Finance Bill 2008: Second Stage.

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

I am glad to be able to introduce my fifth Finance Bill to the House. In previous Bills I introduced measures that supported business, made the tax system fairer and significantly lightened the burden on low and middle income earners. In this Bill I will continue with this approach, while also seeking to promote care for our environment through a range of initiatives. The principal aims of this Bill are to support enterprise and innovation, to advance sustainable development and to ensure a fairer tax system.

Helping enterprise by reducing the administrative burden to make doing business easier should be part of any finance Bill deliberation. The Bill builds on measures to assist small business which I introduced in the 2007 budget and it includes a number of business friendly measures such as revised preliminary tax payment arrangements for corporation tax aimed at small and start-upcompanies; an increase in VAT registration thresholds for small business to €37,500 in the case of services and €75,000 in the case of goods; and the extension of film relief for another four years until the end of 2012, with an increase in the cap on eligible expenditure from €35 million to €50 million per project

I am enhancing the existing research and development tax credit scheme by extending the current base year of 2003 for a further four years to 2013, an increase over the current six years. The change will provide an additional incentive for increased expenditure on research and development in future years and will help to achieve the targets set out in the strategy for science, technology and innovation for 2006 to 2013. It will also offer more certainty to industry regarding the tax credit scheme and also assist in competing for new foreign direct investment.

Sometimes I am criticised for what is not in the Bill. In this regard I reiterate my recent comments on the use of tax incentives for the development of the Cork docklands and the Limerick regeneration project. The Cork project is at the beginning of a process of evaluation and we need to assess how best to devise proposals that would meet with EU State aid requirements. It is an exciting project but at this stage it is still a work in progress. An early announcement may not assist in clarifying some of the outstanding issues that have yet to be resolved between the various stakeholders. The special Cork docklands forum is expected to report by the middle of the year and I remain open to looking at ways in which the tax code can be used creatively to encourage investment and change behaviour. Significant progress has been made in a short period on the Limerick regeneration project, and the regeneration master plans are due to be finalised in June of this year. I am optimistic that I will be in a position to work with the Limerick regeneration agencies when these plans are finalised.

Practical measures to help protect our environment are necessary and I am introducing a number of new measures in this area. The new tax initiative for energy efficient equipment will allow companies to claim the full cost, in the year of purchase, of specified energy efficient equipment against their taxable income. The purpose is to assist in improving cost competitiveness while helping to reduce overall energy demand and carbon emissions. The incentive is a pump-priming exercise for a period of three years. Companies should embrace the economic benefits of investing in energy saving equipment. The incentive will come into effect by order when EU state aid approval is obtained.

The Finance Bill provides for the most fundamental reform of the vehicle registration system since its inception in 1993. It will provide people with the opportunity to make choices to help the environment and with financial incentives to do so. The VRT system is being revised to take greater account of CO2 emissions, with VRT exemption for series production electric cars, and up to €2,500 VRT relief for certain series production hybrid and flexible fuel cars. The Bill will make the business expansion scheme more accessible for recycling companies, and also provides for a reduction in the VAT rate applicable on certain supplies used for the agricultural production of bio-fuels from 21% to 13.5%.

Our income tax system has been made fairer, friendlier and more progressive. The protection of more vulnerable groups must remain a priority when reviewing the income tax code and various improvements for such groups are made. The Finance Bill provides for increasing the personal credits and bands to ensure that low income earners are kept out of the standard rate band and average earners are kept out of the higher rate band. It also provides for a further increase in the ceilings up to which first-time buyers can claim mortgage interest relief and for increases in rent relief.

Tax credits relating to those in special circumstances, such as lone parents, widowed persons and widowed parents, the elderly and those caring for persons with a disability have increased very significantly in recent budgets. This Finance Bill makes further improvements in the area. Age exemption limits have increased by 85% in the last seven years compared with inflation over the same period of about 27%. For 2008, it is estimated that the top 1% approximately of income earners, namely, those with income over €200,000, will account for about 25% of the income tax take in 2008 compared to less than 15% of the income tax take in 1997. The most recent data from the OECD for 2006 indicates that for a single worker on average earnings, Ireland continues to have the lowest tax wedge in the EU and one of the lowest in the entire OECD. These are the hallmarks of a fair tax system.

This Bill is being presented against the backdrop of a slowdown in Irish economy and weaker public finances. The Irish economy is estimated to have grown in GDP terms by 4.8% in 2007 and is forecast to slow to 3% in 2008. While this represents a slowdown compared to recent years, it nevertheless is strong compared to our trading partners. At the time I indicated that there were a number of risks to this forecast and it is fair to say that these remain.

Against this background, my Department projected tax revenue growth of the order of 3.5 % for this year. We have now received one month's data and in broad terms revenue growth is in line with expectations. The profile for tax receipts in 2008 assumes that there will be some weakness in revenue growth in the first half of the year, reflecting the very strong economic activity during the first half of 2007. As we go through this year, earlier weaknesses in revenues are expected to be compensated for later on, thus achieving the overall budget target of 3.5% tax growth. Yesterday's figures showing taxes for January down 2.9% compared to January 2007 must be seen in the context of one month's data in 12 months. While it is too early to draw any firm conclusions, the weakness in January was due primarily to the continuing weakness in the property market, which has been factored in to the projections. In addition, it is also fair to say that most other taxes, particularly income tax, performed well in the circumstances. Thus, the January figures are in line with the budget forecasts.

Inflation on a CPI basis, which has been higher than we would wish, is expected to ease back over the coming months from an average of 4.9% in 2007 to around 3% for 2008. It is often said that administered prices are a major contributor to Ireland's inflation, but this is not so. These services only account for a small fraction of the consumer price index and their contribution to inflation is small. In the year to last December, the cost of regulated utilities and local charges increased by only 0.8%. There is also a common perception that inflation in Ireland is worse than in the rest of the EU. Again this is not so. It was only 0.1% higher than the euro area average last December and exactly the average of the 27 member states on a comparable basis. Over the past nine years inflation in Ireland has been on average about 1.25 % above the euro area. Most of this gap was accounted for by higher increases in services prices due to our rate of economic growth, which was three times faster than the euro area and due to our much lower unemployment rate, with consequent faster wage growth. I am not in any way complacent about inflation. While the reasons for Ireland's high rate of services inflation were understandable in a period of rapid economic growth, in the current environment of slower growth such increases would not be consistent with enhancing competitiveness.

New housing output, which has grown rapidly over the past decade, is expected to revert to more sustainable levels over the next few years. However, while this contraction in the residential construction sector will result in some losses in employment and will exert a short-term negative drag on the economy, other sectors of the economy are performing well. Infrastructural investment under the national development plan will increase over the coming years. Services exports are growing rapidly.

The performance of services exports in recent years is worth expanding upon. At the turn of the decade, services exports accounted for one fifth of total exports. However, exports of computer services, financial services and business services have all performed very well in recent years with the result that services exports now account for two fifths of total exports. Strong export growth in these sectors means that Ireland is now the fifth largest exporter of commercial services in the world, an astounding figure for an economy of our size. The shifting of resources into internationally traded, high value-added services reflects the next phase of development for the Irish economy. In an increasingly globalised economy, internationally traded services will become the main source of highly-skilled, high-paying employment and this is where Ireland's competitive advantage will lie.

The overall sound position of our economy did not come about by accident. Ireland's economic development has been aided by sensible economic policies and a pro-business attitude, as exemplified by our low taxes on both labour and business. The measures in this Finance Bill seek to continue to support business in a focused and pragmatic manner. In addition, Ireland is internationally regarded as one of the best places in the world to do business, cementing our reputation as an attractive location for foreign investment. As an accompaniment to our economic growth, we have also pursued a prudent approach to the public finances. We have been able to invest significantly in roads, education and many other types of infrastructure. At the same time, we have been funding improvements in public services as well as providing greater resources to help those who have not been able to share in the fruits of our economic success.

The results of our success are clear. Since 1997, the economy has grown at an average annual rate of over 7%, which is one of the best economic performances in the world. Employment growth has averaged 4% per annum since 1997 while the number of people at work has risen by more than 600,000. Immigration has replaced emigration and economic success has allowed us to increase public spending without putting a strain on the public finances. We have developed a substantial export sector, particularly in the areas of IT, chemicals and financial services.

As I stated, while the outlook for growth over the short to medium term has deteriorated somewhat, we expect the economy to pick up again once housing output stabilises at more sustainable levels. However, this relatively benign outlook is of course subject to risks, both external and domestic. There are several downside risks on the external side, including oil prices, the euro-dollar bilateral exchange rate and the changing conditions in the US economy. Sterling's recent falls against the euro could cause difficulties for exporters to the UK. In addition, it is too early to gauge the full extent to which recent conditions in financial markets internationally have affected global economic trends.

With these challenges in mind, it is important that we focus on addressing the domestic factors to improve competitiveness over which we have some control. In this regard productivity is all important. It is by being more productive that we can earn more and enjoy greater leisure. In other words, our living standards will be raised.

Ireland cannot, and indeed should not, attempt to compete on the basis of costs with low cost countries such as India or China. Our competitive advantage must lie in other areas. This will require us to increase our capital investment and to develop an increasingly skilled and educated workforce. Our competitive advantage will also be a direct result of how effectively inputs such as capital, energy, materials and employees are utilised. For example, today's Bill contains pro-business measures that encourage the use of energy efficient equipment which will support our energy policy more generally.

The key areas that we must address are human capital, infrastructure, regulatory and public service reform, maintenance of stable public finances and a pro-enterprise tax system.

In terms of human capital, the Government is investing considerable resources in raising the skills-set of the population. While all levels are being targeted, investment in third and fourth level education is of particular importance to the Government. Infrastructural investment under the national development plan will help to raise the public capital stock. Exchequer capital investment in 2007 was approximately €7.8 billion, €l billion higher than in 2006. The benefits of this extensive investment can be seen all around us. In relation to private capital, the Government is committed to maintaining an environment conducive to private sector investment through, for instance, improvements contained in this Bill to promote research and development through the tax code and through €8.2 billion in direct spending allocated under the strategy for science technology and innovation. A relatively light regulatory burden, a low taxation environment which rewards work and enterprise, together with flexible product and factor markets will be essential.

Today's Bill is geared towards supporting enterprise by keeping our tax burden low and the first report of the high level group on business regulation due in July of this year will set the framework for reducing regulatory burden.

All these measures make up the active framework that helps to support productivity growth in Ireland and will help us to meet the challenge of a rapidly changing global economy. This is how we can enjoy high wages while still being competitive.

The Bill runs to 133 sections and eight schedules and is structured by taxheads. Today I will outline some of the main provisions in the time available to me but I will not give an exhaustive list of the minor or more technical issues. I will listen carefully to the contributions of Deputies and I will try to respond to the points they make when I come to reply to the debate.

The various income tax measures and reliefs announced in the budget are dealt with in sections 2 to 4, inclusive. These measures widen the tax bands and increase various credits, including the basic personal credit, employee tax credit and home carer credit. Significant increases in the value of other personal credits and the age exemption limits, which are targeted at certain more vulnerable groups, underline the Government's commitment to look after the needs and welfare of those most deserving in our society.

When this Bill has been enacted, the increases in the value of the credits and bands ensure that approximately four out of five income earners continue to pay tax at no more than the standard rate and almost two out of every five income earners will remain outside the tax net entirely.

In order to address the cost pressures of those renting their home, section 6 provides for an 11% increase in rent relief.

Section 7 confirms the budget increases in the ceilings on mortgage interest relief for first-time buyers. The ceiling is increased from €8,000 to €10,000 in the case of a single person and from €16,000 to €20,000 in the case of a married couple or a widowed person. This means that mortgage holders may receive extra relief of up to approximately €33 per month, if single, or approximately €66 per month, if married or widowed. This increase fulfils the Government commitment in this area as promised in An Agreed Programme for Government. The rent-a-room scheme can be a useful measure for cash-strapped first-time buyers. Accordingly, section 11 increases the income tax exemption limit which applies to rent received under the rent-a-room scheme from €7,620 to €10,000. This increase takes account of the fact that the limit has not been increased since the scheme was introduced in 2001.

The social partners have made a number of requests in relation to employee financial participation. In response to these requests, section 13 increases the aggregate maximum amount of monthly contributions that an employee can make under a certified contractual savings-related share option scheme from €320 to €500. The existing limit dates from the time the scheme was introduced in 1999.

In addition, section 14 amends the rules relating to employee share ownership trusts, ESOTs. Employees can gain access to triple the annual tax relief limit in the year in which an ESOT pays back a loan provided the loan has been held for a period of ten years and at least 50% of the shares have been encumbered for five years. This measure was introduced in recognition of the fact that a large number of shares could be encumbered to guarantee such loans and thus the shares would not be available for distribution to employees and they would be unable to avail of the annual tax free limit of €12,700 per annum. The amendment will permit the Revenue Commissioners to allow a loan period of less than ten years, on a case-by-case basis, where an ESOT has sufficient income, from dividends for example, to pay off such loans earlier than expected.

Section 15 is an amendment that ensures that farmers availing of tax averaging arrangements will not suffer a clawback of tax when they enter a milk production partnership. As with all Finance Bills, there are a number of measures to address tax avoidance. Section 16 is one such provision relating to convertible securities. The provision will ensure that the full value of the securities received by an employee or director will be subject to income tax.

Section 18 extends the same basis of assessment to certain UK source income which applies to income from other EU and EEA states. Section 20 is concerned with the spreading over six years of tax arising from the receipt of moneys under the scheme of aid for the restructuring of the sugar beet industry.

Section 22 introduces provisions that restrict the use of reliefs by high income individuals which took effect from 2007. It clarifies the correct sequence of the calculations to be made in applying the measure when certain other provisions in the Tax Acts are involved. The section will ensure that restriction will work as intended in such cases.

The European Commission gave State aid approval to the business expansion and seed capital schemes changes in the 2007 budget. As a result, section 23 brings into primary law the amendments made to the schemes by regulations on a temporary basis last year following approval of the schemes by the European Commission. The section will also make it easier for some recycling companies to participate in the schemes.

Section 24 is a preventative measure which broadens the meaning of a contribution to an employee benefit trust to ensure that, as intended by existing legislation, the employer will get a deduction for the contribution at the time the employees receive the benefits and no earlier. In order to assist capital expenditure on buildings and structures used in caravan parks and camping sites section 25 introduces a tourism initiative to allow caravan parks and camping sites registered with Fáilte Ireland to avail of capital allowances at the rate of 4% over 25 years.

Section 27 deals with an income tax matter relating to payments for decommissioning fishing vessels. Where a balancing charge arises as a result of claiming excess capital allowances, the charge will be spread over five years instead of the normal one year.

As a counterpart to the proposed changes to vehicle registration tax, VRT, that relate it more closely to CO2 emissions, section 28 sets out the changes to the capital allowances and leasing expenses regime for business cars announced in the budget by linking the availability of capital allowances and leasing expenses to the carbon emission levels of cars. The new provisions will come into effect in respect of cars purchased or leased on or after 1 July 2008.

On foot of a recently completed independent review of the film relief, section 29 extends film relief for another four years until the end of 2012 with an increase in the cap on eligible expenditure from €35 million to €50 million per project.

To support the international financial services industry in Ireland, sections 33 to 36, inclusive, with sections 110 and 111, introduce a package of measures designed to provide a competitive boost to the securitisation, funds and insurance sectors by removing impediments to the development of these businesses here.

Section 37 amends the provisions granting tax relief for certain expenditure on know-how that is bought by a person for use in a trade carried on by the person. This relief is not available where the know-how is bought as part of a trade that is being acquired or where the buyer and the seller are connected.

Section 38 is a response to the OECD recommendation to prohibit a deduction for tax purposes of illegal payments made to a foreign official.

The tax treatment of foreign dividends will be put on the same footing as the taxation of income out of which Irish-sourced dividends are paid by section 39. Up to now, foreign sourced dividends have been subject to tax at the 25% rate. The changes mean, in broad terms, that the 12.5% rate will apply to foreign dividends received by Irish resident companies, which are paid out of trading income, and the 25% rate to foreign dividends paid out of non-trading income, where the foreign dividends arise from companies in EU member states or from countries with which Ireland has a double taxation treaty.

Section 40 amends the close company surcharge rules by also providing for parity of treatment for Irish holding companies that are close companies in respect of dividends received from their foreign and domestic subsidiaries.

A new profit resource rent tax is introduced in section 41 which may apply to profits arising from a new petroleum lease which follows an exploration licence awarded by the Minister for Communications, Energy and Natural Resources after 1 January 2007. Additional taxes of between 5% and 15% will apply depending on the profitability of petroleum fields. These taxes will be in addition to the 25% corporation tax rate which currently applies to profits from such activities.

In order to increase the incentive for companies to purchase certain energy efficient equipment, section 42 allows companies to claim the full cost, in the year of purchase, of new energy efficient equipment against their taxable income. The equipment must be included on a specified list to be drawn up by the Department of Communications, Energy and Natural Resources in consultation with the Department of Finance. The incentive is subject to clearance by the European Commission from a State aid perspective.

Section 43 confirms, among other things, the budget day announcement that the preliminary corporation tax liability threshold for treatment as a small company is being increased from €150,000 to €200,000. New or start-up companies with a corporation tax liability of €200,000 or less for their first accounting period will not be required to pay preliminary tax in respect of that first accounting period.

Section 44 amends the provisions associated with taxation issues relating to the acquisition by a company of its own shares, that is, "share buy-backs". This amendment provides that costs incurred by a company in buying back its own shares are not allowed as a deduction for tax purposes.

In order to provide an additional incentive for increased expenditure on research and development in future years and more certainty to industry in relation to the tax credit scheme, section 46 enhances the existing research and development tax credit scheme with an extension of the use of the base year 2003 for a further four years to 2013. The period over which any rolled-forward base year will apply on a ‘look back' basis is also being extended to ten years. For example, the base year for 2014 will be 2004 and so on.

Section 48 makes a number of changes to the capital gains tax retirement relief provisions. It introduces a preferential regime where an individual receives a decommissioning payment in respect of a fishing vessel. Under the existing retirement provisions, an individual must be aged at least 55 and have been in business for ten years. These requirements are being amended and individuals aged 45 or more who have been in business for at least six years will be able to avail of the retirement relief in respect of the decommissioning payments that will be paid under a new scheme.

A further change provides a relief to farming partnerships on the dissolution of such partnerships prior to 31 December 2013. The relief provides that a gain will not be treated as accruing in respect of a relevant partnership asset and that the asset will be treated as having been acquired at the same time and for the same consideration as when it was originally acquired by the partner subsequently disposing of the asset.

Section 49 increases the capital gains tax exemption threshold that applies on a gain arising on the disposal of a site by a parent to a child to build a house. The new threshold is €500,000. It also clarifies that the threshold applies where both parents make a simultaneous disposal of a site to their child.

As required under the EU energy tax directive sections 51 to 62, inclusive, provide for an excise duty on electricity. The tax will be charged to the operator who supplies the electricity to the consumer. The tax will apply to supplies of electricity made on or after 1 October 2008. The rates of tax are being set at the minimum rates specified in the directive while electricity used by households will be exempt from the new charge as will electricity produced from renewables and combined heat and power generation. The overall cost and impact on electricity prices for business will be marginal.

Sections 63 to 75, inclusive, set out a range of changes in regard to excise duties, including confirming the budget day increases in excise on tobacco and duty payable in respect of an off-licence for the sale of alcohol. The necessary legislative changes are being made to revise the VRT system to take greater account of carbon dioxide emissions, exempt series production electrical cars from VRT, extend the existing relief for series production hybrid and flexible fuel cars until 30 June 2008 and replace it with a VRT relief of up to €2,500 for such cars from 1 July 2008.

Arising from European Commission decisions, section 66 includes the legislative changes to withdraw the excise reliefs in respect of fuel used for public passenger transport vehicles; in private pleasure-flying and private pleasure navigation and for recycled waste oil. The reliefs will be withdrawn with effect from 1 November 2008. In the case of public passenger transport vehicles alternative mechanisms to direct Exchequer resources towards such services, subject to State aid rules, continue to be explored by the Department of Transport in conjunction with the Department of Finance.

Sections 76 to 100, inclusive, deal with VAT. Following a review and extensive consultations, sections 79, 80, 82, 85 and 91 contain new rules regarding the application of VAT on property transactions. The purpose of the new system is to rationalise and simplify the VAT treatment of property, which has become extremely complicated. There is also a strong anti-avoidance dimension to the new rules to deal with increasingly aggressive avoidance schemes in relation to VAT on property. The supply of new residential property, building land and undeveloped land will remain unchanged. The new system comes into effect on 1 July 2008.

The main changes include ceasing to charge VAT on the capitalised value of leases in excess of ten years, removing old properties from the VAT net by confining the period during which VAT will apply to the supply of new properties to a maximum of five years and making some changes to the treatment of leases. In addition, a capital goods scheme is being introduced for property transactions. This will ensure that the amount of VAT deductible will be proportionate to the business use of a property over a 20-year period. The legislation also includes necessary transitional measures.

In order to ease the administrative burden on small businesses sections 86, 88 and 93 confirm budget day announcements increasing the VAT registration thresholds for small businesses to €37,500 in the case of services and €75,000 in the case of goods. These increases will take effect from 1 May 2008. A reverse charge measure is also introduced in respect of VAT on supplies made by a subcontractor to a principal contractor in the construction sector with effect from 1 September 2008. This is a simplification measure.

Section 98 provides for a reduction in the VAT rate for inputs used for the agricultural production of bio-fuels from 21% to 13.5% with effect from 1 March 2008. This section also provides for the rate reduction for non-oral contraceptive products from 21% to 13.5%.

The Revenue Commissioners intend to introduce a computer-based facility in the second quarter of 2009 which will allow a full self-service on-line process where the user can file, pay stamp duty and receive an instant stamp without Revenue requiring to see the deed in up to 90% of cases. Section 102 introduces enabling legislation to allow for the e-stamping of instruments for stamp duty purposes.

Section 106 is an anti-avoidance measure to ensure that transfers of shares to a connected company, which would benefit from a stamp duty exemption, will not be exempt from stamp duty where the company buying the shares claimed intermediary relief on the transaction. Section 108 increases the stamp duty exemption threshold that applies on the transfer of a site by a parent to a child to build a house. The new threshold is €500,000. Section 109 amends the provisions relating to the exemption from stamp duty in respect of the transfer of loan stock. The existing provision that the loan stock is redeemable within 30 years is abolished and the requirement that it is not linked to stock exchange or inflation indices is amended so that relief will not apply if it is linked in any way to an equity index.

Section 113 amends the stamp duty regime for owner-occupiers who benefit from preferential stamp duty rates and are liable to a clawback of relief if they let the house in the five years after purchase. This is being reduced to two years. In addition, in regard to first-time buyers, an anti-avoidance provision is being introduced to address certain abuses that have come to light.

To help support increased use of electronically-based financial transactions, section 114 reduces the charges on financial cards, as announced in the budget. In addition, financial institutions will be required to make a preliminary payment of 80% of the duty payable for that year by 15 December. However, the dates on which the institutions recover the stamp duty from their customers will not change.

Section 116 amends the First Schedule to the Stamp Duties Consolidation Act and provides for stamp duty on cheques to be increased from 15 cent to 30 cent and increases the rent threshold below which the annual rent on a house is not chargeable to duty to €30,000. Section 116 also gives effect to the substantial reform of stamp duty that I announced in the budget regarding residential property. Stamp duty is now charged on the following basis. The first €125,000 is charged at 0%, with the balance on houses up to €1 million charged at 7%. In regard to properties valued at over €1 million, the excess is liable to a further duty at 9%. However, to ensure that no one loses out on this reform, stamp duty will not be charged on houses costing no more than €127,000. This will result in a much fairer system for house buyers.

The tax system can and does support our national heritage. In this regard, section 122 will facilitate the donation of collections of heritage manuscripts and archival material to bodies such as the National Library, while section 123 is intended to enable the Irish Heritage Trust to complete its acquisition this year of an outstanding collection of paintings and furniture for display at Fota House. The trust has already acquired approximately one third of the collection in question.

It is important that our tax administration be modern and that the Revenue Commissioners have the power to enforce the law. In this regard, sections 124 to 128 introduce a number of measures in this area. These include allowing Revenue officers to question suspects in Garda custody for indictable revenue offences; enabling any Revenue officer to determine residency of an individual for tax purposes; obliging agents in the State in receipt of rental income, on behalf of another person, to also report rental income from foreign properties; and increasing the maximum fines on summary conviction for certain tax offences to €5,000.

I hope the House has benefited from that explanation of some of the measures in the Bill. There will be some matters under consideration that I may bring forward on Committee Stage should they receive Cabinet approval and I proceed with them. I will, of course, also consider any constructive suggestions put forward during our debate today and tomorrow.

Later this year the Minister will award himself a salary of €270,000, which will give him more than twice what the US Treasury Secretary, Mr. Paulson, earns. We will need to apply strict performance rules if the Minister takes that pay increase.

I would look to his record and ask a serious question on the extent to which he has addressed the economy's needs in the series of budgets he has introduced. Every one of those budgets was expansionary except this year's and they were introduced against the opposition of groups such as the IMF, which considered their impact on our competitiveness down the road. These expansionary budgets were introduced at a time when the property sector was booming and we had close to full employment. The difficulty is that the actions of Government fuelled an unsustainable, debt-driven property boom. The decision to remove the tax reliefs to the building sector was continually pushed back — they will not be entirely gone until July next — when it was plainly obvious in 2000 that these tax vehicles were driving the property sector in a way we did not need.

A further difficulty is that the Government's repeatedly expansionary approach of increasing public spending by on average 40% more than the rate of growth of the economy has put pressure on prices. Inflation, as the Minister points out in one part of his speech, has been running approximately 50% faster than in the rest of the EU, although he chooses to highlight the one month in which we appear to have converged. The difficulty is that the erosion of our competitiveness has happened over a series of years and the fortunate or unfortunate discovery that we happened in one month, December, to have a similar inflation rate to the rest of the euro zone has not changed the reality of our competitiveness problems.

The issues in regard to public service reform are ones the Minister has totally failed to address. The elephant in the room, which no one will face up to, has been the drive to implement decentralisation, which was ill thought-out from the beginning. I do not believe any public servant could stand over the claim that these were strategic decisions based on the best implementation of the public service. One year after the deadline, we are still struggling to achieve less than 10% of what was projected. The amount of public service energy that should have been devoted to delivering strategic change on climate change and e-government, strategies which failed, were dissipated in this pointless exercise. We need a decentralisation programme that is strategically based, well thought-out and implementable. We do not need what has happened in recent years, when huge energy was devoted to undermining the capacity of the public service to deliver change.

By its decision to pay itself and top earners huge increases in public pay, the Government has totally undermined its credibility when it turns around to others and suggest this is a time for wage restraint. How can one ask the ordinary worker on the shop floor to accept it is time for wage restraint when he sees the bosses in the public sector being paid big increases without a demand for performance and without productivity tests being applied? This is the underlying flaw in the Government's position. It looks to others to meet the highest standards of productivity and to tighten their belts yet when it comes to applying the same principles to itself and those at the top of the public service, it claims there is no need to consider performance or productivity and states it will simply apply a pay rate calculated and imposed by some outside group. The Government claims everything in the garden is rosy but this is not the way it works in the real world. If the Minister is serious in the rhetoric about competitiveness, performance and productivity which was speckled throughout his speech, he would know this must apply to himself and senior public servants, particularly if we are to deliver the agenda he has set out for us.

The difficulty is that the Government persists in managing its own resources as if productivity does not matter, it does not need to deliver efficiency and the strategic plans it announces do not have to be delivered. It acts as if someone does not have to be held accountable for the consequences when these strategies go off the rails. With regard to public transport, the Government has not delivered integrated ticketing or competition, although these were solemnly promised by Ministers, but no one takes responsibility. The climate change strategy was announced in 2000 but nothing has been delivered and there has been no change in the trend line of Ireland's emissions of carbon dioxide, yet no one took responsibility. With regard to e-government, the Minister had a high level Cabinet group and a group of Secretaries General and assistant secretaries but nothing happened and no one has taken the consequences. The Minister and the Secretaries General do not feel they are responsible. If an important strategic statement was involved, there should have been a roadmap with various milestones to be met. If a milestone was not met, those responsible should have had to explain why not.

We seem happy to accept that less than half of what was intended was achieved. No one bothers to put up a hand and admit that he or she failed. It is not good enough. If we are talking about building a knowledge economy and building at the front end — the Minister's speech referred to how service exports will be built at the front end — the Government must take the issues seriously and drive e-governance and the application of information technology in government and people must be held responsible for it. The tragedy is that we have probably reached a stage where there have been so many disasters in this area that public servants would probably see it as the end of their career to take on ICT projects. No one will put up his or her hand and say "I will drive an ICT project" because he or she has seen the pattern. This is a serious reflection on what has been happening and the laxity in the way strategic plans are drawn up, tested and applied.

It is a serious problem which has run through many areas. At the end of the day, competitiveness will be driven by the quality of our public service in many areas, and our ability to think strategically and make the necessary reforms. In communications, for example, we are way behind on broadband because we botched the privatisation of Eircom, which was denuded of resources by a private sector company which wanted fast bucks and did not invest in the network. We have been left with the consequences. These were Government decisions yet no one troubles to ask why this was so seriously botched.

While I am not blaming Ministers for all this, there is a major and repeated underlying failure to deliver in areas where the Government holds the ace cards. Ireland has slipped in competitiveness, although the Minister's speech says it is regarded as one of the best places in the world to do business. He should have added that we have slipped 17 places in the rankings in the past six years. The Minister's scriptwriters did not put that in because they do not want to face up to it. The sad point is that many of the reasons we are slipping in those places are generated from within the public sector for which the Minister is ultimately responsible. If the Minister took care to examine reports by the National Competitiveness Council or any other bodies that examine why Ireland is sliding, he would see we are bottom of the league for ports, communications and energy infrastructure, all of which are Government responsibilities. The same theme is repeated when one talks about competitiveness but the Minister does not mention the issues that must change. It makes me despair when there is no strategic change of mind that would be necessary for us to survive in a tougher environment. The property boom is over and it will not recur in the same way so we must now return to basics and survive as a small open economy capable of trading.

From 1995 to 2000, export volumes grew at 20% per annum. The Minister and his Cabinet colleagues are now lauding achievements at one quarter of that figure. A little over 5% growth in exports is regarded as something wonderful but that illustrates the measure to which expectations and ambitions have fallen within Government. The belief that a small open economy no longer needs to be driven by exports seems to have taken hold within Government circles. If we continue to think in those terms we will pay for it. I can see nothing in either the Finance Bill or the Minister's statement to show that the Government is doing what the National Competitiveness Council asked, to have a national plan to deliver competitiveness. There is no such project.

The Government has addressed regulatory reform but it has not put its money where others have. It has not said it will reduce costs by 25%, as other governments have done. The Minister is backing off and is unwilling to put his name on the line to bring about changes and make people accountable for delivering regulatory reforms in different sectors. He is backing off from that. Although the Taoiseach said he would aim at the 25% target, no Minister, including Deputies Cowen and Martin, will say "Yes, we will set a figure of 25%; here is the baseline and this is our strategy to deliver a 25% reduction." One must act that way to back up the rhetoric. I have no problem with the Minister's rhetoric but I do not see the changes being made to match it.

Perhaps I have been too long in the job as Opposition spokesperson, but I am getting really frustrated with the Finance Bill as a process. According to the Revenue Commissioners, the amount we are dishing out in tax expenditure, as the economists would call it, apart from PAYE, marriage and other personal tax credits, is €9 billion. That is more than all but three Departments spend. It is more than the Department of Education and Science spends but where is the scrutiny? If the Minister for Education and Science proposed some higher education projects or plans for autistic children or disadvantaged schools, the Minister and his officials would go through them with a fine-tooth comb to see if they were justified. However, there is no scrutiny for this €9 billion expenditure under the tax code. We are not even told what the expenditure is expected to achieve.

No effort has been made by the Minister or his Department to offer a view of the tax code. For example, why is there €3 billion in relief on pensions this year? Everyone knows that pension provisions are important but the ESRI recently showed that 80% of that money is going to the top 20% of families, so does that continue to be good public policy? That matter is not debated in this House; we just pretend that the existing amount of tax relief is, by some strange chance, perfect and so we keep going.

The Finance Bill and the Minister's speech deal with only a few marginal changes. I do not object to many of them, which are worthy, and I will support them on Committee Stage but they are not part of the big agenda of how we can reform Ireland Inc. If we want the tax code to be up to scratch we must be willing to place it under scrutiny, which the Minister has repeatedly been unwilling to do. The one time he did so, when he commissioned work on tax reliefs, it was found that they cost twice the benefits involved. It was found that at the time the Minister started to withdraw them, 60% of the costs had not yet been incurred. It was a commitment over the next 13, 14 or 15 years on something that was not washing its face.

The Minister and his predecessor delayed an examination of those reliefs, which probably should have been withdrawn in 2000 or 2001, if they were ever justified in the first place. However, they persisted and we are only seeing the end of them in 2008 after a long property boom when they were totally unjustifiable. If we had the sort of scrutiny I am talking about, including an obligation on the Minister's officials and the Revenue Commissioners to give us some information, that would not have happened. The Minister should not have allowed it to happen, yet he is quite happy to come here again and he has not learned the lessons. The lessons at that stage included introducing a sunset clause on all new ideas, but I see no sign of such a clause in this Bill. I am sure the Minister spent money on that report, which was a good one in so far as it went, but he has not learned from it. The Minister is not offering cost benefits on any of the new reliefs. Why is he willing to allow his officials to get away with something that he would not allow the Minister for Education and Science or the Minister for Health and Children to get away with? This double standard will not deliver the best methods for public expenditure.

I am disappointed at the way in which the Minister is handling pensions. Everyone knows that we need to reform the pension structure. The ESRI's finding just puts figures on what we have all intuitively known. Half the population does not have any pension, while the vast bulk of tax relief is going to those who can make big pension contributions of up to €250,000. I acknowledge the Minister inserted a cap but it is at a very high level. The truth is that the €3 billion of taxpayers' money we are using to subsidise pensions is benefiting people who are particularly privileged. We should examine that situation to see what changes we need to make but such an examination is being put off. When Deputy Séamus Brennan was Minister for Social and Family Affairs he said we should have a one-for-one scheme and at least offer a real incentive for people up to a certain income, building on the back of the SSIA's success. Why have we put that off? It is not a big cost item and it could be accommodated as part of a coherent strategy. It could be funded, if necessary, by putting caps elsewhere to take it out of the existing €3 billion expenditure. I do not see why we should have to keep delaying these issues that are staring us in the face and need to be addressed.

Once again, this year's Finance Bill persists in not exposing the whole tax system to scrutiny. We are selling the electorate short because we are not putting the system under scrutiny. When things go wrong with public expenditure and people realise we spent it badly, we will not be able to say that we did our best to scrutinise it at the time. We certainly did not do so in respect of all those reliefs that were abolished because they were shown not to be washing their faces.

Last week, the IMF gave us a fairly timely warning when it showed that a 1% decline in the US economy could result in a 1.75% decline in the Irish economy. We are exposed and cannot pretend, as the Taoiseach suggests, that it is all business as usual, nothing will happen and we will just continue with our policies. We must square up to the issue of competitiveness sooner rather than later. It is not enough to talk about the need for productivity growth unless one starts to drive it from within. The Minister's approach to top civil servants' pay is not consistent with his belief that driving productivity is the way to go. We have also ducked the reform issue in many markets where the OECD and others have time and again told us that uncompetitive practices are persisting. We still do not have competition in the public transport market. It must be eight years since the then Minister for Finance stated this issue had to be addressed. Why did we have to wait eight years for something to happen in this area?

The list of areas in need of reform goes on. Significant challenges are coming towards us. The climate change issue will hit, hurt and cost unless the Tánaiste is a fast mover. However, the Government in 2000 moved to come up with a strategy but nothing was delivered under it. That is not the way to ensure competitiveness and to proof the economy against the tougher winds blowing our way. This must change, particularly when it comes to the Tánaiste's own spending of public money. The test of good governance is not the ability to spend, as a number of Ministers think when they refer to how much their budgets have increased, but the use of that money efficiently to make changes that affect people on the front line. I have heard the Tánaiste make his case previously and while everything is not deteriorating, a number of basic matters he should be able to get right are not happening.

For example, I refer to the accident and emergency department issue. The departments in the Mater, Tallaght and Beaumont Hospitals, which are the three largest in the State, cannot guarantee that old, infirm, vulnerable people who turn up for care will be treated in an acceptable way. There is something radically wrong when the health budget has quadrupled and hospitals cannot do that. Tests need to be put in place and someone's head needs to be on the line when services are not delivered but that does not happen. Last week the HSE blamed the hospitals which retorted that they had not been given additional resources commensurate with our population growth. Someone is right but there should have been a knowledge about what it takes to deliver a health strategy, that does not leave vulnerable people sitting on trolleys for 24 hours but that thinking never took place and everyone is passing the parcel when things go wrong.

Ireland is entering a much tougher period and the Tánaiste needs to move on from his contribution, which contains an element of self-delusion. He referred to Ireland being top of the world and the best place to do business. He said all we need to do is maintain our competitive advantage but we are losing ground in many areas. The Tánaiste is not putting the system under scrutiny. I refer again to value for money within the public service. The first initiative was to deal with one third of public spending through a three year programme. However, that was completely demolished. Under the Tánaiste's predecessor, Charlie McCreevy, 0.25% of spending was scrutinised. Last June the Tánaiste announced 66 value for money audits would be carried by the end of 2007 but only 18 were completed and none identified a saving to be implemented. Such audits must be carried out in meaningful areas and they must have an impact. In addition, people must be accountable if the recommendations are not implemented. However, that is not part of the process and that culture is not being built in. The Tánaiste must change that to ensure value for money audits are meaningful.

Naturally, most of my contribution is critical but I look forward to Committee Stage when we will agree on some issues and disagree on others. Regrettably, I oppose the Bill because it is not adequate in the context of the challenges we face.

It is quite apparent that the Government is paralysed, and perhaps the Tánaiste more than most, by the ongoing saga of the Taoiseach's tax situation and his failure to obtain a tax clearance certificate. Were these the Celtic tiger years, it may be of less economic significance. However, since the Tánaiste introduced his budget last December, all the economic indicators have been revised downwards, setting the scenario for much more difficult economic times ahead. Unemployment is increasing, Ireland is close to the top of the European inflation league and the property market, despite the Tánaiste's botched attempts at stamp duty reform, is as flat as a Shrove Tuesday pancake.

All this means that families who work hard are worried about meeting their mortgage commitments. They are wondering whether their jobs will be safe and, if somebody in the family falls ill, what sort of health care they will be offered? Ireland has one of the highest levels of personal indebtedness in Europe, yet the Tánaiste continues to insist all is well. I refer to another indicator. In 2004, 134 summonses were issued by the courts for house repossession. Last year, 465 summonses issued, an increase of 350%. This is happening on the Tánaiste's watch.

The Bill ought to be an opportunity to think strategically about the economy and to ensure that however difficult the international situation, we look to protect our own people, our economy and our society. Previous Finance Bills from the Fianna Fail-Progressive Democrats Government created tax loopholes for the very rich when times were very good and now, when good government is required, the Tánaiste has no answers. The dogs on the street can see the economy is slowing, and has been, since this coalition was returned to government. The question is: What will the Tánaiste do about it? The Bill indicates his answer is: "Not very much – let's just hope for the best and mosey on".

The global scenario creates a number of problems for Ireland, which will suffer the knock-on effects of a US slowdown. The main domestic problem is the property market. The fall in house prices over the past year has had a major knock-on impact on construction activity. Employment in construction is falling and the live register is increasing. Exchequer returns for January highlight the effect in respect of stamp duty receipts — they have halved — which is a major source of income for the Government. The Government parties must be held accountable for their mismanagement of the property market. They failed to control prices, and, having overheated the market, they were then directly responsible for the stamp duty debacle, which sent it plummeting. Former Minister for Justice, Equality and Law Reform, Michael McDowell, started the stamp duty debate. The Minister for Finance failed to address it until after the election. I recall sitting beside him on "Questions and Answers" nine months ago when he said "I am the Minister for Finance. There will be no changes in stamp duty". He then introduced partial, half-hearted reform, which was unsuccessful. Having to return to stamp duty in the budget was an abject admission of failure to manage this crucial sector of the economy. The Government and the Tánaiste have no plan B. Do they have a view on co-ordinated European fiscal stimulus? What are they doing to address the needs of construction workers being laid off? Is the Tánaiste still promising a spend of several billion euro on the decentralisation programme or will he acknowledge that it has run into serious difficulties?

Having talked about a knowledge economy for so long, action is needed. In particular, it is time to ensure the tax code promotes high-risk, high-tech activity. Last week, the IMF offered a serious health warning to Ireland, saying a downturn in US economic activity would have a proportionally greater impact on the economy, while our own Central Bank revised its 2008 GNP growth projections downwards by 0.5%. Only yesterday, Ulster Bank stated GNP growth could be as low as 2% for 2008, based on a projection of 45,000 residential unit completions.

Given that downward revisions are trickling through across the board, the Minister's assertion last week that his budget day forecasts were still appropriate does not inspire confidence. He has tried to claim credit for injecting a greater fiscal stimulus into the Irish economy than George Bush proposes to do in the US when the reason that we are now faced with substantial budget deficits is his prevarication over reforming stamp duty. This prevarication came before he botched and redid stamp duty, in the process shattering the confidence of those seeking to buy homes. As a consequence, Exchequer income from property has collapsed. The fiscal stimulus which he talks about is therefore a result of careless management rather than careful planning.

While house price moderation will be a welcome development for the many thousands who have been priced out of home ownership in recent years, there is a real danger that people who have bought a home in the past two years using 100% mortgages could find themselves in negative equity situations. If a rise in unemployment is coupled with heavier debt burdens, we could start to see a lot more home foreclosures. The number of repossessions has already trebled since 2004, according to figures supplied by the Department of Finance. This week, The Sunday Tribune reported that the major Irish banks are sharpening their knives, with a prominent UK bad debt specialist licking its fingers at the prospect of profiting from what it called the macro-economic certainty of a steep rise in mortgage default in Ireland. We could be in line for serious home grown sub-prime problems as those who over-stretched themselves with hefty mortgages during the boom times, egged on by the financial institutions that the Minister did not bother to regulate before last Friday, face a harsher economic climate. When I spoke about sub-prime tactics in the Irish mortgage market two and a half years ago the Minister did not even pretend to understand me, such was his arrogant confidence that all would be right on the night. Large numbers of people losing their homes does not sound like the fairy tale soft landing we were promised.

The flip side of property market instability is the slowdown in house building. From peak construction of nearly 90,000 units in 2006, we are looking at the possibility of seeing half that number of units completed in 2008. To put this in perspective, every reduction by 10,000 in house completions has been estimated to cause a 1% reduction in GNP growth and a €1 billion reduction in Exchequer income. We all knew that an output of 90,000 units per year was unsustainable, particularly given the number of houses lying empty and the near sufficiency of our housing stock. However, rather than implementing measures to facilitate the transition from an economy which was over-reliant on house building, the Government chose to tinker with stamp duty, not once but twice, in the vain hope that the unsustainable could be made sustainable by waving a magic wand.

Whatever about past mismanagement, we now have to look to the future. We have to put in place measures to support the transition from house building to more sustainable and higher value added economic activities. In this regard, we support the Government's new focus on capital spending. After a decade of huge tax revenues, we are still left with a striking infrastructure deficit. If we are to regain competitiveness and provide the world-class infrastructure and public services that the Irish people deserve, this continued investment is essential. Our chronic traffic gridlock is just one example of how the infrastructure deficit not only curtails competitiveness but also impacts negatively and often severely on the quality of life of Ireland's commuters. The Labour Party supports the front-loading of expenditure for public transport under the national development plan. Delivering a public transport system that does not cause us to hang our heads in the company of our European peers is the least the Irish people deserve. Improving our public transport system, including such overdue initiatives as integrated ticketing in our cities, would help to restore economic competitiveness, improve quality of life for commuters and go a long way toward meeting Ireland's carbon emission reduction commitments.

While undoubtedly important, the switch from residential construction to infrastructure projects will not on its own provide jobs for all those out of work due to the slowdown in house building. Young men in particular are at risk of falling into the unemployment trap if clear pathways are not outlined for them to acquire transferable skills. There must be a significant focus on retraining and educational opportunities for such workers. Without further up-skilling, many of them will not be able to compete for jobs in expanding areas such as financial services and information technology or develop the specific skills required for NDP investment areas. The time for action on this is now, not in six months' time when the unemployment rate has passed 5%, as the Government predicts. We expect the Minister and his colleagues to address that issue. That is the reason they are being paid their overly large salaries and even fancier increases.

Unemployment is rising at the fastest rate in two decades but it is still far from crisis proportions. We have a highly educated and productive workforce, a healthy can-do attitude and a spirit of entrepreneurship that has served us well and will do so again. However, this is not the time to rest on our laurels. As the economic clouds gather, we have to build on our progress by looking beyond an economy that is over-reliant on low value added construction. We have to restore competitiveness while striving for social and environmental sustainability, ramp up support for indigenous industry and ensure we have a fiscal and infrastructural framework in place to support a high technology, high value added economy. In short, we have to lay the foundations for a 21st century knowledge society.

We could begin to lay those foundations with this Finance Bill if only the Minister saw fit to seize the opportunity. Unfortunately, the most striking aspect of this Bill is its complete and utter lack of imagination. It is a case of much ado about nothing. With the construction boom ending, economic growth slowing and unemployment rising, the Finance Bill gives the Dáil a timely opportunity to take the urgent corrective action needed to get our economy back on track. Ireland has the capacity to ride out this economic storm if we give her half a chance. We need to start by getting this Finance Bill up to scratch.

While the Labour Party welcomed the improvements for PAYE taxpayers announced on budget day, it should be noted that they are so modest that with inflation hovering at nearly 5%, combined with recent mortgage interest rate increases, they will have been eaten up before this Bill is even enacted. Spending power is on the wane for ordinary families, while a respite for workers in the national pay talks looks increasingly unlikely given that the Government is indicating it will take a hard line on pay rises. This is the Government that awarded its Ministers and top civil servants amazing increases. I ask the Minister to identify one recruiting agent who has offered to take Ministers or senior civil servants, bar a select few, out of the public service on a salary of €500,000 per year. I do not know where those people are and I do not see their companies head-hunting many Ministers.

I admit that there are people who have done great public service in government. However, I know of few private or public service employers who would pay the kind of money Ministers allocated to themselves in recently announced wage increases. Why the Government needed to pay almost €1 million in consultancy fees in order to obtain an answer in respect of Ministers' grandiose pay increases is beyond me. Those in government could have done the sums themselves and selected whatever amounts they wanted.

If the Bill is enacted, a single person earning the average industrial wage of approximately €35,000 will still pay tax at 41% on bonus or overtime earnings. By the end of the year, very few taxpayers will be removed from the upper tax band and placed on the lower rate of tax.

Reducing red tape and increasing the VAT registration thresholds will be a welcome boon to the Irish SME sector, which has great potential to be a growth area for indigenous job creation.

Ireland is set to fall short of meeting its Kyoto commitments on emission reductions. Those measures in the Bill aimed at reducing carbon emissions are welcome. The legislation contains several gestures in respect of climate change issues. However, it is unclear whether these tentative steps will really assist Ireland in meeting its commitment under Kyoto to reduce emission levels. For example, the Bill proposes a pilot scheme that would give 100% capital allowances to companies for the purchase of energy-efficient equipment, encouraging the replacement of old equipment. This proposed corporate tax break — unlike what the Minister promised in respect of such breaks — is completely uncosted. All we know is that there will be a three-year pilot scheme, which will be overseen by the Minister for Communications, Energy and Natural Resources, Deputy Ryan. Is the Minister for Finance serious about this tax break and will he outline exactly what is involved? Is it merely a bonbon for the Green Party or is it significant in nature?

It will depend on the level of take-up.

While the thrust of these energy efficiency measures is welcome, will the Minister spell out in detail what they mean? Measures to improve house insulation or to encourage the micro-generation of energy could have brought benefit to a much greater number of ordinary people but they are absent from the Bill. There is no scheme to cater for people who insulate their homes, particularly those who live in older houses. What will the latter get back from the Government? If they buy pellet-burning stoves, they will benefit but from where will they obtain the fuel for such stoves? People insulating their homes would do a great deal more to reduce the country's carbon footprint.

Another supposed green initiative in the Bill is the proposed mechanism to allow carbon credits to be traded as securitised assets on Irish financial markets. I am concerned that this initiative is not so much about the green of the environment as it is about the greed of speculators. There is a very real risk that this mechanism will not bring about any reduction in Irish carbon emissions and that the only people who will gain will be polluters and speculators. Various individuals in the markets have referred to this as a welcome addition to the securitisation legislation. Those to whom I refer have written about this measure in stockbroking columns, but not one word has been written about its environmental impact. The Minister failed to refer to it earlier.

If carbon credits become a securitised asset — in effect guaranteeing investors an income from carbon emissions long into the future — it may not be in the interests of the polluter to stop polluting or in those of the investor to see emissions reduced. Such a misalignment of interests would be tragic for Ireland's efforts to reduce carbon emissions. I am surprised the Green Party felt comfortable signing off on this matter.

If it is to proceed, this mechanism will have to be carefully monitored to ensure that it does not become another playground for speculators. In the context of volatile global financial markets, to which wrongly priced securitised assets have most certainly contributed, and the difficulties faced by the EU carbon trading scheme, one must wonder whether this is the most effective way of achieving reductions in Irish carbon emissions. When it comes to global warming, markets may be part of the solution. However, we must be vigilant to ensure they do not become part of the problem.

In the debate on the relevant Finance Act two years ago, the Minister promised to introduce a very modest stamp duty on contracts for difference, CFDs. The latter are, as he is now aware, a mechanism for gambling on the Stock Exchange. When approached by brokers at the time and in the face of contrary advice he received from the Revenue Commissioners in respect of the introduction of this modest reform, the Minister sided with the investment industry. In the intervening two years, CFDs became one of the reasons that the Stock Exchange has borne more of a resemblance to a casino or a bingo hall than to an institution designed to assist Irish industry. When the governor of the Central Bank and Financial Services Authority of Ireland refers to poor sentiment towards the Stock Exchange, the Minister must consider what he failed to do and how he backtracked when approached by the financial houses. I have a feeling that the position relating to the carbon emissions trading scheme is similar.

To implement the EU energy tax directive, the Bill introduces, for the first time, an electricity tax at the minimum possible rate on non-household use of electricity generated from non-environmentally friendly sources. This development, aimed at targeting polluting energy sources and promoting energy efficiency by businesses, is to be welcomed and could eventually go some way towards ensuring that 16% of Irish energy will be generated from renewable sources by 2020.

On a positive note, I welcome measures to support the Irish film industry. With several Oscar nominations in the bag, the talent inherent in the industry is there for all to see and the extension by four years of section 481 relief, combined with an increase of the ceiling per film from €35 million to €50 million, in line with the recent report prepared by Indecon, should provide a timely boost to the industry. Continuing and enhanced State support for the cultural development of the country, not to mention the associated economic benefits, are something the Labour Party has supported since its inception.

For too long, oil and gas companies — often granted exploration licences in dubious circumstances — have been in a position to extract fossil fuels without having to pay anything approaching the same level of taxes or royalties that are commonplace in other developed countries such as Norway. While Norway has been able to use its fossil fuel reserves to fund world-class infrastructure, a competitive welfare state and its pension commitments for decades to come, Ireland has taken a very different path. In effect, we have privatised the profits while socialising the costs of exploration. The Labour Party welcomes the new measures to tax the super-normal profits of exploration companies exploiting our natural resources as a step in the right direction. Why will this enhanced corporation tax will not apply to exploration licences granted before 2007? Why should the measure not apply across the board? Why should it be restricted to licences granted after some arbitrary date?

The Labour Party also welcomes the reduction in the rate of VAT on non-oral contraceptives, from 21% to 13.5%, something for which we have long been campaigning. We would hope to see this rate further reduced to 5% in line with the EU VAT directive. This would reinforce what is an important development in the fight against the spread of sexually transmitted diseases, STDs. I hope the Government also envisages enforcement measures to ensure that these VAT reductions are passed on to consumers. Without such measures, this will merely be another profiteering exercise on the part of vendors.

I have tried to emphasise the positive aspects of the Bill. In previous years we discussed the degree of tax avoidance on the part of very wealthy people. I refer here to millionaires who have large incomes but who pay very little tax. We spoke about the phenomenon of those people who are non-resident for tax purposes but to all intents and purposes live in this country. I have suggested strongly on behalf of the Labour Party that in a real republic, it is for everybody to make a contribution and pay a fair share of taxes.

The Minister for Finance's Bill has nothing to say about cutting back some of the schemes which continue to unfairly benefit people at the top end of income in this country. There are very substantial reliefs for pensions and encouraging people to hold pensions is a proper fiscal policy. However, the Minister has failed to reform the pension code and structure it to ensure those in lower and middle incomes, those most in need of setting aside money for pensions, get the lion's share of the benefit.

The benefits for pensions continue to go to people such as proprietary directors and others with very large incomes who can afford corresponding investments in pension. There are also people nearing retirement age who own their own company and can have that company pay very significant sums of money — €500,000 and upwards — into pension funds that attract the very highest levels of tax relief at 41%.

Now the heat of the election is over, the Minister has plenty of time to consider how to retune the tax system so as to incentivise for everybody activities such as pension provisions that are considered not only worthwhile but absolutely essential. It is very disappointing the Minister has failed to do this.

He also failed to take into account that of the 2 million people at work in this economy, a significant number pay no tax because their income is so low. These people are either in part-time employment or on the minimum wage. Many of these could even get some money back if there was a refundable tax credit system, which would help their position. The Minister is instead still relying on a very inadequate process of payments through family income supplement, which is not taken up by large numbers of people on low income.

The Minister is still hiding behind veils or a green curtain with regard to the commission on taxation. I put forward this Labour Party proposal every year for the past five years and I am glad the Minister accepted it and included it in the programme for Government. We should hear what the Minister intends to include in this and whether he intends to make the hard and difficult decisions in the harsher economic circumstances that lie ahead.

I welcome the Finance Bill and congratulate the Tánaiste and his officials on it. By far the most important challenge facing the country this year is the protection of jobs and all the progress made in our economy in recent years, as well as trying to make further progress against the background of a good deal of financial turbulence in the world economy. Confidence in times like these is brittle and it is very important that we have a steady hand managing our economy and public finances.

This Bill's function is in part to implement the budget, which we can view in greater perspective two months on. The budget was mildly anti-cyclical, without taking undue risks with the public finances. Inevitably, given the existence of certain urgent spending priorities, such as the new schools in areas of burgeoning population announced by the Minister for Education and Science last week and the need to press forward with the national development plan, including both public and road transport, money will be quite tight in a number of other areas. I would not contemplate further cuts in taxes and the revenue base until conditions improve substantially again.

On income tax, the status quo was broadly maintained, with the aim, as the Tánaiste indicated in his Budget Statement, of keeping low income earners out of the standard rate band and average earners out of the higher band. Equity has been the hallmark of the Tánaiste’s stewardship since he took over the Department of Finance.

The Government's pledges in respect of stamp duty for first-time buyers and mortgage interest relief were honoured. Indeed, stamp duty reform went well beyond what was promised and the tax was made more equitable and progressive, removing abrupt step changes which have long been a grievance.

We should not object to 9% stamp duty on properties worth more than €1 million. The real incidence arguably falls on sellers, who in almost all cases will have enjoyed a huge capital gain if they have held the property for long. People who can afford to pay up to €60 million on a large house on Ailesbury Road and those who sell to them can well afford the 9%.

Everyone is agreed there has been an unhealthy dependence on the housing and construction market, despite the benefits brought by the boom in many respects. The measures introduced by the Government could not have been easily introduced when the market was overheated.

As the Governor of the Central Bank told the finance committee last week, the correction taking place is both inevitable and necessary, and he stands over the prediction in the stability report signed off last September that the housing market is destined for a soft landing. The price falls that have happened, particularly since the second half of last year, will make housing more affordable for first-time buyers and budget measures will reduce mortgage repayment costs for such buyers in recent years.

Nobody now expects eurozone interest rates to rise and they may later this year begin to fall. All this is helping to ease some of the inflationary pressure on earnings coming into pay talks. There is no need for panic measures, without regard to cost or financial and budgetary stability, such as was advocated in a Sunday newspaper recently, which would be far more likely to undermine confidence rather than bolster it.

Two other criticisms have been made of the Government's economic strategy which I wish to address. The size of this year's budgetary deficit has been criticised and described rhetorically as the worst deterioration in the public finances in the history of the State. This is similar to comments just made about the most rapid deterioration of unemployment in 20 years to 4.9%. Qualitatively, this is all nonsense.

The Tánaiste has kept well within the margins of safety, with a projected general Government deficit of 0.9% of GDP in 2008 compared to the Maastricht guideline of 3%, which many of our European partners have exceeded or are in danger of exceeding. With the second lowest public debt level in the eurozone, we are entering this period from a very healthy position, in stark contrast to the state of the public finances in the early to mid-1980s.

The Tánaiste did his best to keep the economic debate during the general election on the rails, despite some of it bordering on the surreal, particularly when viewed in retrospect. I am thankful the country has been spared any repetition of what happened in 1981, when power was captured by a coalition that had promised tax reform on the grand scale, only to realise none of it could be implemented. The gloom and doom that was spread as an alibi for the non-fulfilment of promises and the large tax increases which went in the opposite direction kept confidence on the floor for the following six years.

A second criticism expressed by a distinguished former Taoiseach of those times in a newspaper column lamented that more had not been kept in reserve in good times for use now. As the Tánaiste's predecessor as Minister for Finance also observed, it is very difficult to justify enormous budget surpluses when there are pressing infrastructural and social development needs. There was an Exchequer balance of over €2 billion in 2006 and how much larger was that supposed to have been? It is important to avoid stop-go and abrupt course changes, and the continuity and firmness in economic policy management have been admirable.

Very germane to the management of the economy has been the issue of benchmarking at all levels of pay. Benchmarking was a vast improvement on the traditional disputes about relativities and we have been rewarded with some of the most peaceful years in industrial relations. Claims have been made that the public service is rewarded better than the private sector, but that is certainly not the case at the top end of the scale, in regard to either pay or pensions, where the total pay package of top executives and managers in larger companies far exceeds anything in the public sector. Even after a deferred pay rise, the Taoiseach and the Chief Justice will hardly figure among the top 13,000, as the Tánaiste and Minister for Finance informed me in a reply to a parliamentary question. As a very perspicacious correspondent to this month's Village magazine noted, “massive inequality of pay” is one of today’s private sector norms, which top echelons in the public sector should not be tempted to follow.

The issue is not really whether senior public servants, be they politicians or civil servants, can command high salaries outside. Many even relatively junior Department of Finance officials can command good salaries in the private sector and there are many examples of former semi-State executives earning large sums of money. The Labour Party Members should examine how some of their former programme managers, advisers and even a former Tánaiste are doing these days in the private sector. It is wrong to give the public impression that nobody in this House or in the public service is worth very much outside.

Public service has a different ethos from private enterprise and while I defended recent pay rises, they should be the last under the current terms of reference. It is time to decouple pay in the higher public service from private sector norms because we cannot afford them and because they create inequitable and widening gaps. For 30 years we have tried to follow this course and recent controversy has shown that it is no longer sustainable and is ceasing to be publicly acceptable.

The closure of the former Barlo's plant in Clonmel brings home also that productivity and competitiveness are not only about pay. The decisive factor was the failure to invest in modern equipment, which admittedly would have reduced the workforce, but not nearly so drastically. It is highly regrettable and very disappointing when one of the most successful firms and entrepreneurs in Ireland buys up a group, fails to act on many proposals put forward to invest in it and closes it down after four years to shift production to Wales. No sensible person objects to successful Irish firms spreading their wings and establishing themselves in overseas markets, but could they please keep the home fires burning? One would like to believe that the best Irish businessmen are, among other things, committed to their own country, and most of them are most of the time, at least by their own lights.

One of the things that business chiefs seem to underestimate is the value of support and goodwill in the domestic market. Why should the Irish consumer feel the same loyalty to Irish brands, be they glassware, biscuits, sausages or designer radiators, when their manufacture has been shifted abroad? I hope that the group in question and indeed any highly profitable Irish-owned firm that closes down manufacturing in a particular town or city in this country, will actively look to reinvest in that place, using the sites they own, their connections and traditions.

As we all know, on all sides of this House at different times politicians are scrutinised and lacerated at regular intervals in the media. If businessmen are ruthless and unsentimental in closing down and stripping a good business and shifting it overseas, public representatives have every right to be equally ruthless and unsentimental in questioning and criticising such decisions and those responsible for them. A former Chief Secretary in Dublin Castle, Thomas Drummond, rebuked Tipperary landlords in 1838, when he reminded them, "Property has its duties as well as its rights", and the same applies to the entrepreneurs who have piled up unimaginable quantities of personal wealth today.

Coming to specific Finance Bill measures, those that assist the maintenance of jobs and investment in all sizes of firms are particularly important. I welcome the lessening of the compliance burden on small firms in respect of preliminary corporation tax and the tax treatment of dividends received from foreign subsidiaries and the encouragement of e-stamping.

Making the BES schemes and seed capital scheme more permanent and therefore more reliable and predictable is also welcome. I welcome the tax incentive for investment in energy-saving equipment, which will contribute to helping us meet more demanding environmental targets. A more emissions-sensitive VRT system and the excise on electricity tax, albeit not on households or most manufacturing, should also have a positive impact. Many offices and buildings leave their lights blazing through the night and no doubt other equipment connected that does not need to be. Anything that would provide an incentive to limit that sort of waste would be welcome.

Measures have been taken in recent times, including in this Finance Bill, particularly in the light of huge rises in the price of oil and gas, to tighten up the regime governing the exploitation of energy resources. I was surprised at what Deputy Burton said on that point because one cannot make retrospective changes without severe cost to confidence and something that would be regarded at the receiving end as tantamount to a breach of contract. Such changes in the regime have been sought, among other things, by the Rossport protesters and I hope they will take it into account in considering when or whether to wind up their campaign, which I hope will be soon. Several firms in south Tipperary, as well as elsewhere, will welcome the reduction of VAT on agricultural production of bio-fuels to 13.5%. While food production remains extremely important, we also have spare capacity that could be used, not just for forestry, but bio-diesel production. Reassurance may be required about the net energy benefit of such production.

Caravans and camping parks are big business in one of our most important and still buoyant industries, tourism, which has good prospects in this coming year. The extension of allowances for buildings is very welcome.

Film relief has been debated in recent years, not least in the Joint Committee on Finance and the Public Service. Incentives have to take account of the international competition. Excellent films have been made in Ireland and we have to do what is necessary to encourage this to continue.

I am a little intrigued by the reduction in VAT on condoms, which I presume is introduced to promote public health rather than promiscuity and reduce unwanted pregnancies and venereal disease. Condoms are often extolled for their sensitivity, but I do not know how sensitive they are to price. Will more potential users be feeling lucky, once they notice, assuming they notice, the reduced price?

Research and development is vitally important to investment and employment in high grade jobs and I am glad the tax credit scheme is being extended to 2013.

A final point for the Minister to consider was made to me by a tax practitioner in Tipperary yesterday. Fines for even slight delays fall on the generally compliant and the uncompliant alike. It has been suggested to me that such penalties should be applied in proportion to the taxpayer's record of compliance.

I note that Deputy Mansergh agrees with our suggestion that public sector remuneration should be decoupled from the private sector. I presume he put that to the Minister personally. Will the Minister take on board what his party colleague has said and reduce the level of increase that he has taken on the higher remuneration? The proposed changes are window-dressing because they will not come into effect for three years. We need to deal with that matter now.

The Deputy referred to the coalition Government of 1981. He should look back to 1977——

It was 1973, actually.

I refer to 1977, when a complete lack of control over public expenditure obtained. As this also is taking place at present, Deputy Mansergh's arguments do not hold up.

The Deputy also should consider the mid-1970s under the national coalition.

No, if one considers the level of Government expenditure that was funded——

If Deputy O'Donnell will allow, Deputy Mansergh was heard without interruption. Could——

I have no problem with Deputy Mansergh making reference——

I have a problem. Deputies should refer their remarks through the Chair and each Deputy should be allowed to speak without interruption.

I thank the Leas-Cheann Comhairle.

My point pertained to Government expenditure on the public sector, which went out of control in 1977. On taking office, the former Taoiseach, Mr. Charles Haughey, also referred to this point.

As for the Finance Bill before the House, the main issue I wish to deal with is that Ireland will face into a difficult economic environment in the coming year. One must ask whether this Bill deals with those issues and the short answer is "no". As for the economy, the Central Bank has stated the unemployment rate will reach nearly 6%. The increase in unemployment in January 2008 of 7,800 people constituted the highest increase for 17 years. Moreover, a downturn has taken place in the US economy. The Dow Jones index fell yesterday, in part because of lower than expected factory orders. Deputy Bruton already referred to our linkage to the US economy whereby every 1% decline in the US corresponds to a 1.75% decline here. While the budget forecast for economic growth was 3%, economic commentators now state it could be as low as 2%.

I tabled a parliamentary question to ask the Minister his budget projections for the number of house completions and the reply was 55,000. At present, the Construction Industry Federation, CIF, predicts 30,000, other economic commentators predict 45,000 and, anecdotally, I have heard the figure could be even lower. Every reduction of 10,000 in house completions means a reduction in revenue of €1 billion or a fall of 1% in the growth rate. A potential shortfall in completions of 20,000 houses corresponds to the loss of €2 billion, which could have major implications for the Exchequer deficit and the general Government balance and could constitute approximately 2% of gross domestic product, GDP. As the Minister has projected a figure of 0.9%, he could go perilously close to exceeding the Stability and Growth Pact limits.

I do not intend to hold the Minister to account for issues that are outside his control. When Ireland joined the euro, it lost control over interest rates and exchange rates. However, low interest rates have resulted in massive borrowings by people in respect of the housing market despite repeated warning in recent years that 90,000 housing completions every year was not sustainable. The Government should have done something. Stamp duty reform was introduced too late and young people now face negative equity.

Furthermore, almost as many people are employed in the construction sector as in the manufacturing sector. Approximately 280,000 to 290,000 people are so employed, which is not sustainable. Ireland is a small open economy and must consider ways to become more competitive. In the context of the budget, the Minister has noted that the single area over which we have control is competitiveness. In the House today, although the Taoiseach referred to productivity, I did not hear him mention competitiveness.

Competitiveness is the key and the Government is partially responsible for our lack thereof. I would greatly welcome Ireland's recovery of its competitive advantage. At present, Ireland's exports are growing by between 5% and 6%, which is insufficient. We must return to the growth rates experienced in the early 2000s, which were in the order of 20%. The Government must take action. First, it should implement the recommendations of the National Competitiveness Council that advocated setting up a group to examine ways of bringing about greater competitiveness. Second, the Government should consider guaranteeing in future that in respect of those areas it controls, it will not allow any increases above the rate of inflation. In recent years, prices in the energy sector including gas and electricity, increased by well above the rate of inflation, which has had major cost implications for industry. Third, the Government should promote a knowledge-based economy. The skills of the workforce must be improved and Fine Gael believes this should be done while people are at work, rather than after they have lost their jobs.

I will turn to section 39 of the Finance Bill, which pertains to taxation of foreign dividends. The Minister has introduced a change whereby in effect, such dividends now are being taxed at the same rate, that is, 12.5%. My understanding is that the Minister has done so because of a requirement arising from a European Court of Justice ruling of last December. The Minister should make such dividends exempt to enhance our competitiveness and ability to encourage multinational companies to locate their European headquarters in Ireland. It is purely a cash flow measure. At present, any company that receives foreign dividends will recoup the money. It is purely a question of timing as such companies are obliged to pay by way of preliminary tax. I propose a measure that would retain our comparative competitive advantage. I will table an amendment to this effect on Committee Stage.

The budget was rudderless with regard to measures to deal with the economy's prospects. However, I welcome some other measures, including the proposals regarding preliminary tax for small companies. I welcome the increase in VAT thresholds and greatly welcome the extension to 2014 of tax credits for research and development. While I welcome the accelerated capital allowances on energy-efficient equipment, it has flaws and appears to have been rushed and ill-thought out. First, it only applies to companies although it also should apply to individuals. Second, minimum amounts of money are required which means it will be curtailed for large companies. Third, although it only pertains to specific assets, the assets list is not yet available. Fourth, the Minister must secure EU clearance in this regard, which means the measure may not come into effect until August 2008.

I refer to EU directives. It is clear that many of the measures included in the Finance Bill have been dictated by EU directives. It will be extremely important for the Government to engage in proper scrutiny of EU directives and the implications they might have for Ireland's economy. Ireland must be extremely proactive in this regard. I refer in particular to issues such as water charges, about which steps could have been taken and can be taken in future. Such scrutiny will be extremely important.

I refer to capital allowances linked to carbon emissions for motor vehicles and the VRT linked to CO2 emissions. Were the Minister's intentions genuine in respect of green policy, he would introduce them immediately. The delay is creating an element of confusion in the market and I seek such a move.

My main point is that the Finance Bill is a mishmash. It provides no answers on the direction that people seek regarding measures to deal with the economy in future. I have provided a straightforward solution, namely, Ireland must recover its competitiveness and its export industries must be allowed to operate competitively in the international market.

Debate adjourned.