Dáil Éireann debate -
Tuesday, 8 Feb 2005

Vol. 597 No. 2

Finance Bill 2005: Second Stage.

Minister for Finance (Mr. Cowen)

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

I am pleased to present this, my first, Finance Bill to the House. I will listen carefully to the contributions made by colleagues and will seek to respond to all of these in my reply.

The Finance Bill is one of the major Government Bills each year. It allows the House to express its views on economic, fiscal, tax and expenditure policies. It allows tax proposals to be teased out and for the Deputies, in a democratic way, to set out for the voters what policies they wish to pursue.

I am all for such a debate. I hope to enhance this process by reforming the way we do things for the budget, as I set out in my budget day speech, and I hope to present proposals to the Dáil on that before too long once the Government has decided.

It is usual on Second Stage to set out the rationale for the measures in the Bill together with a brief description of what the provisions in the Bill mean in ordinary language. In summary, there are a number of important focal points in the Bill. The Bill, when passed, will remove all those on the current minimum wage from the tax net, thereby delivering on a core commitment of Government; confirm the cut in stamp duty for first-time buyers of second-hand residential property to help new buyers on to the property ladder; give effect to the other tax reliefs and tax reductions announced in the budget; and give greater powers to Revenue in pursuing major tax evaders. This will include strengthening the aiding and abetting offence in the list of Revenue offences in section 1078 of the Taxes Consolidation Act to help the Revenue Commissioners take proceedings against those people who actively assist others evading tax, and implement a number of recommendations in last year's report by the Revenue powers group.

However, that is not all. The Bill will update tax law to cater for new international accounting standards applicable to companies, thus keeping up our competitive edge; amend or extend a number of tax reliefs in several important areas, such as, pensions, foster care, share options, farming and IFSC activities; upgrade tax administration to the benefit of taxpayers, especially in the PAYE area, and thus address the overpayment issue raised recently in the House; and the Bill will close off a series of tax avoidance schemes some of which are quite aggressive in sheltering the income of some high earners.

In my approach, I have tried to strike a balance between fighting tax evasion and avoidance on the one hand and ensuring that the tax system recognises the needs and concerns of compliant taxpayers on the other. I am also trying to see to it that the tax system plays a positive role in supporting economic development. This does not prejudge or take away from the major review of tax reliefs under way this year for budget 2006.

As I mentioned, the Bill will implement several recommendations of the revenue powers group which reported last February. Those recommendations of the group not implemented in this year's Bill remain under active consideration by me. I will look at these together with the report of the Law Reform Commission on the operation of the revenue process which was published this week.

In regard to the economic background against which this Bill is presented, it is important to remember that figures out last week confirm that we have one of the lowest rates of unemployment in the EU — 4.2% seasonally adjusted in January 2005 as compared with 2004. I have no doubt that inflation figures due out this week will confirm the low rate of inflation we achieved last year. We have one of the healthiest fiscal positions in the EU with a low debt ratio to gross domestic product, a balanced budget and substantial savings being put aside to meet future pension needs. Some 20 years ago, when I was first elected to this House, it would have been far-fetched, to say the least, to imagine any Irish Finance Minister being able to stand on such a record.

Prospects for economic growth in 2005 remain undimmed. The Central Bank confirmed that in its recent winter review, forecasting growth figures of 5% for this year, virtually the same as those made by my Department in the budget. Of course, our situation also contains risks, including the dollar-euro exchange rate and oil prices. However, if we focus on protecting out competitiveness, we will remain better placed than most to respond effectively to any unexpected shocks.

The European Commission has also confirmed our good efforts and prospective growth potential. In its commentary on Ireland's stability and growth pact 2005-07, the Commission notes our strong growth and sound public finances. It also commends our solid progress in adhering to spending targets, advancing structural reform and the relatively favourable position we have with regard to the long-term sustainability of our public finances, despite an ageing population.

We have built something good here, and in saying that I acknowledge the role of all Governments. It is essential to keep what we have built on, retain our competitiveness, invest in our infrastructure and maintain sound public finances. We must also ensure resources are fairly distributed. We took important steps in this regard in the budget, which the ESRI described in its poverty proofing analysis as progressively structured with the greatest gains for those with least income.

We are increasing public spending in 2005 by 9%, three times the average for the EU because of our higher growth rates. We are spending almost €45 billion, most of it in key social areas of health, education and social welfare. However, I agree with some that what Government needs to continue to do, and what the House could usefully do in scrutinising departmental spending, is increase the focus on what Departments are expected to deliver with the total moneys entrusted to them. I hope to get away from this fixation on incremental spending as being regarded as the sole indicator of commitment to improvement of services. A better approach is to examine overall spending in terms of what such spending can or cannot deliver and so concentrate on getting better value for money.

We can best summarise our position from an economic point of view as one where we are doing well by reference to our competitors but where there are risks to that scenario, including risks from international exchange rate developments and oil prices. These are risks that are not under our immediate control and to which we have to adapt if necessary.

Turning now to the provisions in the Bill, sections 2 to 6 implement the various income tax reductions and reliefs announced in the budget. These widen the tax bands, reduce average tax rates and remove the current minimum wage from the tax net. Sections 7 and 8 relieve provisions in relation to benefit-in-kind. Section 8 adds commuter ferries in the State to the list of passenger services for which employer provided travel passes are exempt from BIK.

Section 9 exempts foster care payments from tax and section 10 incorporates into law the long-standing exemption from tax of foreign service allowances. Sections 11 to 18 deal with various aspects of income tax share options, ESOTs, tax paid by company directors, chargeable persons under self-assessment, taxation of lump sums and tax on certain deposit interest. Some of these tighten up requirements in certain areas; others reduce the tax imposition on the taxpayer in particular cases. Section 19 brings our pension tax rules into line with EU law by removing any possible discrimination between pension providers in the State and pension institutions from another member state.

Sections 20 to 24 deal with putting the PAYE system on-line to enhance the level of service for the taxpayers in question. This is a major upgrade of the tax administration system by extending the Revenue on-line system, ROS, to PAYE taxpayers. This will enable the PAYE sector to file returns and to electronically avail of a range of self-service options in relation to their tax affairs, including requests for reviews of tax paid. It will also provide for self-service options via an automated telephone system in relation to ordering forms and leaflets and claiming certain tax credits.

Chapter 4 of this Part of the Bill deals with income tax, corporation tax and capital gains tax reliefs. Sections 25 and 34 deal with BES and film relief, respectively, and formally incorporate into statute law a number of changes required by the European Commission when granting State aid approval to these schemes last year. Section 26 amends the tax relief terms for heritage buildings and gardens by strengthening the requirement for reasonable public access and the effective advertising of public opening hours.

Sections 27 to 30 extend farm relief for pollution control, provide for tax relief for farm restocking and provide for income averaging for tax purposes of certain Feoga scheme payments made in 2005. Section 31 allows a number of late applications for capital allowances in respect of third level educational buildings to be examined for the purposes of this tax relief on the basis that the applications were received before 31 December 2004. Section 32 clarifies and extends the definition of hotels for the purpose of capital allowances.

Section 35 is an important anti-avoidance measure to ensure that foreign based limited partnerships cannot be used by certain high earners to reduce their income tax bills to nil. Section 36 is also an anti-avoidance measure to combat the repackaging of distributions of income as capital gains so as to attract the lower CGT rate of 20% instead of the top marginal income tax rate of 42%.

Section 38 is another anti-avoidance provision to ensure that life assurance companies cannot avoid the exit tax on gains made by investors by simply rolling these gains over into further investment products. Section 39 also closes a loophole on the use of losses on offshore funds. Section 41 ensures that the ring fence on the use of taxable losses in leasing contracts is not circumvented in certain cases.

Not all measures in this Part of the Bill are anti-avoidance. Section 40 provides for the tax treatment of a proposed new type of investment vehicle a common contractual fund, CCF, a measure which will facilitate our funds industry. The new scheme will be subject to certain conditions and safeguards of the Revenue Commissioners to ensure it is adequately supervised.

Section 42 amends the rules on the application of encashment tax on certain foreign dividend and interest cheques, cleared by retail banks in the State. Section 43 exempts certain non-taxable entities, such as PRSAs and tax-exempt unit trusts, from the application of dividend withholding tax, DWT. This will avoid the need for those bodies to reclaim tax from the Revenue Commissioners in respect of dividends paid by Irish companies. This will eliminate an unnecessary circular flow of cash.

Section 44 in chapter 5 of Part 1 makes some important changes in tax law to accommodate the move by companies in 2005 to the new international financial reporting standards. Company law requires that from 1 January 2005, all companies listed on a stock exchange must prepare their consolidated or group financial statements in accordance with international financial reporting standards, IFRS, instead of, in our case, Irish generally accepted accounting practice, GAAP. The individual accounts of companies may also be prepared in accordance with IFRS. However, once a company moves to IFRS, it will be required to use it as the norm for the future.

Under Irish tax law, the starting point for calculating the taxable trading income of a company is the profit of the company according to its accounts. Section 44 provides that where a company prepares its individual company accounts on the basis of IFRS, such accounts will be used as the starting point for the calculation of taxable trading profits.

This section goes into some detail on the rules to be applied for specific tax treatment in a number of areas, such as unrealised financial gains and losses, share-based payments, bad debt provisions, research and development, interest and labour costs included in capital assets, and transitional rules for the switch from Irish GAAP to IFRS. This section is suitable for Committee Stage examination. The changes, while technical, are important in determining the tax liability of individual companies and groups of companies.

Section 45 provides for deductibility for interest paid by a company on loans taken out with lenders in other EU member states. Sections 46 and 47 apply the benefit of certain EU directives on taxation of interest, dividends and royalties to Switzerland following an EU agreement last year. Section 49 amends the taxation regime introduced last year for headquarters and holding companies in Ireland in regard to the valuation of certain shareholdings in such companies. This will satisfy the requirements of the European Commission's clearance of the scheme as not being a State aid.

Sections 51 to 53 relate to capital gains tax, CGT, and deal with the 15% CGT withholding tax by the purchaser of certain assets valued more than €500,000 and provide for exemptions from CGT for the new Health Service Executive and trustees of tax-exempt pension schemes.

I will now deal with excise and VAT, for which the Government made no changes to rates in the budget. Consequently, the provisions in this Bill deal more generally with excise and VAT law and with measures to counter evasion and avoidance in these areas.

Sections 54 to 58 deal with alcohol products tax and the investigation and pursuit of offences. Most notably, section 57 allows a court to temporarily close premises or a club involved in selling illicit alcohol. The previous penalty of full closure was not being applied as the courts seem to believe it is too draconian. Section 58 provides for the 50% excise reduction on microbreweries announced in the budget, which has been widely welcomed.

Sections 59 to 65 relate to petrol, diesel, LPG, fuel oil and coal. Section 59 provides for minimal increases in excise duty on LPG and fuel oil arising from an EU energy tax directive adopted in 2003. It also stipulates new differentiated rates on low sulphur petrol and diesel. In addition, it provides for an EU energy tax on coal. However, as most types of coal usage, including domestic usage, are exempted, the effect of this change is minimal. These provisions will come into effect by commencement order.

Sections 66 to 81 consolidate and modernise the excise law on tobacco products which is contained mainly in a 1977 Act of the Oireachtas. The provisions do not introduce any new duties or any other significant changes into the operation of tobacco tax law. Sections 82 to 92 relate to other aspects of the excise system. The provisions are mainly of a technical nature. Section 92 extends the 50% VRT rate reduction on hybrid vehicles to 31 December 2006. This relief was due to end on 31 December 2004 but there are particular environmental reasons, connected with lowering emissions, that we should continue to encourage the wider use of hybrid petrol-electric engines in more vehicles.

Sections 93 to 108 contain a number of important revisions to the VAT tax code. These deal with several anti-avoidance measures, relating to VAT on leases in section 95, VAT on money transfer services in section 96 and VAT on the sale of developed property in section 95. It is fair to say that, as we have become more vigilant in closing off loopholes in direct tax areas, attention has switched to finding ways of saving tax through creative interpretations of VAT law. VAT now brings in €11 billion, or30%, of tax revenue each year. Consequently, the gains and losses from tax planning can be significant.

VAT law is often complex and open to interpretation. The European Court of Justice sometimes rules in an unexpected way in related cases. There are legitimate issues of difference in how the Revenue Commissioners and tax advisers believe that some of the law applies. This is fair enough in so far as it goes. However, it is also important for the State to protect the revenue base. For this reason, the VAT changes focus on clarifying the law, sometimes in favour of the State and other times in favour of the taxpayer, as in the case of the exemption from VAT of student accommodation. We can deal further with the subject of VAT on Committee Stage.

Sections 109 to 121 refer to stamp duty. Section 110 deals with particulars which must be notified to the Revenue Commissioners concerning the liability of an instrument to stamp duty and the penalties for failure to notify. Section 111 combats the avoidance of duty by splitting transfers of property into more than one conveyance. Sections 113 and 114 deal with the stamp duty exemption on land acquired by young trained farmers and require that if any of the land is disposed of within five years, a proportionate claw-back of the stamp duty will apply where the proceeds are not fully reinvested.

Section 115 sets out the provisions that will apply to the measure announced in the budget whereby stamp duty will not be charged on an exchange of farm land between two farmers for the purpose of consolidating each farmer's holding. Sections 116 and 117 extend the stamp duty relief on certain stock borrowing and repurchase transactions to assist liquidity on stock exchanges.

Section 118 confirms the stamp duty reduction for first-time purchasers of second-hand residential property. This measure, which came into effect on budget day, will continue to fulfil its objective of freeing up the market to the benefit of first-time purchasers. Section 119 reduces companies' capital duty on the issuing of share capital from 1% to 0.5% for transactions after budget day, 2 December 2004. This will help maintain our position as an attractive location for companies. Section 120 exempts credit and ATM cards from double stamp duty where these cards are switched from one provider to another. This change will help competition in the market and ultimately lead to keener credit card rates of interest. These last three measures were announced on budget day.

Section 123 amends the information to be included in the affidavit required for revenue purposes in respect of the estate of a deceased person. The amendment reflects the changes made in the Finance Act 2000 in regard to residence as the basis for capital acquisitions tax instead of domicile as it was up to then. At present, a person can provide for inheritance tax liabilities by insuring against them and the proceeds of such policies, section 60 policies, are themselves free of tax where they are used to pay the CAT liability. Section 125 extends this relief to situations where such a policy is taken out to meet the tax liability that may arise on the inheritance of an approved retirement fund by a child aged 21 years or over.

Sections 126 and 127 deal with inheritance tax relief on agricultural and business assets where the farm or business is sold within the time limits set out in the legislation. The sections clarify that any relief granted will be clawed back in proportion to the land or business sold and not reinvested in farm or business property. The purpose of these reliefs was to encourage the retention of family farms and businesses and the changes proposed are in line with that rationale.

Section 128 grants a credit for foreign tax similar to estate duty, gift or inheritance tax against Irish gift or inheritance tax where a double taxation treaty does not exist between us and the country concerned. This means everywhere except the UK and USA as these are the only inheritance double tax treaty provisions in force. The effect of the section is to ensure that credit is given for foreign tax already paid in any territory irrespective of where the property is situated.

The final part of any finance Bill is often the one that attracts most attention as it deals with the collection of tax and the powers of the Revenue Commissioners to enforce the State's valid claim on the taxpayer. It seems the same applies this year.

However, sections 129 and 130 limit the Revenue Commissioners powers in regard to PAYE and relevant contracts tax on payments to sub-contractors by requiring that the Revenue Commissioners cannot enter a private dwelling to inspect books and records in connection with these taxes unless they have either the consent of the occupier or a court warrant. This is the position already under the law on other taxes. The revenue powers group last year recommended that this safeguard be extended to PAYE income tax and RCT and I am happy to propose to do so to the House.

Section 131 is new and empowers the Revenue Commissioners to sample the information, other than medical records, held by a life assurance company in respect of a class or classes of policies and their policyholders. This new power, which is modelled, in part, on powers given to the Revenue Commissioners regarding DIRT in the Finance Act 1999, will enable Revenue to investigate whether certain life assurance products are or have been used to shelter untaxed income.

Section 132 reduces the maximum penalty in the case of fraud from 200% of the tax undercharge to 100% which is the normal limit used by Revenue in such cases. This reduction, which was recommended by the revenue powers group, affects undercharges of tax after the passing of the Bill. Historical cases are not affected.

Section 133 introduces a new offence of facilitating tax and duty evasion, which will be more capable of prosecution than the current offence of aiding and abetting. The section also provides, as modern corporate enforcement law does, that where an offence is shown to be attributable to neglect on the part of those persons directing the affairs of the body corporate, or acting in positions of authority, proceedings may be taken against such persons as well as against the company itself. These changes apply only to future offences as, by virtue of the Constitution, they cannot be made to apply to what happened in the past.

Since the Bill was published I have noted the concerns of representatives of tax practitioners that individuals might find themselves falsely accused of facilitating tax evasion. I consider this to be highly unlikely. Deputies will know that the Revenue Commissioners are very careful when selecting cases for prosecution and this will continue to be the case. The Revenue Commissioners can be expected to use these provisions to target serious offenders and this intention will be reflected in the guidance given to Revenue officers. To be liable for a criminal conviction the prosecuting authorities would need to prove beyond reasonable doubt that the accused was concerned in or was reckless about the facilitation of tax evasion. These are not passive offences but would, typically, involve concealment, falsification or other dishonesty. Recklessness is more than the making of a mistake, it involves serious misconduct or failure. I will listen to the views of Deputies and representations I receive, but we must ensure we properly address the issue of tax evasion.

Section 134 proposes to increase the threshold for publication of certain settlements in the list of tax defaulters from €12,700, the euro equivalent of £10,000, set in 1983, to €30,000 and to provide for the indexation of this amount every five years by reference to the consumer price index. Both the revenue powers group and the Law Reform Commission recommended an increase in the current €12,700 threshold for the publication of the list of tax defaulters. The current threshold was set in 1983 at £10,000 and has not changed since. The revenue powers group recommended a threshold of €50,000 and the Law Reform Commission suggested €25,000, both indexable for the future. The Government has decided to accept the case for an increase and €30,000 seems a reasonable level. This new threshold will apply only to tax liabilities incurred on or after 1 January 2005. It will not apply to tax due before 2005 even if the settlement or adjudication is made on or after 1 January 2005.

Section 135 makes a number of changes to the legislation that was introduced last year to implement the EU savings directive. Among other things, it is amended to take account of the decision by ECOFIN to change the date of application of the directive from 1 January 2005 to 1 July 2005.

Section 136 proposes to reduce the rate of interest on certain overdue tax from 1 April 2005 from approximately 11.75% per annum to just under 10% per annum. The reduction in the interest rate will not apply to PAYE, relevant contracts tax, professional services withholding tax, DIRT, other withholding or exit taxes, or VAT or excise. The reduction will apply basically to one's own overdue tax for which one is personally liable and not to fiduciary taxes being collected from others on the State's behalf. The remaining sections in the Bill, sections 137 to 140, are standard or minor and technical amendments.

I hope the House has benefited from this elaboration of the measures in the Bill. Some matters remain under consideration, which I may be able to introduce on Committee Stage should they receive Cabinet approval. At this stage they remain part of the deliberative process. Should I need to table any such amendments, I will of course seek to notify the Opposition spokespersons in advance of Committee Stage. I will, of course, also give consideration to any constructive suggestions put forward during the debate today and tomorrow. I commend the Bill to the House and look forward to a constructive debate on it.

Mr. Bruton

I congratulate the Minister on the presentation of his first Finance Bill. We are starting a process which will probably run to 24 hours of solid debating about the Government's tax policy. My main criticism is that we are devoting this huge block of time to a debate about what is essentially tinkering at the edges of our tax structure, while we ignore the elephant in the corner, namely, the Government's huge increase in public spending with very little to show at the end of the process. I am glad the Minister at least adverted to this issue in his address. He sees the elephant out of the corner of his eye but is not facing it foursquare. This is the primary issue that needs to be addressed in the public finances of the country. Why are we spending and not making the impact on issues that really do matter?

To put this into perspective, since 1997 when Fianna Fáil and the Progressive Democrats came to power, public spending has increased by €29 billion over what was spent in 1997, an increase of 133%, which is an extraordinary increase in a very short space of time historically. We need to ask what difference this huge spend has made. This is the essential issue for both sides of the House to address. How is life different for ordinary people following this spending? You, a Cheann Comhairle, with your medical background, will know more than most that it is very hard to see the impact in, for example, primary care. Fewer people, both in absolute terms and as a proportion of the population, now qualify for free access to primary care than qualified in 1997. Even people on the minimum wage do not qualify. With the huge spend, why did we not make an impact? While fewer people are now attending our accident and emergency departments than in 1997, they do so in conditions of worse chaos than ever existed, despite the huge increase in spending.

Street violence and public disorder offences have surged. Crime detection rates and drug seizures have decreased. These are core issues that people expect to be addressed by a successful spending programme. However, those problems are getting worse. The first-time buyer has lost out in the housing market. Housing lists have soared. The Government's tinkering with the housing market has made it worse. School drop-out figures have not improved in any way.

These are the people who should be the targets of our public spending. It is people on low income who need primary care, people with health emergencies attending our accident and emergency departments, children at risk of dropping out of school and people terrified about violence on their streets who should be at the core of the debate about the use of our public money. We do not properly enter that debate. We have not faced up to this issue. I hope the Minister's changes will address that problem.

Do we have a solid structure in place to address our infrastructural deficit? We are now drifting to the bottom of the league across the range of key infrastructure. The Government has committed the big spend in the national development plan. We need to have a serious debate and ask hard questions. For example, why will the roads programme, originally estimated at €7 billion, now, three years on, cost more than €16 million, according to the Comptroller and Auditor General, with fewer than half of the projects completed on time? Is there a serious failure in the capacity of the public service to deliver these programmes? What was contained in the contracts?

Is everything in the garden rosy, as we are led to believe by some? I have not seen the kind of analysis coming from Government circles, particularly the Department of Finance, which holds the purse strings, to know that this is unacceptable. We have come to shrug our shoulders at projects such as the Dublin Port tunnel, the Luas and the south-eastern motorway, which have had massive overruns, sometimes three times the original estimate. The national spatial strategy was introduced after the national development plan. No effort has been made to reconcile the two plans. Is the national spatial strategy, which is supposed to be a central part of the planning of this country's development, gelling with the national development plan? There has been no indication that national development plan projects have had to be reviewed because they did not fit in with the spatial strategy. It seems that everything has continued as before, even though the spatial strategy is supposed to inform our planning.

One wonders whether the only purpose served by the national spatial strategy is to provide jobs for planners. Is it really driving a change in the Government's thinking on the delivery of infrastructure? As I pointed out on Question Time last week, there is evidence that State bodies, such as the Department of Health and Children, are committing to build and open facilities which they cannot operate due to a lack of staff. Where is the source of that failure? Who is being held accountable for such bad planning? I do not see any evidence of accountability in that regard. I hope the Minister will investigate such issues and give answers to Deputies. We need to have an informed debate on such matters.

People are sniggering in the corner when the proposed strategic national infrastructure Bill is mentioned. The Taoiseach announced to IBEC that the legislation would resolve the delays and unacceptable practices which hinder the development of our infrastructure. The Bill has not seen the light of day because it is bogged down in a web of political infighting. This country's attempts to deliver public infrastructure are making it something of a laughing stock. We need to get to grips with such matters.

Ireland's competitiveness is coming under increasing pressure. A newspaper reported today that PricewaterhouseCoopers has downgraded its estimate of this country's growth because of its declining competitiveness. Many reports have indicated that decisions and processes which are controlled by the Government are causing our loss of competitiveness. We are at the bottom of the league table that compares infrastructural elements such as ports, motorways, broadband systems, energy infrastructure, telecommunications networks and waste disposal systems. Such matters are of great importance if we want Ireland to remain competitive, but we are struggling to do so. It appears that we are losing ground.

It is time for serious political responsibility to be taken for the maintenance of the central coherence of the national development plan. It is not acceptable for the Minister for Finance to reject continually in the House the ESRI's suggestion that there should be more central monitoring of the selection of projects. He insists instead that it is an issue for devolved Ministers. We have seen too much devolution of responsibility, which has led to excessively rosy interpretations and forecasts of how well projects will perform and how little they will cost. When such projects are finished, it transpires that they do not deliver the projected benefits and they exceed the projected costs. Someone needs to take control of this area. The Minister is better equipped than most and has the opportunity to do so.

The Minister and his Cabinet colleagues have undermined their credibility in respect of infrastructural projects like the Punchestown equestrian centre, stadium and campus Ireland and the electronic voting system, which were handled in a disastrous manner. Proper processes were discarded when such matters were being pursued because they were the pet projects of certain Ministers or the Taoiseach. It is not acceptable for such an approach to be taken. The Minister for Finance needs to take clear measures to stamp out such the unfortunate attitude to public money of some of his colleagues.

Will the Minister examine another issue that we debated on Question Time last week? This country once had systems in place to protect taxpayers and deliver value for money. Ireland was regarded for many years by other countries, such as the new emerging EU member states, as an example of a country that used the resources it received from the EU well. Our project evaluation and monitoring systems were good and moneys were spent prudently. It is commonly accepted by anyone outside the Government benches that the systems to which I refer have been allowed to rust.

Despite the figures quoted by the Minister, I believe that the findings last week of the expenditure review initiative reinforce the view that Ireland is no longer a leading country in its capacity to manage well the spending of public moneys on key infrastructure. Just 20 of 143 projects pursued under the most recent programme, between 2002 and 2004, have been completed. The Department of Finance has allowed the Department of Education and Science, for example, to resile on commitments to examine crucial matters such as the management of its building programme, its young offenders programme and its programme for children who are at risk of disadvantage in the education system.

There are huge question marks over our delivery of value for money in areas such as those I have mentioned. Officials in the Department of Finance apparently acquiesced in the parent Department's decision to abandon the examination of such issues. The Government has sold the pass on the expenditure review initiative, which it introduced on foot of criticism by the Comptroller and Auditor General. It has allowed the evaluation of crucial programmes such as those I have mentioned not to take place. The Government needs to change its policy in this regard by taking a tough stance on this issue.

As I said in my reply to the Budget Statement, Ministers have abandoned the notion that key performance indicators are driving the allocation of moneys within their Estimates. I asked Ministers to mention the performance indicators which are driving their Estimates, but they could not answer me. They could not tell me what the performance indicators are or what they are trying to achieve in certain areas. The strategic management initiative has produced significant volumes of paperwork, but it is not focusing people on targets or highlighting the performance indicators we might expect to be reflected in the spending of public money. It is not good enough. It is obvious that the strategic management initiative is driven by the Taoiseach more than by the Minister for Finance, but it has been driven into a cul-de-sac. We need proper monitoring of performance to ensure that money is following performance. The spending of money should be judged on the quality of outcomes.

I will not speak at length about benchmarking, in respect of which the Government has again sold the pass. We had a significant opportunity to drive reform agendas in crucial areas of the public service when extra pay worth €1.3 million was being made available. After that money had been spent, we suddenly seemed to discover a need to reform radically the prison and health systems, for example. Ministers were queueing up to highlight areas which were in need of radical reform, but they had stayed dumb when they had the money and the opportunity to drive the reform agenda forward.

The consequence of the problems I have mentioned has been a huge tax explosion. Not only did the Government spend money recklessly, particularly in the run-up to the previous general election, it also allowed proper controls and performance systems to rust over, leading to a surge in tax. It was clear in a recent debate I had with the Minister for Justice, Equality and Law Reform, Deputy McDowell, that he is in denial about this development. He does not accept that the tax burden has doubled and that we are collecting more tax as a proportion of gross national product than we were in 1997. He believes his party introduced a period of cutting tax to generate growth, but that is not what happened. We have increased the tax take substantially in nominal terms. The average tax-paying household is paying €25,000 in tax each year. That represents an increase of €4,000 since the general election in 2002.

Mr. Cowen

How much has their income increased by?

Mr. Bruton

Since 2002? Very little.

Mr. Cowen

The Deputy claims that their income has increased by very little.

Mr. Bruton

It has increased by approximately 8%.

Mr. Cowen

The average industrial wage has increased by €11,000.

Mr. Bruton

Between 2002 and 2004?

Mr. Cowen

No. It has increased by €11,000 since we came into office.

Mr. Bruton

In 1997.

Mr. Cowen

Yes.

Mr. Bruton

The period since the general election in 2002 has not been a period of bonanza. If one examines the figures, it is clear that the tax take has increased dramatically relative to income in that period. The increase may not be clear on the income tax side because there were increases in VAT, stealth taxes and local authority charges such as bin charges. The increases may have taken place outside the view of the Cabinet, but they have been imposed nonetheless. People have had to face an increased tax take. I am not making up these figures. Since 2002, the tax take——

Mr. Cowen

The Deputy never refers to the increase in incomes when he speaks about the increase in tax.

Mr. Bruton

I have seen the figures quoted by the Minister.

Mr. Cowen

He never refers to it.

Mr. Bruton

He has said that a person on the average industrial wage pays €300 less tax than he or she paid in 1997. I am sure the Minister is right, but one should consider the extra VAT, vehicle registration tax, stamp duty, bin taxes, utility development charges and utility bills being paid by that person.

Mr. Cowen

The Deputy said on budget night during a debate with me that such taxes comprise an extra €2,000 per year.

Mr. Bruton

Yes.

Mr. Cowen

The Deputy is prepared to talk about that extra €2,000, but he never mentions the increase in the average industrial wage of €11,000.

Mr. Bruton

The pretence that tax is decreasing can be sustained only by looking selectively at income tax. The Minister is not willing to examine in the same way the VAT and VRT, for example, being paid by the average family.

Mr. Cowen

I am.

Mr. Bruton

He will not examine all the other taxes that make up the bulk of what people pay. It is a selective view. If one examines the aggregate tax take, one will find that it has increased by €11 billion since 2002. It has increased by that amount in just three years.

Mr. Cowen

If the Deputy includes what he regards as increased taxes at local level or at other levels, he should also include the increased incomes——

Mr. Bruton

I do.

Mr. Cowen

——so people will be able to form a view on whether they have a greater disposable income, which they have.

Mr. Bruton

Absolutely. However, the Minister will note from the figures that since 2002, tax as a proportion of GNP has increased substantially. It has increased in absolute terms and as a proportion of income. I am not making that up; it is the truth. The statistic indicates that although we have enjoyed exceptional growth, we are increasing taxes. If we were achieving value in terms of public spending, one could defend that. However, we are not getting such value.

My thesis is not that the Government is raising tax and is cruel and heartless, it is that it is not delivering on the spending side.

Mr. Cowen

The Deputy should read Fine Gael's press releases.

Mr. Bruton

Considering that it is not delivering on the spending side, it must continue to seek more contributions, particularly through VAT and stealth taxes, from the ordinary family which is struggling financially. These taxes are not based on equity contributions but simply on the fact that they are easy to collect. The Minister for Justice, Equality and Law Reform does not even see these taxes on his radar. It is quite extraordinary that he said that much of the increased tax take results from taxes from foreign companies and that they do not count. Since when did the Progressive Democrats form the view that companies that come here to operate and pay taxes do not count?

Mr. Cowen

The point is that there is no increased burden on the individual taxpayer. There is an increase in contributions by the corporate——

Mr. Bruton

There is an increased burden on companies that are trying to create jobs and maintain incomes.

Mr. Cowen

They are doing it.

Mr. Bruton

It is strange to hear the Minister for Justice, Equality and Law Reform decide without any concern that companies ought to bear taxes.

It is crucial that we address the quality of our public spending and the fairness of our tax code. We have lost sight of both these goals through an exclusive focus on tax rates, which the Minister for Finance's predecessor regarded as the absolute pinnacle of achievement. Consequently, the Government has ignored what has happened to sustain those rates.

The Finance Bill begs the question whether our tax code is delivering the fairness we expect. The replies we received recently from the Office of the Revenue Commissioners revealed that the issue of overpayment of tax is not being handled properly or in an acceptable way by that office. The replies revealed that it is only in a tiny number of cases that the office gives a tax refund to individuals, even when there is clear evidence of overpayment. For example, more than 1 million householders pay bin charges but only 75,000 receive a tax relief. The Revenue Commissioners make no effort to ensure that everyone gets their entitlement to tax relief on waste disposal charges. Relief is only given in respect of €200 million in terms of health spending whereas it is estimated conservatively that the true level of allowable health expenditure is approximately four times that figure. Again, there is no real effort to match up tax relief at the point of spend such that there would be a reasonable chance that people would avail of the tax reliefs to which they are entitled. Tax relief is obtained in respect of only €100 million in rents and private tenancies whereas the actual spend in this area is at least double that figure. The Central Statistics Office's figures on the number of rented dwellings would confirm that there is a significant discrepancy.

If the boot were on the other foot and the Revenue Commissioners came across a transaction in which they suspected tax had not been paid, they would institute a trawl to identify anyone along the chain who might have been involved. They would send out chains of letters asking for a response from those who may be involved. However, there is no similar effort to identify where refunds should be given, even where the relevant information is easy to access on the part of the office. The office's mandate should be changed so taxpayers who are compliant can expect it to ensure that they will not be ripped off. This change of mandate involves a change in approach. I know the Minister will argue that the Revenue Commissioners are not expected to be accountants for the taxpayer but, where it is obvious that refunds should be granted in respect of bin charges, medical expenses and family income supplement, for example, the office should make an effort to ensure that they are granted.

The Minister rightly invited a general debate on tax policy rather than on the individual elements that are to be discussed on Committee Stage. The tax code is becoming increasingly out of touch with the pressures faced by families. I do not agree with individualisation. It represents an effort to break down the family into economic units and it ends the recognition of the scale of dependency on the individual taxpayer in deciding what tax he or she ought to pay. It narrows the choices parents can make because it tries to corral them into making certain choices. This Bill represents a further tightening of the screw in that area. The Minister only gave to the married couple with one earner the same increase he gave to the single person. There was no proportionate increase to take account of the dependency of the non-earner in the couple. Such a couple's position is eroded further by the almost exclusive concentration on the PAYE credit rather than the general credits that might offer benefits.

In addition to tightening the screw in this area, the Minister has ignored the pressures associated with bearing the cost of child care, which are becoming increasingly pronounced. The Minister will note this in his constituency and will encounter it canvassing for the by-elections in Meath and Kildare North. In an effort to stay in employment, people pay €1,500 to €1,600 per month on child care. This amounts to more than their monthly mortgage payments. This burden ought to have been recognised by a tax code that was designed to address financial pressures in a family-friendly way over the life of the Government.

The Minister has refused to support families engaged in home care. The home carer's credit was introduced to get the then Minister out of a hole politically when there was a back bench revolution but it has not been touched since. Consequently, those who are genuinely involved in home care receive no recognition or their recognition has been frozen for many years.

Another problem with the tax code is that it undermines cohabitation. When people live together they receive two tax credits and when they separate they get four. This is an extraordinary provision in a country that encourages joint parenting. It is not just in the tax code that the problem in respect of joint parenting and cohabitation manifests itself. Under the new social welfare measures, tougher rules apply in respect of those who are married or cohabiting and those availing of child support. We ignore partners in many means tests, including for medical cards, family income supplement, higher education grants and housing subsidy. We air-brush out of existence the recognition that those cohabiting have partners who must be supported. This is an anti-family policy and it is ingrained in all the aforementioned areas. It is widespread under the social welfare and tax codes and it has social consequences that need to be addressed.

On the last occasion I asked the Department of Social and Family Affairs about the family income supplement, it stated that only one third of those entitled to it receive it. This hints at an anti-family policy because we know people are entitled to it who do not receive it. It would not be difficult for the Office of the Revenue Commissioners, which knows what people are earning and the number of children in their families, to ensure that family income supplement was paid, through a refund under the tax code if necessary. A deal would obviously have to be done with the Department of Social and Family Affairs to achieve this, but if we are to ensure that people receive their entitlements, it should be done. We need to examine more closely the way in which we treat families. The family is the core unit and we have been sucked into a policy that ignores the pressures that families face.

The Minister stated in replies to parliamentary questions that he has not got the relevant data on inequity in tax code that applies to pension contributions. Half of those who could have a private pension have none and the bulk of these people are in low income categories. By contrast, those with good pension cover have well-organised pension funds, pay income tax at the higher rate and qualify for relief on their pension contributions in the order of 48 cent per euro. However, a great swathe of people do not benefit under this code. The Minister should at least provide that the 48 cent credit becomes a standard credit for anyone who contributes to a pension. That would give people on lower incomes a real, equal incentive to put money into their pension funds. It will be tougher for them but it will at least even up the terms on which they enter the funds. It is not necessary to wait for research on this. One does not need to be an Einstein to know that the benefits will be significantly skewed towards higher income earners. The top level contribution of €250,000 does not compare with the amount that people on low incomes might contribute. It is necessary to balance that code.

I am disappointed the Minister did not face up to the issue which Deputy Burton raised by way of parliamentary questions, namely, that there remain many people who pay no tax because of their capacity to work different schemes of reliefs. It would not have been a big problem to introduce caps, amounting to a cumulative cap on what any individual can draw down across his or her pension or various tax reliefs. That would at least start to restore some equity in the code. It was not necessary to wait for a review.

Another area of concern is whether the tax code supports a pro-enterprise approach. I am worried about the decision to abandon indexation in the capital gains tax code. The result is that one is taxed not only on real gains but on paper gains, namely, inflation. That may not have an impact in the next few years but over the long term it encourages people to choose a speculative investment with a quick, big killing to be made rather than a steady investment yielding returns over time.

Without indexation people who choose thesteady investment will be taxed even on the money gains. That will gradually corrode the incentive structure of the capital gains tax code. The Minister may get away with it in the short term but in the long term it is not appropriate. That needs to be considered afresh.

There is also concern that roll-over relief is locking people in and undermining restructuring that ought to be supported. There will probably be an opportunity to discuss that on Committee Stage. There are aspects of the capital gains tax code that are not attuned to a modern economy.

While the Minister's exclusive concentration on the employee tax credit is understandable in political terms because it gives the best tax reliefs to the greatest number of people, the fact that the self-employed have not benefited from any real increase in tax credits in recent years is not sustainable over the long term. The past three budgets have virtually ignored the broader increase in tax credits and focused solely on the employee tax credit.

The Minister ought to have addressed the special savings incentive accounts. He has said in replies to parliamentary questions that there are conflicting views on the impact these will make. They are hanging over the economy and will exert inflationary pressure on it when they come out in 12 months' time. This is the time to consider changes that would encourage people to put money into personal retirement savings accounts. The Minister has the advantage that these are broadly based. There is a wider spread of special savings incentive accounts than people in pension funds. This would have the added benefit that people who do not have a pension fund could be encouraged to invest in personal retirement savings accounts. This does not require big incentives which the public would not accept in this area.

I welcome the Minister's move to tackle financial advisers who aid and abet tax evasion, and the moves to tackle the single premium abuses. These are well overdue. We need to examine more closely the changes in the penalty codes. I am not convinced that the problem is that we have too tough a regime for genuine tax evaders. The real problem is that there are many inadvertent mistakes, caught in audits which are being presented as evasion and published in lists. This does not require a change in rules but greater discretion as to when they are used.

The Minister has opted for some high level changes but although the revenue powers group raised the need for more checks and balances in the tax code, he has not brought those forward and says he will do so next year. I would prefer to see an overall package showing the checks and balances on the occasion when we are asked to adopt them.

Mr. Cowen

That was my argument on tax reliefs.

Mr. Bruton

We will have plenty of time to discuss this further.

I was very concerned at the information released to Deputy Burton that the queries from the European Union about stallion tax relief were not passed to the Minister. It seems an extraordinary lapse in procedures when there was a deadline of one month. Does this have implications for other elements of the tax code? For example, there are woodland reliefs and there are other areas where there is effectively a zero tax code. Are these also vulnerable to criticism as a form of State aid?

Ms Burton

I echo Deputy Bruton's good wishes to the Minister on his first Finance Bill, which is a momentous responsibility and occasion.

I put a modest proposal to the Minister's predecessor who was not inclined to entertain my suggestions, namely, that our tax system should develop the office of a tax ombudsman or advocate, as it is called in some countries, on behalf of the taxpayer. This is long overdue and is urgent because there are growing problems in the pay as you earn system, particularly since the introduction and development of tax credits.

A predecessor of the Minister, Deputy Quinn, began the move to that reform, which former Deputy McCreevy followed up and implemented. While it has worked well, this has taken a long time because it is a complex element of the tax system. There are many people in the pay as you earn net who are at risk of overpaying tax, particularly where someone changes job, on the basis of marital status or where a person has recently retired, for instance, a person who retires from the Army or Garda Síochána who takes a second job, or someone who receives more than one stream of income. I can give examples of where the pay as you earn system is faltering.

The Minister's proposal to extend the Revenue on-line service to those in the pay as you earn system is welcome, but it is not sufficient to address this problem. There are no measures in the system to identify promptly overpayments by taxpayers and to refund those affected. This is a breakdown in the administrative system arising from the development of the tax credit system.

Those in the pay as you earn system deserve to be refunded any overpayments as quickly as possible. It is not good enough for the Revenue Commissioners to say that after the end of the tax year, if the taxpayer completes a tax return, any overpayment will be identified and refunded. The Revenue Commissioners need to be proactive in seeking to identify overpayments as early as possible during the tax year and make appropriate arrangements for repayment. I will not repeat the point made by Deputy Bruton in regard to areas where there are specific tax allowances and many taxpayers fail to take them up. In this regard, medical receipts, refuse service payments and family income supplement are disaster areas for full claims by people of their entitlements. However, I am not talking about those areas but about the predilection of large elements of the system to overcharge the people to whom I have referred. Unless a taxpayer is fast in submitting a return, he or she will not get a repayment.

In addition, there is effectively a limitation of four years on seeking a refund of an overpayment. This is completely inadequate and I see no good reason for it. I hope the Minister will take the opportunity presented by the Bill to allow PAYE taxpayers a much longer period to make claims for refunds. It is a matter on which Members on all sides of the House will agree.

Most of those liable to pay tax do so because they have no choice — they are in the PAYE system. It is high time the Revenue Commissioners acknowledged their duty to compliant PAYE taxpayers and sought to give them a just deal under the tax system.

A challenge faces the new Minister for Finance in regard to taxation, namely, whether he is willing to grasp the nettle of genuine tax reform in the interest of fairness and equity for all sectors, particularly the PAYE sector. The Labour Party demands tax justice for all. However, the Government has for years focused on tax breaks for the very well off. During his eight years as Minister for Finance, Mr. McCreevy specialised in redesigning the tax system to facilitate tax breaks for the very well off. At the same time, the small print in his Finance Bills ensured PAYE taxpayers on very modest incomes paid a significant amount of tax, not only in PAYE but more particularly in high indirect taxes, such as VAT and stealth charges, whether for hospital admissions and accident and emergency services or, as we increasingly see, refuse charges, which are now veering towards a norm of up to €500 per annum.

The real test of the willingness of the Government to reform the tax system is whether it is willing to dispense with some of the tax breaks which so disfigure and distort the tax system. In particular, I reiterate the call I made last year for a permanent tax commission which would, once and for all, bring into open public accountability the cost of the various tax break schemes, particularly property based schemes, who the likely beneficiaries are and the duration of the benefit. This is the minimum information we should be easily and rapidly able to obtain in regard to the myriad of tax breaks, from those relating to holiday cottages to tax exemptions for stallions and so on.

A farcical situation arises. The Revenue Commissioners are finally recovering up to €500 million every year from those who defrauded the tax system in earlier decades by the use of devices such as non-resident accounts or undeclared overseas accounts. However, it is deeply ironic that just as these tax evaders are being caught up with by the Revenue Commissioners, slowly but surely a new structure is developing in regard to legally based tax exemptions. In the long run, it is likely the structure of legally based tax exemptions, particularly those created by the former Minister, Mr. McCreevy, will have the same effect as the tax avoidance that so disfigured the 1970s, 1980s and 1990s, that is, a narrow tax base in which those in the PAYE sector will continue to bear the greatest share of responsibility for funding the Exchequer.

This is the real dilemma. Our tax base has historically been too narrow. Hence, those caught in the PAYE sector end up paying high marginal rates while others make no contribution. I want a situation where there are lower tax rates but everybody pays — in other words, a flatter, more effective tax system.

I want to raise a number of technical issues with the Minister in the course of this debate on the Bill, as well as on Committee and Report Stages. On 22 December the Department of Finance announced a time extension, set out in section 31, which gives tax breaks for buildings in third level institutions, colleges and universities. Despite my putting down questions to the Minister, he has so far refused to identify who the beneficiaries of this extension are. He stated in a written reply that it concerns three third level institutions, but he refused to identify the institutions, the developers or the investors in these schemes.

It is legitimate to ask the Minister, on the record, who these people are, why there was a delay in applying for the schemes within the required time, what the likely capital investment is in the schemes and what the likely cost will be in tax forgone. I asked about these matters in a parliamentary question that was not reached last week — I suppose we were detained too long on other matters. However, these are legitimate questions and I would like answers.

The Minister stated in the budget and when he announced a review in regard to tax breaks that this type of property investment scheme was not to be extended, particularly while the proposed review of tax breaks was being undertaken. Unless I get answers, this constitutes a breach of the undertaking given by the Minister at the time of the budget that there would not be an extension of this type of break until completion of the investigations to which the Minister, the Taoiseach and the Tánaiste referred on a number of occasions.

I welcome the anti-avoidance measures introduced in the Bill, in particular in section 36, to prevent the recategorisation of income as capital gains, whereby, if a taxpayer successfully shifts income from the income category to the capital gains tax category, his or her marginal rate of tax can fall from 42% to 20%. It is incumbent on the Minister to explain what amount of tax revenue has been lost recently because of the use of this tax arrangement whereby income was converted into capital gains, thus resulting in significant savings.

This was a topic beloved to an obsessive degree by the Minister's predecessor, Mr. McCreevy. He was always delighted by the increase in the receipts from capital gains combined with the fall in the capital gains tax rate. It is interesting that in this, the Minister's first Finance Bill, he should move to stop avoidance in this area by shifting income, because his predecessor denied this was a possibility. However, while the Minister should expand on why he opted for this, the change is welcome.

On behalf of the Labour Party, I broadly welcome the proposals in sections 73 to 77, which will see an extension of the powers of the Revenue Commissioners, creating further offences of aiding an abetting tax evasion and fraud, including those by officers of companies, including banks. This measure is long overdue. It is deeply disturbing to people who had non-resident accounts and are being rightly and strenuously pursued by the Revenue Commissioners to repay both tax and penalties in regard to these illegal tax investments that the people who organised the schemes and made the arrangements, particularly those in the top echelons of some of our banks, got away virtually scot-free.

It is unbelievable that the many thousands of people who had non-resident accounts simply thought these up on their own. Little old ladies did not pop into bank branches in Manorhamilton and ask: "Can I have a non-resident account, please?" or "Can I have a single premium life product?" The reality is that customers were advised by their banks to open this type of account. Banks incentivised and in some cases pressurised staff to get people to open this type of deposit account. It appears that banks have been able to get away with aiding and abetting tax evasion and they have not been taken to task. It will be welcome if the Bill successfully advances the powers of the Revenue Commissioners in this regard. I note, however, that none of these provisions will have a retrospective effect. I would be grateful if the Minister could elaborate on this point. I know he said that the notion of retrospection is not constitutional. However, complex legislation has been introduced in regard to IFSRA, and one of the actions it is taking is setting up measures and reviews on the suitability of people serving as senior officials in banks and as directors of banking and financial and insurance companies. I do not understand why directors or bank employees who were involved in the past in aiding and abetting tax evasion were promoted to much higher levels and may now be passed with flying colours for even more elevated service in the banking sector. I would like to return to this aspect.

On single premium insurance policies, the Revenue Commissioners have been examining for some time the recovery of tax from investments in these policies. A new scheme is to be put in place to pursue these people. We are all aware that a great deal of business was written in this area over a long period, most of it completely legitimate. There is no problem with anyone who retired and received a lump sum from their employer putting the money into one of these policies. The chairman of the Revenue Commissioners indicated that the problem lies with people who for tax purposes in the first instance did not declare the money they invested in these products. It is estimated that this will net between €1 billion and €1.5 billion. What concerns me is that it is probably the fourth opportunity for people who used the system to evade tax to come clean in regard to tax evasion. There were the first two tax amnesties, followed by the review of overseas non-resident accounts and DIRT accounts. It could be the fifth or sixth opportunity to come clean afforded to investors in the insurance related bank product who were also Ansbacher or Jersey trust depositors. Is the Minister proposing to allow such serial tax evaders to get away with it or will the Revenue Commissioners initiate prosecutions against people involved in this type of activity?

I acknowledge that the majority of citizens are honest in their tax affairs. However, the small minority of them who are tax evaders and who have repeatedly robbed our health and education systems deserve little mercy from the Revenue Commissioners. The Minister furnished details of the number of prosecutions in this regard, which are very small. Just two prosecutions last year resulted in convictions, and the number has decreased in recent years. Contrast that with the position in regard to social welfare. The week before last, I read a newspaper report where someone was properly prosecuted and received a suspended sentence for illegally claiming €18,000 in rent allowance. This does not happen in the case of tax evasion. It is a bit like a Hollywood marriage for some people where one little bout of tax evasion is not good enough so they must have a go at it five, six, seven or eight times. It is outrageous for the Revenue Commissioners to "go soft" on these people. I presume the arrangements included in the Finance Bill are not the last word on this scheme. I understand there may be administrative difficulties in carrying out this review. I would like the Minister to talk to us in greater detail on the matter on Committee Stage.

Why is it not possible to get more information on the real cost of various tax avoidance schemes? The Minister may have read a lengthy article in one of last Sunday's newspapers detailing the extraordinary multi-million euro payment made by a number of companies to pension funds on behalf of their owner-director managers. These are the high rollers in society. We are not talking about small family companies employing approximately 30 or 40 people. This use of pension schemes was specifically enhanced in the last two budgets by the former Minister and Deputy, Charlie McCreevy, as yet another scheme for the very wealthy. I concur with what Deputy Bruton said about incentivising people to save for pensions, but what is happening in regard to some of Ireland's wealthiest people is outrageous. People are being encouraged by the former Minister's last two budgets to provide for multi-million euro pension funds which will be, effectively, entirely exempt from tax. They may even be exempt over generations because our tax structure means that capital transfers between spouses are largely tax exempt. As a result of the way many of these schemes are designed, it may be two or three generations, if ever, before they will fall into any kind of tax net. Contrast this with people working for a modest income who find it difficult to save for a pension and are restricted in the amount they can put into the pension fund. This must be one of the key areas where there is one taxation structure for the very wealthy and another for ordinary people in modest employment.

I have asked numerous questions about the cost of tax forgone in respect of self-administered pension funds and other related schemes that have been developed and expanded, particularly on foot of the changes in the 2003 and 2004 Finance Acts. All I have received from the Revenue Commissioners and the Minister for Finance is repeated statements that they are unable to give me any information other than to suggest that there are approximately 2,500 of these pension schemes. If we are to make rational decisions about taxation policy, we need the relevant information so that we can see the cost to the Exchequer of these schemes and what the effect is on more modest savers in ordinary employment. The pension structure in Ireland has become a two-tier structure which is, in effect, a scandal.

Perhaps I can make a point, particularly in regard to women. Up to 1973, many women had to leave work because of the marriage bar. They took up home duties looking after the family and bringing up their children. Many of these women did not get back into full-time employment whereby they would qualify for pensions. Contrast what is being done for high rollers, where €7 million is being invested in a pension scheme, with the position of some women in their 50s and 60s who have no entitlements in their own right and may depend significantly on the pension entitlement their husbands have built up. That is a good example of there being one structure for one set of people and another for a different set of people who have made a great contribution to this economy. Fianna Fáil used always to sing the praises of the women who stayed at home, were home-makers, looked after their family and helped care for elderly people, but when it comes to pensions, many people are hardly at the races, although I want to refrain from using horsey references. Tens of thousands of women do not have pension cover. That is an issue we need to explore.

The vast bulk of PAYE taxpayers will pay tax at the top rate. The Minister said that people earning the minimum wage will be lifted out of the tax net. We will return to that question in November when we will see if that promise is sustained, particularly with changes in the minimum wage. A single person who earns a little over €30,000 will pay tax at 42% on any additional income or overtime. That is a high marginal rate of taxation in anybody's book. The Government has created a two-tier structure of taxation, with heavy taxes and high marginal rates for people in receipt of low incomes, particularly if they work overtime, while there is a plethora of tax avoidance schemes for the very wealthy. I do not know how long the Minister for Finance considers this can continue. While suggestions from the Taoiseach, Tánaiste and the Minister that they find the notion of people on incomes of €200,000 and above paying no tax to be socially and morally unacceptable are welcome, what will be done about it? There is no evidence in the Bill that any real element of tax justice will be introduced. We are seeing a wink and a nod arrangement whereby the Taoiseach and Tánaiste are saying to enraged taxpayers they will sort out some of these abuses but, in the meantime, in the small print of this Bill, nothing is being done to close or cap some of the worse abuses.

The Labour Party stated in its pre-budget statement, a copy of which we sent to the Minister, that we favour either the capping of all the allowances or a review clause that would ensure that no taxpayer, regardless of whatever tax breaks of which they availed, can pay less than the minimum rate of 20%, having taken into account credits and personal allowances. Every citizen uses the facilities of this country, be it the roads, schools, the fire brigade service or the hospitals, and therefore no citizen should be exempt from responsibility to pay a fair share of tax according to his or her means.

There is a case for tax incentivisation. I am on record as supporting targeted investment, for example, the business expansion scheme, investment in funds and, more recently, investment in research and development. I am on record, particularly in discussions with the Minister's predecessor, of favouring targeted tax incentives for a period. In these cases, the schemes have been discussed in detail. Where there were abuses, they have been eliminated. This is one issue to which we can return on Committee and Report Stages. For example, when there was talk last year of the Minister's predecessor abolishing film investment tax relief, the Revenue Commissioners brought to our attention abuses about which they were extremely nervous, and that was useful. We have since heard that those abuses have been dealt with through various mechanisms. It would be interesting to hear from the Minister whether the Revenue Commissioners are satisfied with what has happened in that regard. The purpose of these incentives is to promote investments in risky but important enterprises or areas of economic activity. For the most part, the ones I outlined are effectively limited or capped. If they are not, I would be interested in hearing why they are not.

The Minister for Finance, Deputy Cowen, is a former Minister for Health and Children. Therefore, I want to raise with him the galloping tax breaks for the provision of private hospitals and nursing homes. The former Minister for Finance, Charlie McCreevy, argued that such tax breaks would increase supply and lower costs for users, but I do not see that happening. Once again we have no information on how these tax breaks are working. Nursing homes are being built in the green belt around the greater Dublin region. They are located in rural areas. The tax break for them is conditional on their existing on that basis for only ten years. These nursing homes are in areas where there are no footpaths and no public transport. For some elderly people, going into these homes is effectively like a life sentence. They cannot go to the church, pub or post office. The Minister must be familiar with nursing homes in villages and small towns where old people can get out and about.

Mr. Cowen

There are some excellent facilities.

Ms Burton

Yes, that is what I am saying. They are the good ones, but has the Minister seen the new ones that have been built in remote areas, the provision of which is more to do with property development? I doubt if they will even last as nursing homes for ten years. This incentive applying to them has not been examined or studied but was introduced on the personal hunch of the former Minister, Charlie McCreevy, that it would produce activity. He told me it would result in a reduction of nursing home costs, but that has been far from the case. In the greater Dublin area, such costs are at a higher rate than ever before.

Similarly, the Hanly report stated that hospitals with fewer than 300 to 400 beds were not viable and threatened them with closure, while the incentive applying to private hospitals seems to have a capacity around the 100 bed mark. Where is the joined-up thinking in regard to investment in our health services? Tax forgone as a result of these kind of tax breaks costs us all dearly in the end. We will continue this discussion as the Bill progresses.

Mr. F. McGrath

I wish to share my time with Deputies Connolly, Boyle and Ó Caoláin.

An Leas-Cheann Comhairle

That is agreed.

Mr. F. McGrath

I thank the Leas-Cheann Comhairle for the opportunity to speak on this legislation. When the budget was announced I thought that finally the Government was listening to the views and policies of the Independent Deputies by taking a step towards narrowing the gap between the rich and the poor. I welcomed the fact that much of the additional Exchequer finances available to the Government were being targeted at the disadvantaged, the low paid and the disabled. I also welcomed the increased expenditure on social welfare, particularly the increase of €14 in the lowest rate of social welfare and the removal of national minimum wage earners from the tax net. They are all important and positive measures on which I commended the Minister at the time.

I particularly welcome the increased spending on services for those with disabilities. However, imagine my shock and horror when I discovered today on meeting a group of parents from St. Mary's St. John of God north-east services that, despite the promise of 250,000 extra hours of home support and personal assistance each year, their respite services will be cut drastically on 28 February. What is going on? The Minister promised major funding for services in this Bill, yet the Minister for Health and Children and the people involved in the health services — the Health Service Executive — want to cut services in these areas. This is crazy and unacceptable. From my information, in this case it is a question of funding. The families I met today and the people who work in the services have informed me that it is a funding issue, yet what is involved is the cost of employing an extra 64 staff. That is chickenfeed in this debate on the Finance Bill. I urge the Minister to deal with this matter in the next week or so. There is no excuse for this. I record my support for the families and friends of St. Mary's St. John of God north-east services. The bottom line should be about spending taxpayers' money wisely and efficiently on services for people with disabilities. I want to see an action plan in the next few months and an end to all cuts in services.

When dealing with this Bill, it is important to look at those areas where the budget did not deliver, particularly making work pay by easing the transition from welfare to work for those currently unemployed or in receipt of a social welfare payment. No assistance was given with the cost of child care, which continues to act as a barrier to employment, especially for women and single parents.

Many of the anomalies and imbalances between the welfare system and the tax system continue to trap people in welfare because it is not worth their while to take up low paid employment or a position in an active labour market programme. The threshold for the retention of secondary benefits remains unchanged at €317.43. I am disappointed the Minister for Social and Family Affairs failed to take the opportunity to rescind in full all the savage 16 welfare cuts. Only one has been fully rescinded, with ten amended slightly and five remaining unchanged.

I accept that the 2005 budget was more equitable than previous budgets but it is disappointing that not enough was done to address the needs of unemployed people, those on social welfare and those trying to access the labour market. This is an issue we must face because 65,000 children live in poverty. I urge the Ministers for Finance and Social and Family Affairs to target that sector in the next six months. Resources must be targeted at the most needy and I propose that those 65,000 children who live in and attend school in disadvantaged areas be supported as a priority.

I welcome the provision in section 9 of the Bill that exempts from income tax payments made by the Health Service Executive to foster parents in respect of the care of foster children. In addition, the section exempts certain discretionary payments by the Health Service Executive to carers for the care of former foster children aged 18 or over who suffer from a disability until such persons reach 21 or complete their full-time education course. Corresponding payments related to foster children made in accordance with the law of another EU member state have also been exempted under the section. All these are welcome measures.

There were many positive aspects to the budget and I commend the Minister for them but there are also major gaps and they must be tackled in the next six months.

Mr. Connolly

This year's Finance Bill is characterised by anti-avoidance rules as opposed to anti-evasion measures. It is an effort to close the loopholes that accountants are paid to find, but we will see what they come up with during the year.

The Bill is also driven by the necessity for a level playing field for taxation across the EU. The 2004 Act was notable for its measures to make Ireland more attractive as a holding company location. Disposal of share holdings in trading companies in EU countries, or in those countries with which Ireland has a double-tax treaty, were facilitated to such an extent that they merited an exemption from capital gains tax. EU approval for this measure was forthcoming in September 2004, with appropriate adjustments to the share value thresholds backdated to February 2004. This gave an immediate fillip to indigenous industries and multinational companies and significantly increased the attractiveness of Ireland as a business location.

The Bill allows for a broadening of the base of the common contractual fund, which allows for pension assets to be pooled in a tax-transparent structure. It permits a broadening of the products in which the CCF can invest and extends the range of qualifying investors to include all forms of institutional investment. There are considerable cost inefficiencies in maintaining multiple pension schemes and the pooling of assets of a number of pension funds in a single fund can avoid these.

The Bill contains a welcome provision by which taxpayers can receive deductions on pension contributions to any scheme that was established in another EU member state. Other EU nationals who are working in Ireland are also allowed to contribute to an overseas pension plan within the EU. The Bill allows for them to benefit from tax relief at Irish rates in accordance with the EU pensions fund directive which must be implemented by September 2005. In the case of cross-Border pensions, both employers and employees who are located in the Republic of Ireland will receive the usual tax relief subject to annual limits on any contributions made to cross-Border pensions. This is particularly relevant to people who live along the Border and work in the other jurisdiction. It is a positive development and is geared towards the creation of a single EU market for financial services.

I regret that those consumers who switch bank accounts will be penalised for the Government stamp duty. I find it difficult to understand that the banks give blasé excuses why they cannot implement this change. It amounts to double taxation of €10 per annum. The fact that we must wait until January 2006 for this is unacceptable.

Mr. Cowen

That is the case for ATM cards but it will apply to credit cards from 12 April.

Mr. Connolly

It is regrettable that we must wait 12 months for it.

The old reliables were not touched and I welcome the fact that petrol and diesel, fuels that are needed to get people to and from work, were not increased. Year after year, however, cigarette duty was increased for different reasons, principally because they were bad for our health. Once, the price of a packet of cigarettes was increased by 50 cent, which was meant to go to the health services. I do not know if it ever reached the health service but it had no impact if it did. This year we discover that the revenue from cigarettes is falling so I am surprised that the duty was not lowered to achieve a higher tax yield from them. If we were really sincere in wanting people to give up cigarettes or concerned about their effect on our health, we would have increased the price of a packet of cigarettes to encourage people to give them up, in tandem with the ban on smoking in the workplace.

The contribution made by carers to society was largely ignored in the budget. There are also other schemes, such as the rural transport initiative, that are of great social benefit and enjoy a high level of praise, that deserve more funding.

Mr. Boyle

One of the more curious references in the Minister's speech related to the introduction of section 134, the increase in the threshold for the publication of certain settlements in the list of tax defaulters from its current level of €12,700 to a new level of €30,000. This was recommended by the revenue powers group and the Law Reform Commission, but recommendations are not always accepted.

Mr. Cowen

We cannot win.

Mr. Boyle

A likely effect of this provision will be an increase in low level tax fraud. People who know they will not be named and shamed will go so far in not paying their income tax because they know there will be no public opprobrium attached.

Mr. Cowen

They will have to pay the tax, plus penalties, plus interest.

Mr. Boyle

I am establishing this as a marker that we will revisit this issue in years to come.

Stranger still, in line with the recommendation of both bodies, the Minister decided to introduce the concept of indexation only for the threshold for naming and shaming tax defaulters. Where is the indexation of tax credits and tax bands? Why is the Minister not introducing innovative indexation measures to ensure people do not pay tax by default in future? Why do we not have this concept in payments made by the State in the social welfare area? That is something I will take up with the Minister for Social and Family Affairs when he introduces his new Bill in the next few weeks.

I find it curious that the reference to indexation in this Bill means that those who have already cheated the tax system are less likely to face public opprobrium as a result. That is a strange principle for the Minister to establish in his first Finance Bill.

Mr. Cowen

It is part of the recommendations.

Mr. Boyle

I can point to recommendations from the ESRI that the Minister has not accepted. I will come to them later.

Another curious aspect of this Bill is that the Minister is amending a number of tax reliefs. Some he has been forced to amend as they have been identified as state aids and he is rowing back on how they can be applied. However, some are being extended and some new tax reliefs are being introduced. This calls into question the credibility of the review the Minister has announced into all tax reliefs. How are we and the public to take this review seriously or to believe it is being conducted in any kind of honest way when in his first legislation after the budget the Minister chooses to extend tax reliefs in certain areas that will help to widen the differentiation between people who have and people who have not in our society? That is the reality of what is proposed in this Bill.

Mr. Cowen

The Deputy should read the Budget Statement. It did not pre-empt the amendment of existing schemes in the context of the review. I stated that on budget day. That is my full position.

Mr. Boyle

If that is the case, the Minister could have chosen in advance of that review to terminate reliefs that are obviously inequitable. He could have chosen to put maximum tax reliefs in place on a cumulative basis and on an individual basis in terms of each tax relief that is being offered. He has chosen not to do so. That he has chosen not to do so means he has decided that the tax inequity that exists will continue under his stewardship. I find that most regrettable.

There are two measures concerning how the Minister has treated the environment. One is a measure that has been forced on the Minister and one is an extension of a measure that already exists. The Minister is introducing the concept through the European energy directive of a European Union energy tax as it applies to coal. He accepts this will be minimal because it does not apply to domestic coal. I find it strange, in view of his predecessor's decision not to proceed with an energy or carbon tax, that the only allowance to introduce such a tax has been the obligation forced on it by the EU.

The second measure extending the VRT exemption on hybrid cars has been patronisingly presented by the Minister as an environmental measure. The only reference in the Finance Act 2004 was a small but significant measure that has yet to be introduced providing support for the extra biofuels. While this measure has been described as a political State aid by the European Commission, the Government's efforts to challenge and change this opinion is in marked contrast to its efforts to challenge the State aid designation of the tax exemption on stallion fees, which it has approached with something of a panic reaction.

Mr. Cowen

Was it a panic reaction?

Mr. Boyle

It was a panic reaction.

Despite the Minister's problem with his postal delivery service, the Government has chosen to quickly challenge any question of State aid being applied to the stallion tax.

Mr. Cowen

Why then were we accused of inconsiderate delay?

Mr. Boyle

We are talking about the contrast between his actions on this tax and the lack of any questioning by the Government on the issue of State aid in the area of biofuels.

Mr. Cowen

I have been panicking since.

Mr. Boyle

The Minister has pursued the policy of his predecessor who decided not to introduce a carbon tax, the price of which is already apparent with the cost of €135 million for the purchase of carbon credits to be paid for the right to participate in the EU's carbon emissions trading scheme, which will have to be borne by all Irish taxpayers.

In this Bill the Minister has introduced a number of additional powers for the Revenue Commissioners and this is to be welcomed. Especially welcome is the power to create an offence for those seen to be aiding and abetting tax evasion, people who would have talked to bank officials and maybe even bank managers on the question of tax evasion or how various products would help to reduce their tax liability. We know, if anecdotally, that those bank managers and bank officials were operating on orders from above, even if those orders were never written down. It is important, if this provision is enacted, that it is as watertight a provision as it can be. The Minister will have our support if that is the case.

The Minister spoke optimistically about the scale of the Irish economy and the state of the global economy that allows this to happen. It is also in order, however, to put forward certain economic facts about the global economy that could make things change very quickly and the need to be prepared for that. We are, in many respects, a satellite economy of the United States, an economy that has the highest trade deficit and the highest budget deficit in the world. While the dollar has appreciated in recent days based on a commitment given by the new Bush administration to tackle its budget deficit, it seems that as far as American citizens are concerned, that deficit will be tackled in the same old way, by targeting social spending which, unfortunately, we have seen here occasionally. It is likely that the type of dependence and economic impetus by which it is fuelled in terms of our reliance on oil will come back to haunt us, maybe not in the short term but certainly in the medium term. If there is an oil price shock and it affects interest rates, we can all envisage what is likely to happen in an economy that has a gross national product with 12% reliance on property. The Minister has said in the past that that is down to the entrepreneurial initiative of people building property. However, in reality it is about house price inflation and house prices that bear no relation to people's ability to pay or to the economic needs of the country.

When we process this Bill through Committee Stage and Report Stage I hope there will be no rabbits pulled out of hats, as we have seen in respect of other Finance Bills, that would exacerbate that situation. I hope there will be an air of reality and an awareness that if we are to keep our economy on track, we must do so by being aware of the threats that exist within and, more importantly, the very real threats that exist outside.

Caoimhghín Ó Caoláin

I thank the Minister for his presence. This Finance Bill implements the budget for 2005. It contains little that is new in addition to the measures already announced in the Budget Statement.

Before the budget Sinn Féin urged the new Minister to address in particular the issue of child care. We urged the introduction of a comprehensive package of child care measures, both budgetary and legislative, implementing the right of children to the best care, allowing parents to care for their children full-time up to one year of age, and equalising women's participation in the labour market.

Our comprehensive Private Members' motion, which saw a substantive debate here, and our subsequent budget priorities document entitled Putting Children First received a widespread welcome in the child care sector. Our elected representatives and party workers throughout the country promoted those proposals and met with an immediate response from individuals, families and communities experiencing an acute need for child care infrastructure. That is the situation I have found. It was no surprise to us, therefore, when there was such widespread disappointment that the budget for 2005 failed to address the major gap identified in child care or the issue as a whole.

While there was a welcome increase in funding for the equal opportunities child care programme and which welcome I recorded, there was no recognition of the limitations of the programme or the need for a comprehensive approach. I appreciate it was the Minister's first budget but I make these points not only to point out what has not been included in the budget but to urge his attention sincerely on these matters in the coming budget. I regret that nothing has been done since the budget announcement, certainly nothing that is apparent, to address this major gap in Government policy. This Bill confirms the Government's blind spot on the child care issue. It is regrettable nothing of any substance has been done or said on the matter in the period since.

Since the budget, a significant study was published but received little attention and certainly not the attention it deserves. This is the major EU report published last month which shows that nearly one in four of our people, 23%, are at risk of poverty while nearly one in ten are consistently poor. In a State which is supposedly one of the wealthiest in the world, the persistence of this level of inequality is a disgrace. After a decade of the so-called Celtic tiger, it is children more than any other group who live in consistent poverty. The report shows that nearly 15% of children under the age of 15 are consistently poor, in other words, living in homes which struggle to provide adequate food, heating and clothing. If what I have said is familiar to the Minister and he has heard it before, it is because that is the set of findings I cited to the Tánaiste in the House last week. Her first response was to question the methodology of the report. She was reluctant to use the term "poverty". Anyone who knows the reality of life in many of our communities — certainly I know it — cannot deny there are levels of deprivation which are inexcusable and also avoidable.

In another important report on the taxation system, published last October, the Irish Congress of Trade Unions stated that our tax system is "fundamentally unjust" and "biased against those on low and middle incomes and it does not raise enough tax overall to pay for modern public services". What is the result? It means that our unreformed health service is ill-equipped to care for the health of those who need the public system most because they cannot afford private care, and nearly 40% of those surveyed in 2003 identified financial problems as the greatest factor and the critical reason preventing them from improving their health. None of this can be solved in one budget or Finance Bill, something I have acknowledged, and we are prepared to be patient. We will make the case and will argue where we believe that attention must be focused. In that spirit I hope the Minister will accept these points and reflect them wholesomely in the next opportunity that will open to him.

The Fianna Fáil-Progressive Democrats Government has been in office since 1997 and has taken until now to remove those on the minimum wage from the tax net. The timing is interesting as it comes at the outset of the campaign for an increase in the minimum wage, which the trade unions correctly demand. The Minister for Finance, Deputy Cowen, received plaudits for the reduction in stamp duty for first time buyers of second-hand property. I have no doubt that was a sincere effort on his part and I commend the intent. While this is welcome and long overdue, what can be done to ensure the benefit is enjoyed by the buyers? I reflect on the television discussion immediately after the budget at which I was present for a brief period and during which we heard representatives of auctioneers and valuers say the reduction would be eaten up by an increase in house prices. That shows the need for regulation of the price of housing, an issue which the Minister and the Government have refused to countenance. The argument is strongly underscored by that fact alone and, similarly, to give further weight to the argument, by the increased tax relief for tenants in private rented accommodation. If nothing is done to control rents, they will continue to rise and this tax relief will amount to nothing more than a subsidy to greedy landlords throughout the country.

The Government's tax cuts between 1997 and 2002 saw only 5% of budget tax cuts benefiting some 20% of the lowest earners. We live with that legacy. The budget and the Bill represent a catch-up rather than a radical shift in direction and, clearly, there is more work to be done. For many years, we in Sinn Féin have called for a comprehensive review, as referred to by other colleagues, of the wide range of property-based tax reliefs and the closing of those through which wealthy corporations and individuals are allowed to avoid their fair share of tax. We will probably never know how much is being lost to the public finances through these so-called reliefs because the Government, including during the time Mr. McCreevy was Minister for Finance, never carried out a cost-benefit analysis of the huge range of such allowances and was unable to answer my parliamentary questions on the loss to the Exchequer they represent. We caught a glimpse of the extent of that loss before the budget when it was revealed that 11 millionaires and 242 people earning between €100,000 and €1 million per year paid no tax in 2001. The Department of Finance and the Revenue Commissioners do not know how many tens of millions of euro have been lost through tax breaks of property speculators and developers of such commercial ventures as private hospitals, hotels, sports injury clinics, multi-storey car parks and a range of others. The Minister has indicated that a review is under way. I do not suggest all of this must be dumped. We must all be informed and advised and must be able to measure.

In the budget the Minister directed his Department, together with the Revenue Commissioners, to undertake a thorough evaluation of the effect of what he called all relevant incentive reliefs and exemptions and to bring forward proposals for change. When does the Minister expect that review to conclude and will he bring its findings before the House where they can be debated fully?

Debate adjourned.