency benefits. It is interesting that in the United States the obligation to pay taxes is based on citizenship, not on residency. I am surprised that in the Revenue powers group review no attention has been paid to this fundamental abuse which is undermining the confidence of ordinary taxpayers who pay their fair share of tax.

In this year's Finance Bill there is no reference to closing off schemes such as that relating to the Onassis yacht which is cruising around the Mediterranean and will never sail in Irish waters but which allows a consortium of Irish investors to make a killing in tax breaks on the backs of compliant PAYE taxpayers. The Minister has nothing to say about such scandals. The Minister proposes in the Finance Bill to put severe limitations on pension entitlements for groups such as teachers, but on the yacht Onassis he has nothing to say. When speaking about fairness and equity, we cannot tell teachers and public servants that we are going to change their conditions but we are going to look at the tax breaks for the super-rich. During the year I raised questions about management companies being formed and then liquidated. In a reply the Minister indicated that there was concern about such schemes causing unnecessary losses to the Exchequer, but there is not a word about such schemes being closed off.

There are questions to be answered by the Minister as to why, at a time when so many PAYE taxpayers are so hard-pressed, he is so exceptionally generous to the wealthy in society.

I want to go back to the first three sections of the Bill which deal with the tax burden on ordinary PAYE workers. The Minister referred to section 3 which deals with the minimum wage. Although it has been introduced, the Minister has made no attempt in this Bill or in his budget speech to address the anomalies that have developed regarding PRSI. It had been widely indicated that he might seek to reform the PRSI system.

Regarding people at the lower end of the salary scale, I reiterate that, with the structure the Minister has created, there are examples of a lone parent in receipt of an allowance, working part-time and paying child care costs. As a result of the structure created by the Minister, such a lone parent is now likely to be refused a medical card. If one or two of her — and it is usually a "she" — children has an asthmatic condition, for example, she must make a choice between continuing at work and leaving her employment or reducing her income to qualify for a medical card. Contrast that with how cosy and sweet the Minister has kept the super-rich who are "non-resident" in this country and yet are here every day. If that is fairness, the founders of Fianna Fáil would turn in their collective graves.

Mr. Connolly

To introduce a budget is not the easiest or most popular of tasks. The Minister has managed to some extent to become popular with the decentralisation lobby. It was the most popular side of the budget. I do not know whether on the financial side he has failed or succeeded. It certainly was seen as a neutral budget.

The job of taking money from people and giving it to others without either group noticing is a fine art. I think the Minister has cracked that almost to the point where I could shortly see him giving lectures at the Fagin school of economics. People do not realise the money is gone. It has gone silently and swiftly. They put their hand in their pockets only to find that they are empty. The Minister has managed to become expert at this. The light-fingered approach will ensure that at least 35% of all taxpayers will find themselves on the super-tax rate. This sends a clear signal that the Minister has abandoned hope of achieving his policy of having just 20% on that rate. How could this so-called reform of the tax system be said to be equitable when the super-rich and famous like Bono, Sir Anthony O'Reilly and Michael O'Leary are taxed at the same rate as middle income PRSI workers?

Some 30 of the 400 top earners in the country pay no tax. They are sheltered by schemes or in tax havens. If they approach their local community welfare officer and show receipts of less than €10,000 per annum, they can successfully apply for a medical card. I have spoken to community welfare officers who have described how people pull up in their jeeps with 04 registration plates and come in to apply for medical cards. They have tans and may be coming back from their second world cruise or whatever. I do not think this is acceptable. The same people can also have free third level education for their children. We have such a system. Many high income earners know how to play the system and when to make investments so that they appear to be making only €10,000 or €12,000 in net profits annually. There is something wrong when this is allowed to continue.

Freezing the standard tax bands at the current rate has ensured another 63,000 are brought into the super-tax net. That hits people where it hurts. These people on PAYE all pay at the same rate as the super-tax people and find it difficult.

As regards cigarettes, the 25 cent increase the Minister put on a packet is being cynical. It may have sparked conflict between the Minister and his colleague, the Minister for Health and Education, Deputy Martin, who wants people to quit smoking. He knows the strain it is putting on the health system and the hospitals.

Mr. F. McGrath

And the State.

Mr. Connolly

This increase is not designed to get people to stop smoking. We know the Minister needs the money from the cigarettes. When the smoking ban comes into effect in pubs and public places, there will be a €75 million shortfall in the budget. This measure of the Minister's is designed to bring €60.9 million into the Government's coffers. The fact is that 75% of the price of every packet of cigarettes goes directly to the Exchequer. If we keep going as we are in terms of increased cigarette prices, I foresee a budget in which the price will be reduced because of the law of diminishing returns and people will have quit smoking. There will then be major concern as to where the money will come from.

There was a 50 cent increase in the price of a packet of cigarettes in the previous budget and that encouraged people to stop smoking. The Government must send out either of two messages: that it wants people to continue or to stop smoking. It is rather confusing. The 25 cent increase is not designed to make people quit smoking. Perhaps there is a hidden agenda for people who continue to smoke in that they will die younger and save a fortune on pensions. That could well be it. It is one way of doing it.

As with last year's additional 1% VAT increase, the Minister has his hand in the pockets of every man, woman and child in the State. He heaps surcharges upon charges. He has introduced increases in fees, television licences and road taxes. One has only to go to Spain, Portugal or any EU member state to see that the cost of living there is so much less. It is becoming quite expensive to live here.

Mr. F. McGrath

On behalf of the Irish left, I welcome the Minister for Finance, Deputy McCreevy, to the debate. I hope he listens carefully to our views.

On examining the Bill, one can see that the legislation deals specifically with income, corporation and capital gains taxes. For most citizens tax is the key issue for the efficient running of our society. The Bill should be concerned with tax equity and the rights of our people. Sadly, once again, working people pay the most all the time. We have a long road to travel before taxpayers receive fair play and justice.

In the budget, with all the massive wealth available and the increased revenue, there was an opportunity to do something sensible, especially for the most needy and working people. The Government did not take the opportunity to go the whole way and take a bold step towards a fairer and more humane society. While I welcome some positive aspects of the budget, I strongly disagree with the drift towards a more self-centred society. When dealing with budget matters it is essential to examine carefully the economic situation that exists for many people in 2004. While I recognise that many benefits have been seen from the economic boom, a substantial minority is being left behind in terms of income, low wages and poverty. We must also examine these real issues.

There are now 29,017 people on hospital waiting lists, 49,000 households on housing waiting lists, 5,581 homeless people and €57 million owed by families to moneylenders while 63% of the top earners pay tax at less than 10% because of different loopholes and reliefs. We have seen cuts in home help while some health boards have a €15 million surplus. People with intellectual disabilities are on waiting lists and there is the scandal of 70,000 children still living in poverty in 2004. These are the real issues that must be linked into this debate on the Bill. It should be concerned with distributing resources in an equitable way, social and economic rights and, above all, sharing the wealth of this nation. However, it is not and the reality for many people is patients on trolleys, homelessness, poverty and the absence of social justice.

The Minister for Finance, Deputy McCreevy, appears worried about what the Irish left would do if he left the political pitch. Such action would be celebrated by Independents and members of the Technical Group. The Minister is under the impression that the Irish left is always looking for its share of the cake, the national finances, so as to provide for the weaker sections of society. He is partially correct. We are not just looking for our share of the cake; we want to run the bakery in the interests of working people and the less well-off. The Minister had best watch out.

Part of economic planning in any country is an equal and fair tax system. I want to deal head-on with the constant myth that the Government is taking care of the elderly. Let us look at the facts and reality in 2004. Some 440,000 people, or 11% of our population, are over 65 years of age. Approximately 266,000 of them are over 70 years of age, one third of whom live alone. Some 25,000 elderly people are in long-stay beds in nursing homes and a further 13,000 needing high maximum dependency care continue to live at home.

The vast majority of elderly people would like to receive care at home or in the local community. Many of their families have made major sacrifices to do so. However, cuts in the home help scheme have seriously limited the adequacy of the service. The Government has failed to establish or fund local day care centres for elderly people in disadvantaged communities. I received a telephone call this morning from a constituent informing me that the Irish Wheelchair Association is laying-off people this week. That organisation provides a service for people with physical disabilities.

I do not accept there are not enough resources left to take care of the elderly. Budget 2003 was not a good budget for the less well-off and it is not a caring budget. We need to do something radical for the poorer sections of our community and we need to move forward.

Mr. Boyle

The Minister for Finance, on budget day, introduced one of the shortest budget speeches on record. He has followed that with a Finance Bill characterised by virtual stealth in comparison to previous ones. One could argue that is worth doing and that the Minister might be undertaking the principles of sustainability by producing less material but, unfortunately, it is also a sign of a Minister who has run out of things to say and is indulging in acts of more of the same. The Minister might argue, "If it is not broke, do not fix it". I would prefer to liken him to a recording artist who, instead of producing new material, relies on regurgitated greatest hits — hits that do not give added pleasure.

I will now list those hits from which the Minister can take whatever level of pride he wishes. The Finance Bill fails to increase personal tax credits. There is a continued heavy reliance on stealth taxes and an incompatibility to heavy levies and taxes on people trying to acquire property for housing purposes while at the same time a plethora of existing and new added tax incentives provide for the acquisition of property by developers and speculators. That is at the heart of the fiscal policy introduced by the Minister in several budgets.

The Bill makes no attempt to introduce measures to tackle areas of inconsistency, such as taxing the bloodstock industry or dealing with issues of residency and tax liability, a simple measure to ensure money earned here is taxed here. It does not deal with the fact that people are jetting in and out, often unregulated, in private aircraft and pretending to live outside the State when in fact they spend the vast majority of their time here.

The Minister has not only intensified the use of property tax incentives but has added to them in terms of private hospitals, nursing homes, sports injury clinics and has failed to provide any rationale for the economic purpose of these measures. At the same time, he ignores the very real social danger in adding fuel to measures which increase inequality in society. Many of the new tax incentives are contradictory in terms of how the health service is funded and managed. Others, about which I will speak later, intensify the inequality between individual taxpayers.

The Minister speaks with pride of the 35% of income earners who pay no tax, this being a rising percentage of the taxpayers or wage earners outside the tax net. However, he fails to mention that among them are those within the top 10% of income earners in Ireland, people who pay no tax whatever despite having incomes that far exceed those of many in our society. Not only is that not being tackled but what is being proposed in the Bill intensifies many of those inequalities.

The Minister was responsible for engineering a series of welfare cuts which, following the end of year Exchequer returns, now look obscene. There was no reason to introduce the cuts or for sustaining them. The community and voluntary pillar indicated it secured a commitment from Government that these cuts will be reviewed. What is that commitment? Will the changes be immediate if they are seen as having a serious effect in this fiscal year or will we have to wait until budget 2005 for the Government to realise the real damage we, as an Opposition, believe these cuts are doing, even though some have only been in place for a number of weeks?

The Bill makes great play of the powers being given to the Revenue Commissioners just as the budget speech made great play of the Government's decentralisation programme which is running into problems. We have not heard from the Minister if he will provide extra resources to effect these powers. Difficulties have arisen with the Revenue Commissioners in the past in terms of their power to bring in extra money for the Exchequer. The Revenue Commissioners are not prosecuting anyone for the improper use of the 1993 tax amnesty. General tax law has a moratorium of ten years. Perhaps the Minister will clarify if that is true. My understanding is that once ten years have elapsed, people cannot be prosecuted for this type of tax offence. People who might have made improper use of the amnesty continue to rip off the State despite the fact that the amnesty, introduced by the Taoiseach, when Minister for Finance, provided for very stiff penalties, most of which have never been levied.

That legislation also barred Revenue from any access to information about those availing of the amnesty, a double barrier to getting full benefit and information from it. When the Minister makes play of the fact that Revenue will receive additional powers, we must make constant reference to the fact that previous Government decisions, largely made by those still in Government, cannot be properly policed by the Revenue Commissioners on foot of existing powers. There is little confidence that those powers, if being added to, will be properly resourced.

As Green Party spokesperson on finance, I welcomed the tax credits for research and development. Unfortunately, the manner in which the incentive is being introduced in the Bill will counteract that effect. It will benefit large and not small companies. Ireland, and its economy, needs to develop enterprises in the small and medium-sized sector. We need to wean ourselves from a reliance on multinational investment. Research and development tax incentives of the type provided for, if properly structured, can assist us in doing so. The low rates of personal taxation referred to by the Minister and the Government are mythologised in many ways. The low rates of corporation tax are not the lowest of effective tax paid by corporations throughout Europe. Other European countries have large-scale, focused research and development tax credits and allowances. Ireland is only lately getting into this and is doing so in all the wrong ways.

I hope the Minister will accept amendments on Committee Stage. A glaring anomaly has been highlighted whereby the tax break geared towards research and development may end up being another property-based tax relief for many people who do not need it. The cost to the State of tax foregone on existing property-based tax reliefs to date is €3.8 billion, which is the equivalent of the annual expenditure of several Departments, yet the legislation provides additional measures to benefit those who already benefit too much from a generous taxation system and whose income is far higher than the national average.

The Minister's only reference to environmental measures concerns an incentive for the use of biofuels in experimental activities. This describes the Government's tentative approach to fiscal policy, green taxation and green incentive measures. Widespread encouragement of the use of biofuels would have a spin-off effect in the agricultural sector, which the Minister of State should encourage, yet the Government is ignoring its responsibilities in terms of carbon taxation. Deputy Richard Bruton is correct that we have responsibilities to implement measures to reduce greenhouse gas emissions. This needs to be done by ensuring that those who generate emissions pay for them. Suitable measures should be put in place to ensure welfare payments are increased and money is directly given to businesses and households to improve energy efficiency and to ensure that needless energy and environmental costs are controlled.

The legislation is a disappointment. It is more of the same from a Minister who has nothing to say in this area. I hope this burden will soon be removed from him.

Caoimhghín Ó Caoláin

The legislation that should be before us is a Finance Bill which provides for real tax reform, real equity in the distribution and management of national wealth and real delivery for people in their daily lives. Instead we have the implementation of the threadbare 2004 budget, the seventh budget of inequality presented by the Minister for Finance

Although the Minister gave no indication in his budget speech that this could well be his last Finance Bill, a Cabinet reshuffle has been signalled for June this year — I am sure the Minister of State, Deputy Parlon, is waiting with bated breath — after the people, rightly, punish Fianna Fáil and the Progressive Democrats in the local and EU elections.

Mr. S. Power

What punishment does the Deputy have in mind?