Finance (No. 2) Bill 2008: Second Stage.

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

The Bill before us has been framed in the context of the most difficult economic and financial climate in a generation. The upheaval and uncertainty in the international financial system has had a detrimental impact on the global economy and its prospects. Each day brings further bad news for economies across the globe. The majority of our trading partners are experiencing a weakening in their economic fortunes and this clearly will have a negative impact on a small, open trading economy such as ours.

On the domestic front, the contraction in the new house building sector, which will continue into next year, has been exacerbated by the international credit difficulties. The downturn in construction has resulted in a rise in unemployment and deterioration in consumer sentiment.

On foot of these developments, economic activity is forecast to contract both this year and next year. The rapidity and scale of the downturn has surprised even the most pessimistic of commentators. However, it is important to remember that despite the gloomy short-term outlook, our economy retains the structural achievements of the past decade. Notwithstanding the rise in unemployment, we now have 600,000 more persons at work than we had in 1998. Our export levels have doubled over the past decade and the living standards of ordinary workers have risen substantially. We also have one of the lowest public debt levels in the EU.

Our main economic focus must be the restoration of international cost competitiveness. It is imperative that we are in a position to take advantage of the global recovery when it emerges. Maintaining public capital investment at high levels relative to national income, boosting productivity and ensuring credibility and sustainability in the public finances will all be helpful in this regard.

Confronted with rapidly falling revenues and negative economic growth, we had to introduce the most difficult and unpalatable budget since the late 1980s. As a Government, we faced difficult choices, but in making those choices we were at all times conscious of the need to protect the truly vulnerable in our country. That is why we increased the State pension by €7 per week and all working age payments by €6.50 per week.

In framing the budget, we were also guided by the need to introduce measures that would strengthen economic performance and encourage recovery. The essential first step to economic recovery is to stabilise our public finances. The Bill we are debating contains the necessary adjustments to ensure the 2009 budgetary arithmetic is maintained and that the core disciplines and decisions to correct our public finances remain intact. We must support and develop our productive sector to ensure our competitiveness is maintained and enhanced. As I stated last Thursday, the Bill supports enterprise and sends out a message that Ireland is open to business.

In my budget speech, I said that despite the need to raise revenues, the Government is committed to maintaining and enhancing pro-employment business tax relief. I announced in the budget the introduction of a three-year exemption from corporation tax on trading profits and chargeable gains for new companies commencing to trade next year. New companies that benefit from tax exemption will see full relief where total corporation tax liability in any of the first three accounting periods does not exceed €40,000. There will be marginal relief where corporation tax liability falls between €40,000 and €60,000.

I also announced in the budget that the research and development tax credit would increase from 20% to 25%. The Bill includes very significant changes to the scheme which increase its attractiveness to business, in particular small companies and those in the start-up phase. These changes involve the following: an option to carry-back unused tax credits for set-off against the previous year's corporate tax liability, thereby generating a tax repayment; a further option, where there is insufficient or no corporation tax liability in the previous year, to claim payment of the remaining unused credit which will be paid in instalments over a three year period; 2003 will be permanently set as the base year for calculating incremental research and development expenditure under the scheme — over time, this will have the effect of turning the scheme into a volume-based scheme; and finally, the Bill provides that a tax credit will be available in respect of a proportion of the expenditure incurred on a new or refurbished building used in part for research and development activities. This change reflects the reality that research and development takes place in manufacturing or production environments and not just in laboratory conditions. These combined changes make our research and development regime in corporation tax one of the most attractive in the world.

In respect of international trade, I want to refer to our network of double taxation agreements, which was significantly increased this year with the addition of Turkey, Malta, Vietnam, Macedonia and Georgia. These agreements lead to the reduction of tax obstacles that could deter cross-border activity and are critical to the development of our bilateral trading and investment opportunities. The signature of agreements with Malta and Turkey was particularly significant because they represent the completion of Ireland's network of double taxation agreements with all EU and OECD countries and brought our total network to 50 double taxation agreements.

As ratification of these agreements can take time, because of lengthy parliamentary procedures in most countries, I am making provision for the recognition of payments to and from these countries for preferential tax treatment as soon as the agreements are signed, rather than awaiting the completion of the ratification process. This will have the effect of accelerating reliefs to business in the area of dividends, interest and capital gains tax already contained in the tax code.

The income levy was one of the key measures in the budget aimed at stabilising tax revenues. The levy will apply at a rate of 1% to gross income up to €100,100 per annum or €1,925 per week and at a rate of 2% to gross income above that amount. A further 1% will be payable on gross income in excess of €250,120 per annum or €4,810 per week. This additional 1% will enhance the progressive nature of the levy. It helps meet the cost of the exemption thresholds now being included for those on low incomes and the elderly.

All social welfare and similar type payments will be excluded from the levy. Similar payments from other states will also be exempt. Those with an entitlement to the medical card will also be exempt from the income levy. The exemption threshold of €18,304 per annum is being introduced to exclude those on low incomes and age-related exemption thresholds for persons aged 65 years and over are also being introduced. The income levy is progressive. It does not apply to low incomes or social welfare payments. In short, it means that the vulnerable and elderly are protected while those best able to pay will pay the most. Those paying at the top rate of 3% will contribute 20% of the total take from the levy.

In the case of income tax, the standard rate bands will increase by €1,000 from €35,400 to €36,400 for single individuals, from €44,400 to €45,400 for a married one-earner couple and an increase of €2,000 from €70,800 to €72,800 for a married two-earner couple. This measure will help to cushion the effect of the income levy on middle-income earners.

There is also provision for an increase in the rate of mortgage interest relief for first-time buyers from 20% to 25% in years one and two and from 20% to 22.5% in years three, four and five. While the measure also provides for a reduction in the rate of mortgage interest relief for non-first-time buyers from 20% to 15%, it is broadly revenue neutral. This re-balancing makes for a fairer system and helps those buyers with the biggest financial exposure and those facing falling property values.

The Bill confirms the budget day increases in excise duties and it makes provision for an increase in betting duty from 1% to 2% from 1 May 2009. The Bill allows deducibility for betting duty in computing the amount of profits or losses of a bookmaking business for income tax or corporation tax purposes.

New arrangements for the VAT treatment of tour operators and travel agents are also contained in the Bill. A margin scheme for tour operators, and a measure making travel agents liable to VAT on their commission, are being introduced with effect from 1 January 2010. Most EU member states operate a margin scheme for tour operators whereby they are taxed on the profit margin realised on the supply of a domestic or EU travel package.

I am amending Revenue's civil penalties regime across all taxes and duties except customs in accordance with the advice which Revenue received from the Attorney General, and as recommended in the Law Reform Commission's "Report on a Fiscal Prosecutor and a Revenue Court", so as to ensure its compatibility with the provisions of Article 6 of the European Convention on Human Rights. In brief, a person will be given an opportunity to have the courts examine whether that person is liable to a civil penalty for contravention of tax or duty legislation.

I will also amend the various tax codes so as to place on a statutory basis the current practice of the Revenue Commissioners in respect of the level of tax-geared penalties sought in settlements arising out of Revenue audits and investigations. In addition, a number of fixed penalties are to be brought up to date and standardised and the amounts of such penalties, which have not been increased in many years, are to be increased.

The Bill runs to 95 sections and six schedules and is structured by tax heads. In the time available, I will outline some of the main provisions.

Section 2 describes the income levy. As I have already outlined, the levy will apply at a rate of 1% to gross income up to €100,100 per annum or €1,925 per week and at a rate of 2% to gross income above that amount. A further 1% will be payable on gross income in excess of €250,120 per annum or €4,810 per week. All social welfare payments will be excluded from the levy, as will similar type payments made by Departments and agencies other than the Department of Social and Family Affairs, in addition to similar payments from other bodies. Those with an entitlement to the medical card will also be exempt from the levy and an exemption threshold of €18,304 per annum is being introduced to exclude those on low incomes from the levy. Age related exemption thresholds for persons aged 65 years and over are also being introduced. These thresholds will be €20,000 per annum, with a provision for double that limit for a married couple where one or both is aged 65 or over. Where the age related or general thresholds are exceeded, the levy will be payable on all income.

Section 3 provides for a parking levy, which is to apply where an employer provides car parking facilities for employees. The levy will apply where an employee has an entitlement to use a parking space and such space is provided directly or indirectly by his or her employer. The levy will not apply to disabled drivers or to employees of the emergency services in the context of responding to an emergency situation. The charge for a full year will be €200 where an employee has an ongoing entitlement to use a parking space. Where parking spaces are shared by employees, the levy is reduced to €100 where the ratio of the number of employees to the number of parking spaces is two to one or more.

Section 4 provides for an increase in the standard rate bands by €1,000 from €35,400 to €36,400 for single individuals, from €44,400 to €45,400 for a married one-earner couple, and an increase of €2,000 from €70,800 to €72,800 for a married two-earner couple. This measure will help to cushion the effect of the income levy on middle income earners.

Continuing the work commenced earlier this year, section 6 will provide for a new CO2 based system of calculation of benefit-in-kind in respect of company cars provided for employees. The new system is structured on the seven bands adopted for vehicle registration tax. Cars in the three lowest bands of CO2 emissions remain at the current level of benefit-in-kind charge, and higher charges apply for vehicles with higher emission levels. Existing vehicles retain the current method of calculation of benefit-in-kind.

As regards health expenses relief, section 8 provides that the relief will be granted at the standard rate only from 1 January 2009, with the exception of nursing home expenses which will continue to be allowed at the marginal rate.

In providing tax relief, we must ensure as far as possible that it is targeted on those that need it most. As such, section 12 provides for an increase in the rate of mortgage interest relief for first-time buyers from 20% to 25% in years one and two and from 20% to 22.5% in years three, four and five. The measure also provides for a reduction in the rate of mortgage interest relief for non-first-time buyers from 20% to 15%. This measure is broadly revenue neutral and this re-balancing makes for a fairer system and helps those buyers with the biggest financial exposure and those facing falling property values.

The so-called "'Cinderella" rule is changed by section 13. Under this, presence in the State during a day does not count in determining residence for tax purposes where the individual leaves before midnight. In future, a presence in the State at any time during a day will be counted for determining residency.

As regards pensions, section 14 provides that the annual earnings limit for determining maximum tax-relievable contributions for pension purposes is being set at €150,000 for 2009 in comparison with the 2008 limit of €275,239. The formula relating to the determination of the annual earnings limit is amended, as are the standard and personal fund thresholds in order to provide the Minister for Finance with discretion as to whether those thresholds should be indexed.

In the area of farming, section 15 extends the farm pollution control relief to 31 December 2010. This relief will continue to encourage farmers to make the necessary and sometimes costly investments in pollution control measures while section 16 renews the 25% general farming stock relief and the special 100% stock relief for the same period.

A scheme to facilitate the removal and relocation of certain facilities where potentially dangerous activities are undertaken is introduced by section 19. Such industrial facilities can hinder the industrial and commercial regeneration of docklands in urban brown field areas. The scheme arises from the EU Seveso Directive 96/82/EC, which seeks to protect public safety near locations where potentially dangerous activities are undertaken. The relief, given by way of accelerated capital allowances and "additional relocation allowances" covers the removal costs of the industrial facilities and the cost of building the relocated facilities, including land purchase costs. Costs are limited to the net costs of the removal and relocation.

The rates of tax that apply for deposit interest retention tax and other investment products are increased by sections 24 and 25. In order to support new companies, section 27 introduces a three year tax exemption for new start-up companies which commence to trade next year. Also in support of business, section 29 makes provision for the recognition of payments to and from countries where double taxation agreements have been signed for preferential treatment rather than awaiting the completion of the ratification process. Sections 30, 31 and 32 deal with various amendments to the provisions relating to the research and development tax credit, the main elements of which I have already outlined to the House.

Building on the initiatives in the Finance Act 2008, section 33 extends from three to seven the categories of energy-efficient equipment included in the scheme of accelerated capital allowances for energy-efficient equipment. The scheme provides for 100% capital allowances in the year of purchase on expenditure incurred by companies on qualifying equipment bought for the purposes of the trade. The new categories included in this scheme are information and communications technology, heating and electricity provision, process and heating, ventilation and air-conditioning control systems and electric and alternative fuel vehicles.

All sectors must make a contribution to stabilising our public finances. Accordingly, section 34 provides for revised arrangements for the payment of preliminary tax by large companies with a tax liability in excess of €200,000 in their previous accounting period. It also revises the dates for payment of capital gains tax on asset disposals by individuals, thereby giving effect to the two measures announced in the Budget Statement. The section provides for payment of preliminary tax by large companies in two instalments, the details of which are set out in the explanatory memorandum to the Bill.

With regard to capital gains tax, the payment date for disposals made in the period 1 January to 30 November of a year of assessment will be 15 December, while the payment date for disposals made in December will be the following 31 January. The revised payment dates apply to disposals made in 2009 and subsequent years.

To ensure consistency with the EC treaty, section 37 amends the existing provision that provides that any gain arising from the disposal of assets situated outside the State and the United Kingdom to a person who is resident or ordinarily resident, but not domiciled in the State, is based on the actual amount received in the State, in accordance with the remittance basis of taxation. Section 39 increases the capital gains tax rate to 22%, as I announced in my budget speech.

Excise duties are dealt with in sections 41 to 61, inclusive. These sections set out a range of changes in regard to excise duties, including confirming the budget day increases in excise on tobacco, wine and petrol; the introduction of a lower rate of excise duty for low alcohol beer and cider; and for increases in excise duty payable in respect of licences, other than pub licences, permitting the sale of alcohol.

The provision to increase betting duty from 1% to 2% from 1 May 2009 is set out in section 48 and, as I have already mentioned, to allow deductibility for betting duty in computing the amount of profits or losses of a bookmaking business for income tax or corporation tax purposes.

The introduction of an air travel tax from 30 March 2009 is provided for in section 50. The general rate applying will be €10 per passenger, with a lower rate of €2 for shorter air journeys. I have taken account of concerns raised by regional airports, particularly those on the western seaboard. The lower rate of €2 will apply to departures from any Irish airport where the destination is 300 km or less from Dublin airport. This means that all Irish departures to locations such as Manchester, Liverpool and Glasgow will be subject to the €2 rate.

To address ongoing concerns about road safety and VRT evasion, section 56 provides for the introduction, in respect of vehicle registration tax, of a pre-registration test for vehicles, including used imported vehicles, being brought into the State while section 59 provides for the setting up of a temporary registration system for non-Irish registered vehicles being brought into the State for a period of more than 42 days.

In addition, provision is being made for the introduction of estimated excise assessments in cases where excise duty, including VRT has not been paid; extending more specifically the principle of unjust enrichment to VRT; and for changes to the VRT relief scheme for short-term car hire including phasing out the scheme, over a period of two years, by October 2011.

VAT is dealt with in sections 62 to 71, inclusive. These sections set out a range of changes in regard to VAT including, as announced in the budget, the increase in the standard VAT rate by 0.5% to 21.5% with effect from 1 December 2008. This increase applies to all goods and services which were subject to VAT at 21%. The other VAT rates are unaffected.

Section 73 amends several sections of the Stamp Duties Consolidation Act 1999 to allow for the introduction of the e-stamping of instruments for stamp duty purposes. To facilitate the introduction of e-stamping, section 74 provides an incentive to encourage the presentation to Revenue of instruments executed before the enactment of the Bill and in respect of which the stamp duty chargeable has not been paid within the prescribed period of 30 days. Provided such instruments are presented to Revenue for stamping within eight weeks of the passing of the Act together with the full stamp duty and appropriate interest, a penalty will not be applied to such instruments. This measure is intended to facilitate a smooth transition to e-stamping.

Section 75 repeals section 110 of the Finance Act 2007 from the enactment of the Bill and reinstates it with the same charging provisions but subject to certain exemptions being made to those charging provisions. The exemptions relate to certain transactions involving public private partnership arrangements and certain incentive schemes for capital allowances purposes. The section is subject to a commencement order being made and it is my intention to commence the provisions early next year.

Section 79 amends Part 9 of the Stamp Duties Consolidation Act 1999 to confirm the new reduced charges, already announced in the budget, for ATM, debit and combined ATM debit cards. The new rate on ATM cards and debit cards will be €2.50 and on combined cards it will be €5. The reduced charges for ATM, debit and combined cards take effect for the year ending 31 December 2008.

The reduction in the top rate of stamp duty for non-residential property from 9% to 6% is dealt with in section 80 along with a number of other items. Section 83 increases the rate of tax on gifts and inheritances from 20% to 22%. The tax reliefs in respect of the donation of heritage items to approved State institutions and the donation of heritage property to the Irish Heritage Trust are amended by section 87 to 80% of the market value of the items and property donated respectively. The ceiling on the aggregate value of donations qualifying for each of these schemes in any one year will remain at €6 million. This measure will ensure that the State achieves value for money and that there is a greater philanthropic element in the schemes.

To further facilitate business, section 89 and Schedule 3 give effect to the budget day announcement of an extension to return filing and payment deadlines where returns and payments are made electronically via the Revenue On-line Service. A number of amendments are being made to the Taxes Consolidation Act 1997 and to the Value-Added Tax Act 1972 to extend and align the existing deadlines for corporation tax, relevant contracts tax and value-added tax.

With effect from 1 January 2009, where returns and payments are made electronically, the return filing and payment deadlines for these taxes will be the 23rd of a month. This has the effect of extending the existing filing and payment deadlines by two days for corporation tax, four days for VAT and nine days for relevant contracts tax. A similar extension to the 23rd of a month is also being made for PAYE and PRSI by way of an amendment to the PAYE regulations.

Similarly, section 90 and Schedule 4 streamline and simplify the provisions in various Acts relating to the collection and recovery of taxes and duties, except customs, and replaces them with an integrated collection and recovery regime across the various tax headings.

I hope that the House has benefited from this explanation of some of the measures in the Bill. The measures it contains strike a balance between the need to protect those on low incomes and the need to restore order to our public finances. It also contains the measures we need to promote enterprise and business in this country so that we can return as early as possible to the path of growth. There are some matters under consideration that I may bring forward on Committee Stage. I will, of course, also give consideration to any constructive suggestions put forward during the debate today and tomorrow.

As each day passes, the ineptitude of the budget that was passed only weeks ago is further exposed. This Bill represents the last part of the jigsaw of a deeply flawed budget. The problem with the budget is that it was flagged by the Government as a serious strategy to address serious times. People looked to the budget to chart a way out of these difficulties. They looked for an approach by the Government that would seek to reinvent the real economy. We were once a strong and powerful exporting economy, but serious damage has been done to that achievement in the last five years. An important aspect of this is our loss of competitiveness, with many of these losses taking place in sectors controlled and regulated by the Government. People looked to the Government to set a new approach to those sectors which would ease the difficulties being experienced by exporters. They looked for a strategy that would support business through these difficult times. No such strategy emerged.

People also looked to the budget to see, for the first time, after all the talk of public service reform, a genuine implementation of reform that would lead to substantial savings in the budget. The public was anxious to see that the cost of running the shop managed by the Taoiseach, the Minister for Finance and their Cabinet colleagues would be lower. That did not come. What came instead were cuts of the most appalling nature. The Government need not look to this side of the House for criticism in this regard. Ample criticism was offered by Government Members themselves. How could a Government decide that the people who should carry the can for the rash budgets of the past and the ineptitude of preparing for these difficult times would be grandparents looking for health care, children seeking a decent education and young girls hoping to receive vaccination against cervical cancer?

It was a deep shock to people that a Government which spoke about strategic change and the new Ireland that would emerge to get us through this difficult time could produce a list of cuts of this nature. That is why people are appalled at the budget and why the Government's ratings have fallen. People did not look to this budget for savage attacks on those who are most vulnerable. It is the toughness of the schoolyard bully to pick out those least able to answer back. That is not what people expected in the budget. They were prepared for sacrifice and change in the context of a strategy that would get us through this difficult period but that is not what they got.

The problem with the Finance Bill is that it comes from the same stable as that flawed budget. As a result of the failure to address fundamental reform, we now stand almost alone among western countries in seeking to address the international crisis by raising taxes and cutting our investment. The EU in its new strategy is looking to precisely the opposite approach, believing that now is the time for member states to introduce an economic stimulus. We could have provided such a stimulus if there had been serious public service reform, if we were not in the position where more than one third of our borrowing is invested not in capital infrastructure for the future but in paying day-to-day costs. This is the direct consequence of the foolish management of public moneys over many years. I acknowledge that this did not happen on the watch of the Minister, Deputy Brian Lenihan. I feel his pain at being landed with this mess by his colleague. The reality is that the Government created the problems it now must face.

The Bill introduces 17 new taxes aimed at ordinary taxpayers, raising €2,500 from the typical household. These taxes have been cobbled together without any serious thought. The income levy has had to be completely rejigged. It is a little more equitable than it was in its original form but it remains unfair. The provisions for betting taxes have also been entirely rejigged. The air travel charge is another example of a decision taken without adequate thought for its implications. Not only are people aged over 70 years being asked to pay for their primary care, they are also being told that the tax relief available on medical expenses will be standardised. It seems the relief available on nursing home charges will also be standardised next year. This provision appeared in the budget but does not seem to be in the Finance Bill. These are significant changes. There is no evidence of clear thinking in the cobbling together of these provisions.

The changes announced yesterday by the British Government will have a significant impact for people living close to the Border. While the rate of VAT in this jurisdiction is being increased from 21% to 21.5%, the corresponding rate in the United Kingdom is being reduced from 17.5% to 15%. We could just about survive with a VAT rate that was 20% higher than in the United Kingdom and Northern Ireland. Now, however, the difference will be 43%. Consumer surveys show that people in the Republic are paying up to 33% more than their counterparts in the North for the same products in the same stores. This situation is getting worse.

Under yesterday's announcement, the low paid in the United Kingdom will be singled out for particular assistance. This is in dramatic contrast to the provisions in this Bill, where we have denied any increase in tax credits and imposed a levy on the low paid. The British Government has also recognised that companies are strapped for cash and have introduced reliefs to ease them through this period. We have done the opposite in asking companies to pay their tax early, involving a figure of close to €3 billion. The interest cost for the ten and a half months is some €250 million. These are substantial sums at a time when banks are making it difficult for companies to obtain funds even to keep their ordinary stock in trade going. It is putting people under significant pressure.

I personally regard the British approach, given that country's position in regard to public borrowing, as a risky move. I certainly would not advise the Minister, Deputy Brian Lenihan, against the background of his budgetary position, to follow its example. However, we should have been able, as a strong economy, to do more. We should have managed public moneys in recent years so as to be in a position to invest when the rainy day arrived. Instead, because we had built huge spending programmes on the back of a property bubble, our borrowing requirement has risen to 6.5% of GDP at the first sign of trouble.

It would be great to have the room for manoeuvre available to some countries to reflate their economies. We are not in a position to do so. I put the blame in this regard squarely on the shoulders of the Minister's predecessors. Ironically, we may be in a position to piggyback on the reflation that is taking place elsewhere in Europe. The Minister may have to make some gesture towards reflation in order that we can keep this strategy going. Unfortunately, because of the way the Minister and his predecessors have mismanaged the situation, this option is not substantially open to us.

At the root of this, I do not understand how the Minister and his colleagues could have agreed over the past three months to pay €2 billion in extra public service pay between the September increase, the increase next August and the increase the following May. When the Minister looked at the books when he returned from holidays, he must have seen that the only way to fund that €2 billion increase was through borrowing. The money simply is not there. I cannot understand how a Government that was contemplating axing free primary health care for the over 70s and reducing all types of supports in schools did not see that this was an unaffordable pay deal. The Government is repeating the mistake that was made in the benchmarking exercise. The message is that while reform is desirable some time in the future, the pay deal will nevertheless go ahead.

If there is to be some logic, the Government would undertake to introduce a radical reform in public services after which, if progress is being made, there would be bonuses for staff. People would understand that and there would be an incentive to drive reform. However, the Government has done precisely the opposite. The only reform proposals we have heard about are those that were leaked. This is the same mistake that was made in the past. It is a tragedy and I was blue in the face from telling the Minister for Finance's predecessor about the need to reform the way the budget is compiled. The budget only considers inputs and not outputs for citizens. It only considers what is demanded by agencies and not what is needed by clients. It only considers what will be spent not what is to be achieved. We cannot continue with a budget system drawn up in such a way and this is what must change fundamentally. We are chronically condemned to under-perform if we continue with such a system.

Many people in the public service have been failed by the Government because they are trapped in a system which does not serve their interests or encourage high performance. The budget system does not hunt down waste and it does not reward high performance. When money is short it turns on the weak and vulnerable, which is unacceptable, instead of attempting to reform the bureaucracy. This is not the purpose for which we were elected and we must change it.

I do not wish to put all the blame at the door of the Minister for Finance but the tragedy stems from the actions of the Government, through its decisions on benchmarking, decentralisation and the establishment of the HSE. These decisions were designed to send a message in code to the public service that performance to professional standards does not matter; that the Government does not care; that it will move public servants around like pawns on a chess board; and that it is not interested in the quality of the work of public servants, only in the political gains from such movements. The same applies to benchmarking. The Government was not interested in what would accrue in terms of reform. It took the soft option and used an ATM machine to get the public service off its back. These decisions were tragic.

I did not agree with the command and control system decided on by the Government when it came to the establishment of the HSE. However, if the Government was to have such a system, it could at least have removed layers of management and ensured the HSE would be a slim organisation capable of providing significant returns from shared services left, right and centre. It could have cut out human resources departments throughout the organisation and cut out managers no longer deemed necessary because of the streamlining of the system. Why did none of this happen? I imagine it was not because the Minister for Finance took no interest in greater efficiency, but because the Government decided it had no wish to disturb the hornets' nest. This sent a message to people in the public service that the Government is not interested in being professional, in high standards or results at the end of line. It indicated there is enough money with which to paper over all the problems. Such decisions damaged our system, and there is no getting away from those decisions.

We must accelerate the change. Since 2000 the Government has spent €20,000 extra for every family in the country. This is difficult to believe and one would expect a Rolls Royce public service as a result of that expenditure, rather than having grandparents sitting in accident and emergency units for 24 hours as happened to some 30 people in the Beaumont and Mater hospitals last week. One would expect such problems would be cracked. One would expect to see many other problems tackled also. One would have expected the grandiose strategies announced for climate change, health services or e-government to be delivered. However, we never got these. The reason is that we have locked ourselves into a budgeting system which does not serve its purpose.

We must completely change how we operate. This means making a courageous decision, which involves empowering the public service to deliver high quality services and to make the service providers accountable for the results. It means that the Government should not control everything to do with the pay levels set, the people employed or the way operations are run. Such matters should not be controlled from the centre. The Government should give the public service the authority to make these necessary changes and hold it accountable for the results. Rather than waiting for agencies to demand money, Ministers should ask what they intend to deliver next year and only then should they consider whether to allocate the money. Ministers should enter into deals and financial agreements with those agencies and units specifying what is to be delivered and any financial allocation should be dependent on these stipulations. This is a wholly different approach from the model now in place. Managers must be given the authority to manage and if we seek high performance such a change must take place. The Minister for Finance and his predecessor have been dancing around and have refused to grasp this fact and to bite the bullet in terms of changing the way we spend money. While the Minister continues in this vein, the public service will continue to under-perform.

Consider the 2007 output statements which appeared some ten years after the Government was first asked to produce them. I examined the figures for seven Departments. Some 37% or 106 targets we not delivered in those seven big-spending Departments. One would expect some money to be returned to the Exchequer following the failure to achieve 37% of targets and the failure to deliver on output commitments. There was no such refund. One would expect that senior managers would be told that bonuses would not be paid because targets were not delivered. However, bonuses were paid. How can this be squared with the demand of the Government, the Opposition and the electorate that public money should be spent prudently and that it should be allocated based on high performance?

The Minister should not pretend the targets not delivered were trivial. Some were very serious targets, including a commitment to 100 extra primary care teams, 110,000 extra general practitioner hours, the expansion of cancer treatment and screening, 800 respite care beds for older people, research and development projects, high potential start-up enterprises, 9,000 social housing units and 5,000 social and affordable units. There was a commitment to build ten new schools catering for 7,000 pupils, many of whom no doubt live in Deputy Joan Burton's constituency and similar growing constituencies. There were commitments relating to a contract for the new prison at Thornton Hall and the implementation of the Childrens Act 2001. These were significant issues and were important to people. They were not trivial matters; these were targets committed to but not delivered.

I cannot stand over a budgeting system which allows such under-performance and which allows the people managing that money to receive bonuses. This is what galls people and this is the reason people are frustrated that we are not seeing any change. We will be locked into this under-performing system until consequences are introduced when targets are not delivered and until managers are rewarded for targets delivered. It is appalling to see hospitals claiming to be short of money and closing down wards. What sort of signal does this send? If one is running such an organisation which is short of revenue one would cut overheads and increase patient throughput to earn more revenue. One would sweat the assets to meet targets. People could then say that such a hospital was responding to public need. However, if one closes down wards there are expensive consultants, highly equipped theatres and nurses underworked because a "bean counter" decided that the way to manage the health budget is not to reward people for output and to encourage high performance, but to adhere to a budget decided some time previously. The view of such a person is that a given budget is appropriate for a hospital of a given size, regardless of whether the hospital is performing well or badly. That is the system to which we are married. The Minister is in a position to change the budgeting system, but until he does so we will continue to live with such under-performance.

I examined the health service output statement for 2008. It is frightening to consider what happened to under-performing departments. They were given more money and the ambitions or targets of such departments were reduced. The Government has not indicated to under-performing departments that they are not living up to expectations and has not reallocated finances to high-performing units and departments. Under-performing departments are told that since they have worked their way into a hole and since they are so inefficient, the Government has decided to allocate to them more money and settle for less in return. This is not acceptable. We must tackle the problem at its core. The greatest change necessary is to ensure Ministers are serious about their responsibilities. Their job is to buy in services from units and agencies and to deliver to our clients, namely, those who elect public representatives, those queuing in accident and emergency departments and those in classrooms throughout the country. These are the people we should consider when voting to deliver results, rather than the demands of the agencies, their inputs or the lists of what they seek. We should consider what to give to our clients. All this must be brought centre stage in the budget, but it is not mentioned here. We will search in vain for anything to do with outcomes in this budget. That is not what our budgets are about, but it has to become what they are about. I feel strongly about this and I felt strongly about it with the Minister's predecessor. I am still "pissing into the wind"; that might be unparliamentary language.

I notice that provision is made in the Bill for specialist palliative tax relief. It is not that I object to tax relief, but I am a bit puzzled as to why we would make it retrospective to 13 March. It sounds like someone has got a deal that has been made retrospective. I welcome what the Minister is doing with the credit for research and development, but what is the justification for relaxing the treatment of buildings? We are not interested in buildings for research and development, but rather activity in research and development. The Minister seems to be under pressure from someone to give the relief to the building rather than the research.

The change on betting tax is welcome. The difficulty for bookmakers is that there is no other business in which a levy on turnover is the way to tax it. As I understand it, that levy is not passed on to customers. What is then the net margin in some of these businesses? People have claimed to me that the net margin is barely 2% in many bookmakers' shops. Many people are also running telebetting operations, and have located their head offices abroad, which is an effective ruse to avoid paying the tax. The transaction takes place between an Irish-based punter and an Irish-based company, but because it is routed through some brass plate operation in Malta, no tax is paid. If the Minister's proposal does not target these companies, then he will only target the operations that have high street locations employing people in Ireland. That is an issue of some concern.

I am also concerned about the thresholds the Minister has picked for the levy. The threshold of around €18,000 is marginally above the minimum wage, which is an extraordinary low level at which to ask people to pay taxes. There is now a complete riddle of these levies with different thresholds, such as health levies, PRSI levies, the special income levy and so on. They all have different thresholds for the low paid, with an exemption limit for some and a threshold for others. There does not seem to have been much thinking put into it.

I will not hold up the debate any longer. Unfortunately, we will probably have endless hours to get to know one another much better in the dungeons of the House as we go through the Bill line by line. I look forward to that debate.

The budget of 14 October will go down in history as a boomerang budget that has slapped Irish consumers and businesses in the face since it was first unveiled. It has also given the Government a few smacks on the face, to judge by its surprise at the angry pensioners outside the Dáil. Bringing forward the budget was a clever ruse by the two clever Brians. Old-age pensioners, school-children and taxpayers have been lamenting it ever since.

Not only have we a boomerang budget, but we have corporate raiders — private equity and hedge funds — waiting to take over our banks. What is the strategy? The Government yesterday announced new laws to ban beggars. What will the Minister do about delinquent bankers? He told us the sad scéal about how the bankers came cap in hand on 29 September to get a guarantee from the taxpayers. They now seem to be lining up to hand some of our banks over to venture capitalists who may be more like vulture capitalists.

This is the Minister's first time in the House in a long time. He has not advised the House of the current situation and he has not updated me on the position with the banks.

The Deputy has not been singled out.

I did not want to speak for anybody else. Perhaps he has been having a midnighttête-à-tête with Sinn Féin, who as somebody suggested might have large balances in the banks and might be in a position to assist.

If the Deputy wants a briefing on the situation, I can provide it at any time.

Why does the Minister not consider an equity stake by the State in the banks? This would provide the basis for a job retention strategy, but would more importantly provide the capacity to get credit flowing to small, medium and large businesses around the country.

Does the Finance Bill 2008 help or hinder the economy? As the Labour Party finance spokesperson, I want a budget that helps to stimulate the economy, stems job losses and gets people who have already lost their jobs back to work. I want to see Irish businesses, big and small, regaining confidence that their bank will be open for business and that the Government will be an agent of positive help as we face perilous economic conditions. Governments around the world are reflating their economies and reforming their banks to give fresh hope to their people, but our Government is confirming a deflationary strategy in this Bill which will cost jobs and destroy confidence.

In today's Bill, the Minister is proposing to increase VAT by 0.5% to an astronomical 21.5%. This is one of the highest rates in Europe, and only Poland at 22% and Sweden at 25% have higher rates. VAT will now be 6.5% above the new rate of 15% in the North and across the Irish Sea. No town north of a line from Dublin to Galway is less than 90 minutes drive to a shopping centre in the North. People go from Donegal to Derry, or from the Naul and Garristown in north County Dublin to Newry in 55 minutes. Irish retailers are hanging on by their finger nails for Christmas business and the new year sales. Many of them make most of their profit in the pre-Christmas and post-Christmas sales. This is an enormous problem for them.

The budget imposes an income levy on all income above €18,304, without any marginal relief. When the Minister considers amendments to the Bill, he should consider introducing marginal relief for older persons. The relief only applies to couples earning more than €40,000. If they earn €10 over €40,000, they will pay 1% on everything. Many older couples on age relief may have an occupational pension that would lead to an income of more than €40,000. If they earn €39,900, they will completely escape the 1% levy.

In terms of tax structuring and design, not having marginal relief is crazy. If a person earns €18,304, he or she will not have to pay the 1% levy. However, if that person's employer asks him or her to do some overtime, bringing his or her earnings up to €18,350, then he or she will be liable for the full 1% levy. We must bear in mind that we are referring here to people who are barely earning above the minimum wage. If they are asked to work on a Sunday or a bank holiday for example, their earnings will go over the limit and they will have to pay 1% on their income. This is what is known as an "employment trap", whereby workers refuse extra hours of employment because their tax position is such that their overall net position would be worsened by doing additional work. The Minister must examine this again.

I am also concerned that the budget fails to address the poverty trap for those who are in need of mortgage interest assistance. There are lots of young couples in the country paying mortgages of €1,400 to €1,600 per month. Let us take the example of such a couple, with the man working in the construction sector. If that man loses his job, he will not get any assistance with paying the mortgage from a community welfare officer. In the early years of any mortgage, most of the monthly payment is interest. In order to get assistance with that payment, his wife will also have to go on the dole. If both partners go on the dole, they will qualify for the mortgage interest subsidy after about 12 or 13 weeks, if the man in question is a self-employed construction worker. Such a couple will be forced to take up life on the dole.

This is a crazy economic strategy. The Minister must take on the banks. He must ask them what is the point of foreclosing on the homes of such couples, who are only late with their mortgage payments temporarily because of a job loss. Such couples were a good credit risk when they took out their mortgage. I am not referring here to sub-prime borrowers but to people who were viable mortgage risks a year ago but who, through no fault of their own, have now lost their jobs. It indicates an appalling lack of ideas on the part of those who drafted this budget that such situations were not even imagined. We will have banks foreclosing on houses all over the country. Who will buy those houses? Most likely, the banks will rent them back to their former occupants, who will have to stay on the dole in order to qualify for rent subsidy. This is a poverty trap that is being consciously established by the Government at present.

In this 204 page Bill, there are 21 pages dealing with one issue, which is not getting people back to work, preventing foreclosures or the like but urban parking charges. I suggest that writing those 21 pages probably cost as much as the urban parking charges will yield. We have only two pages devoted to bicycles, but apparently we will have very detailed regulations at a future date. On what planet are the Minister and his officials living? While these are worthy objectives they do not need to take up so many pages and sections of the budget at a time when the economy is in mortal peril, when tens of thousands of people have already lost their jobs and tens of thousands more are at risk of so doing. Is this the Minister's definition of change? Does he believe that this is the kind of issue upon which the Finance Bill should concentrate?

To return to the issue of VAT, it is unbelievable that when the British Chancellor, Mr. Darling is slashing UK VAT rates, our Minister for Finance is increasing the Irish rate, which is already one of the highest in Europe. The Minister should take the opportunity provided by the Finance Bill to drop his decision to increase the VAT rate by 0.5%. I found it very difficult to understand the Minister's logic on this on budget day. Does the Minister realise the extent of the administrative burden placed on businesses by a change in the rate of VAT? If a company has, for example, 100 product lines, it must make hundreds of changes for the sake of 0.5%. At a time when businesses are trying to stay afloat, not to mention the competition elementvis-à-vis Northern Ireland, it does not make very much sense.

In February of this year I spoke on the last Finance Bill. I said that the time for action had come to stem rising job losses and that the Government could not afford to wait six months until unemployment was more than 5%. Ten months later, unemployment is now almost 7% but the Government forecast for the unemployment rate next year is only 7.3%. That forecast is already hopelessly out of date, with the ESRI indicating that unemployment will reach 8% relatively early next year.

The risks posed by our economic situation go far beyond statistics and percentages. The social cost of sustained economic decline will be immense. An entire generation of young people could find themselves locked out of the jobs market. The young people graduating from third level colleges at the moment, in whom we have invested so much and who have really high-quality qualifications, cannot find work here. It is back to the future and back to the 1980s, when people spoke about where in the wider world they would go for work.

Tens of thousands of people around the country are losing their jobs from building sites and factory floors. While some of those jobs will return when the economy rebounds, many will not. We must urgently put in place pathways back to employment for those who lose their jobs. We need a major programme of training and upskilling to help people acquire the transferable skills needed for 21st century jobs. If the builders of today who are losing their jobs go back into education, they can be the technicians and engineers of tomorrow. They will be able to find work in the IT sector, for example, which is experiencing shortages in certain types of skilled workers. The scourge of long-term unemployment must be public enemy number one.

The Social Welfare Bill introduced by the Minister for Social and Family Affairs, Deputy Mary Hanafin, which is a sister to this Finance Bill, withdrew child benefit for 18 year olds in full-time education, including third level. Many women in this country are parenting teenage children on their own, with the hope of sending them on to third level. I hope the Minister has given some thought to the blow that the cut in child benefit will mean to the family budget of, for example, a woman in her forties with teenage children who receives limited support from her former partner. Not only will she lose her child benefit payment, but the registration fee for third level institutions will also increase next year by €600. The woman in my example is in the PAYE sector and may well be working in the Minister's Department or some other Government agency. As the Minister knows, PAYE workers cannot qualify for grants to put their children through third level unless their income is extremely low. The parent of an 18 year child stands to lose just under €1,000 in 2009 and just under €2,000 in 2010 due to the changes to child benefit.

There are 100,000 more people on the live register now than one year ago and in one of the meanest budgets in a quarter of a century, qualifying conditions for jobseeker's benefit have been made much more difficult. The effect will be a reduction of €2,600 per year in income for those who become unemployed. I must query the logic of this, particularly in terms of reflating the economy and getting people back to work. Where is the pathway in this? We can see the punitive element clearly but how will taking €2,600 away from people help them to find another job?

Mr. Joseph Stiglitz, the Nobel Laureate for economics wrote recently:

The laws of nature and the laws of economics are unforgiving. We can abuse our environment, but only for a while. We can spend beyond our means, but only for a while. We can free ride on the investments made in the past, but only for a while. Even the richest country in the world ignores the laws of nature and the laws of economics at its peril.

He also went on to say — and this is why the budget and the strategy of the Government are so lacking in any dimension of hope — that if we address our economic challenges in the right way, "it will help limit global warming and may even force the realization that a truly high standard of living might entail more leisure, not just more material goods". This is the kind of revolutionary positive thinking that we need at this time. It is time to lay down a framework for a sustainable future built on economic competitiveness, environmental responsibility and social solidarity.

Investing in public transport, promoting green-tech enterprise and shifting to eco-friendly energy will stimulate the economy while providing the foundation for long-term sustainable growth. Developing the green economy now is not just smart in terms of the environment; it is good for the economy. If we invest in Government action now we can put ourselves on a path to smart green growth. Limited initiatives such as the bicycle grant scheme, the car parking scheme and the small home insulation grants are fine as small pieces in the jigsaw. They are like the taster menu one gets in a fancy restaurant. They areamuse-bouches. That is what they amount to. They are a little tasteen; they are not meant to be really serious. Protecting our environment is not an externality or an added extra. It should be our number one priority.

I welcome the Minister's decision to remove the Cinderella rule, as I dubbed it some years ago, for non-resident tax exiles. Up to now, the midnight rule, whereby non-resident tax exiles could spend a day in the State provided they left by midnight in their jet or helicopter, was a blatant opportunity for abuse. They could come back ten minutes after midnight and the day started again. This move is certainly welcome, but it really is tax justice for slow learners. Plenty of loopholes and tax shelters remain in the tax code. The Minister replied to a question only two weeks ago that the cost in 2006 of the 15 most popular tax breaks in the construction area was €464 million. He did not close the €260 million loophole that allowed developers to escape paying stamp duty. I know he has placed some restrictions in the Bill in this regard. These are welcome and we will ask him to spell them out on Committee Stage. However, our tax code needs real, meaningful reform to make sure everyone pays his or her fair share. The Minister will tell us that the Commission on Taxation will deal with the issues of reform. However, I do not hold out much hope, for two reasons. Tax justice — particularly for the PAYE sector — is not part of the commission's terms of reference; in addition, the commission is stuffed with practitioners of the dark art of tax avoidance.

The Bill contains significant measures to increase and broaden tax reliefs on research and development expenditure, including with regard to qualifying buildings. Moves in the area of research and development are welcome, particularly if we are serious about winning jobs in emerging high-tech sectors and attracting laboratory jobs to replace those being lost on factory floors. Our Nordic neighbours are streets ahead of us here, dedicating vastly greater resources to delivering a knowledge economy. The Minister promised to produce a cost-benefit analysis when introducing further tax breaks, and he should do so with regard to these and other tax break measures — for example, the exemption of companies from corporation tax for the first three years of their operation if their liabilities are below €40,000. It would be interesting to know whether the research and development measures were motivated by lobbying on behalf of a particular company. Much of it seems tailor-made for something, particularly the section dealing with buildings. Perhaps he will expand on this on Committee Stage. I support the high-tech measures but they are still not enough to get the country moving again.

Sounding a note of optimism is difficult when every day is a bad news day for the economy. Looking to the future with confidence is not easy when one has lost confidence in the Ministers running the country. I assure the Minister that people have lost confidence in his Government. It turns out that when the Minister announced the 2009 budget on 14 October, much of it was just kite flying. After a succession of own goals, he announced a series of retreats and climbdowns. I called it the boomerang budget. When the Government was asked to step up to the plate with a programme for economic recovery, it struck out.

Before the Finance Bill has even been debated, we are being told an economic plan is on the way. This is an amazing admission of the inadequacy of the Finance Bill. The Finance Bill is meant, broadly, to be the economic plan of inflows and outflows for the year. This Finance Bill will not do anything to get our economy back on track. The Government is now going back to the drawing board again in the hope that it will be third time lucky. At the very time when our economy needs a fiscal stimulus, the Government is hamstrung by its past profligacy. The forecast for a 2009 budget deficit of 6.5% of GDP already looks hopelessly optimistic, before we even reach December. All the news is that the inflow of receipts from the self-employed and similar this month appears to be less than expected. Every Minister for Finance in the Minister's seat has relied on this for a pre-budget boost.

There is a growing consensus that the Irish economy could decline by up to 4% next year, rather than the 1% forecast by the Minister on budget day. This could send the budget deficit into double figures. According to the old orthodoxies of fiscal conservatism, there is now little room for manoeuvre. Borrowing to boost the economy in the short term by investing in education and infrastructure will see us better placed to help the economy to grow over the medium term and balance the books over the long term. What we need at this point is to put money into the economy rather than taking it out. It should happen as part of a coherent, co-ordinated economic strategy. Unfortunately, the rocketing budget deficit is not part of a strategy. It is the result of economic mismanagement on an epic scale.

The UK Government is now trying to meet the challenge head-on by betting the house on a fiscal stimulus package. Does this Government have any strategy to stimulate the economy and replace some of the demand wiped out by the credit crunch? Even the small matter of the 0.5% rise in VAT will make Christmas much more difficult for our retailers. We have many jobs in the retail sector, whose business will simply go north of the Border. The Labour Party has set out the framework of a billion-euro stimulus package, the main elements of which are as follows: a significant primary and secondary school building scheme, which would put construction workers to work building new schools, refurbishing old schools and improving educational opportunities for future generations; a meaningful and comprehensive insulation scheme to retro-fit houses and schools across the country — the Minister may have heard the President-elect of the United States, Barack Obama, refer to this as winterising; and a significant investment in public transport, which would improve quality of life and increase the competitiveness and attractiveness of our city regions — key magnets for inward foreign investment — as places to invest and create jobs by ensuring our infrastructure is good enough to attract the very best international business to the country. Moreover, the €1.2 billion in development levies currently held by local authorities should be allocated for immediate use under its designated headings. Again, this would put construction workers to work building much needed community infrastructure around the country.

We must utilise new small and medium enterprise-centred credit lines from the European Investment Bank which are available. I asked the Minister a parliamentary question last week. The Tánaiste is talking to somebody. The Irish banks will not use this facility. One bank is now making inquiries, as it were. I understand the margin may not be big enough. Our enterprises are small and medium businesses. If there is a fund which 22 European countries are using to draw down a significant flow of funds, why is the Minister not proactively selling it? If the existing banks will not provide credit to businesses then we should find another mechanism by which to supply it to them.

A 4% decline in the economy next year would see it fall by more than 10% in real terms over just two years. This is the technical definition of an economic depression and would put us on the precipice of a deflationary spiral. Much as in an aeroplane, the steeper the descent, the more difficult it is to get back on an even keel.

Fianna Fáil has now been in government for eleven years. In his last two budgets as Minister for Finance, Deputy Cowen was particularly remiss in continuing to boost the construction sector and to boost the bubble in land and construction speculation. Now that this bubble has burst, unfortunately, our economic difficulties are even worse. I note that both Deputy Bertie Ahern and Charlie McCreevy and the Minister, Deputy Brian Lenihan appeared on the RTE programme about the history of Bertie. Charlie McCreevy declared that he had boosted everything and that it was wonderful. I say, good for him; he is over in Brussels. Deputy Bertie Ahern has gone and the Minister might have some justification in feeling that he has the honour of picking up the pieces but I acknowledge it is a challenging job.

We need to rebuild the economy and this includes an important role for public services. The continual devaluing of public servants could not be regarded as an economic strategy. People look for scapegoats in time of war and currently many people are of the view that the public service might be an attractive scapegoat. There are serious problems in the public service and there has been a proliferation of agencies.

There are three areas in the public service which the Minister should address immediately. The first is the bonus culture. Why should every senior public servant above a certain level automatically get a bonus? In each Department, one or two people do not get the bonus. What does this bonus culture achieve? We have seen in the case of FÁS some truly reprehensible practices, yet all the people involved continue to collect their bonus. There has been a decrease in accountability in the public service. Good public servants cannot bring the light on the quality work they do and poor public servants are not being held to account for what they do wrong or where they waste taxpayers' money. Fianna Fáil has been in government for 11 years. There is a very significant element in some Departments of public service expenditure which is essentially patronage expenditure for Fianna Fáil. FÁS is not immune from this aspect. A Minister launches a programme, a Minister commissions a study, the Minister pops up for photographs to announce the launch or to announce the programme. The report is done and the Minister pops back again for the launch of the report along with photos in the newspapers. The Minister travels up and down the west coast to give out cheques with the purpose of generating massive political patronage. This kind of political patronage seriously worries many decent public servants who have no option but to follow whatever their master, the Minister, decides. How the Minister deals with this in his own party will be a measure of how courageous he is.

The Minister plans to announce public service reform but unless we hear tomorrow about an end to the bonus culture, the patronage culture and some serious accountability by public servants, I do not anticipate much outcome from tomorrow's announcement.

I welcome the opportunity to speak on Second Stage of the Finance Bill. I acknowledge the important steps taken by the Minister in bringing forward the budget at an earlier date this year and thereby ensuring the Finance Bill will be debated in the cool light of day at this time of the year. The budget is usually announced in early December and we would all go away and forget about it and then some time in February it would be debated in the House which is well into the new financial year. It is very good practice that the Finance Bill is being discussed and that all Stages will be discussed in the House and then it will go to the Seanad early in the new year. It is good from a taxation point of view to know the shape of the Finance Bill and the Government's economic programme for the year ahead before the end of the year rather than in February or March and sometimes near St. Patrick's day or at the end of March. It is good practice to have the debate early and to have the Estimates published on the same day as the budget. I am a former chairman of the Joint Committee on Finance and the Public Service and I spoke about this on several occasions. It did not make great sense for an organisation to announce its plans and economic activities for the coming year in two halves — what it planned to spend and then three weeks later announcing in the budget how it would raise the income. No commercial organisation could conduct its business activities in this manner and I am very pleased to see that both have been combined. This means a certain amount of information overload during that week and some of the details do not receive media coverage because of the amount of information. This is the first year that the Estimates have appeared with the budget but people will be more aware next year and media commentators and Members will be able to adequately sift through both documents and so ensure a proper debate on taxation measures and expenditure measures. There will be a couple of weeks of debate each year from now on and this is to be welcomed.

A couple of hours ago the House voted on the matter of referring Supplementary Estimates to the relevant committees. Some Members were of the view that the debate should be taken in the House. This was one of the most hollow and shallow reasons for calling a vote in the House that I have ever seen. Last year, Deputy Rabbitte produced a report on the amount of time the Oireachtas committees devote to considering the Estimates including the Supplementary Estimates. The committees should be going through the detail with respect to the Departments. They gave an hour or an hour and ten minutes to the discussion of the expenditure of billions of euro. It is only proper that not only should these matters be referred to the committees but I would like to see full engagement at the committees and a proper debate and a teasing out of each Department's Estimate and Supplementary Estimate. I would support a detailed discussion and I would like to see Members more genuinely engaging in the Estimates debate rather than just calling for a vote in the House as to whether it should take place in the Chamber or in committee.

There has been a severe change in economic conditions in the past year. This time last year even the most pessimistic commentator did not predict what was before us in 2008 and what will be ahead of us in 2009. What is happening in Ireland is not unique and it is exacerbated by the international financial difficulties. This is a worldwide happening and every part of the globe is affected. It is important to recognise that we can take those steps in our control to influence economic developments in Ireland. This will help ensure Ireland is in a good economic position next year and in the years ahead. It must be recognised that Ireland is a small country in the eurozone, a small player in the international community and can only have a small influence on international economic activities. Instead, some people would have us believe that every matter from the price of oil to the international financial sector crisis is the fault of the Taoiseach, Deputy Brian Cowen, or the Minister for Finance, Deputy Brian Lenihan.

I have attended several public meetings with farmers and teachers in the Laois-Offaly constituency since the Budget Statement. I have found the public knows the economic reality. The debate in this House, however, is far removed from the reality of which the people are aware. Blame is thrown across the floor of the House every day but it is not washing. Someone told me that a child of 14 years understands there is an economic recession. The public is aware adjustments need to be made. Last night, I met with 30 young farmers who understand the economic situation has changed utterly. They have seen some of their colleagues lose their jobs in the construction industry and have had to revert to farming as a safe haven. While the Government cannot prevent a change in the economic tide, we can manage what is under our control effectively.

I was intrigued by some of Deputy Joan Burton's earlier comments on the public service. She seems to have a problem with democratically elected politicians and Ministers having an involvement with the public service. Is it a crime for a Minister to launch a report or attend a public event hosted by a Department or State agency?

Yes, when it is costing a fortune. That is where the money is being wasted.

This is termed as "patronage". I would hope elected public representatives engage more with public service bodies, be they national or local. I cannot understand the argument that there is something wrong with the democratic involvement of Ministers in activities in their Departments. I understand the criticism of Ministers not being involved in their Departments, not supporting policy initiative or not giving a lead on Cabinet decisions to be implemented by State agencies and Departments. However, when Ministers do participate in such processes, they are criticised as well. I do not buy into that line of argument.

Some of the measures being introduced in the Bill may not seem like good news but, on the other hand, people accept their necessity because of their understanding of the economic situation. Section 2 deals with the new income levies of 1% on income up to and including €100,100, 2% for income in excess of €100,100 but not greater than €250,120, and a charge of 3% thereafter. I do not understand the €120 element to the last threshold but I am sure there is a good reason for it.

The levy will apply to all income in a similar manner to the Tax Acts, but will be applied before granting relief for pension contributions or deductions for capital allowances. The levy has been a bone of contention among the farming community. I have endeavoured to explain the reasons for it at public meetings. I have also highlighted that all business expenses, whether they are for the local garage, shop, electrician or farmer, are all subject to the same income tax code. All operating expenses that lead to the costs of running a business can be deducted. The message went out that the levy was a turnover tax, 1% on gross income. These levies are not a turnover tax. Some farmers believed it would be 1% of their creamery or mart cheque until it was pointed out it will be 1% of their net income.

The only items excluded are pension contributions and capital taxes. I commend the Minister on introducing this by way of levy rather than increasing the tax bands. Had we gone down that road, people would have been able to offset pension contributions, capital allowances and investments in properties to reduce their taxable income, resulting in less of a gain for the Exchequer. The Minister's use of a levy is correct, effective, pragmatic and gets straight to the high earners who could have used taxable deductions as a shield against this.

I am pleased social welfare payments, those on the minimum wage and those entitled to a medical card will be exempt from the levy. People over 65 years with a gross income of less than €20,000 per annum, with a provision for double that amount for a married couple, will be exempt. Will the Minister clarify that the over 70s with an income of under €700 per week, or €36,400 per annum, €1,400 and €73,800 respectively for a married couple, and an entitlement to a medical card will also be exempted from the levy? I hope the medical card entitlement has been taken into account for the over 70s as well.

Income from deposit interest retention is not taken into account with the levy because it is caught by the DIRT regime, which has risen from 20% to 23%. It would have been unfair to include this in the income levy. I raise this because the system is in place for senior citizens to pay their DIRT through tax relief at source if they sign a specific form with their bank. If it is a joint bank account, it must be signed by husband and wife. Recently, I had a constituency case of an elderly woman in her 90s and her son in his 60s who had a joint account in both their names. They did not, however, qualify for the tax relief at source because they were not a married couple. Will an exemption be made in such cases where both parties are over the age requirement? I accept it could open up unusual anomalies but there cannot be too many people in this category.

The Bill's provision for a levy on second homes is a good measure. As there are so many people with second properties, holiday homes and rental properties, the minimum we should get from them is €200. I welcome the measure and, at the risk of being unpopular, I would not hesitate to increase that levy in the next few years. People, who in the good times, were able to obtain a second property for rental purposes can easily make a contribution like that, particularly when water rates are not payable. The argument will be made that it will be added to the rent of the tenant but not every second house is rented. It is a minimum charge and I am pleased to see it introduced.

I understand the health expenses relief measure and we must accept the reality. Up to now, a person on a high income on the higher rate of tax could get tax relief on medical expenses, through the Med 1 form, at the top tax rate. If one had medical expenses of thousands of euro over the course of a year, one could get 41% of it back. From looking at those forms over the past few years, I know that the amount of money that one can claim as medical expenses as an outpatient from private health insurers such as VHI is very restrictive. They allow paltry figures, such as €35 per consultant visit where the visit could cost €70, €80 or €150. This is a good tax rebate for those incurring medical bills directly, without going to the public hospital and adding to queues there. It is a good incentive and it is right that it be standardised. Those on the lower tax rate could not avail of the older measure. It is hitting many of us who have claimed it at the higher level but there is an issue of equity and fairness.

Another development regarding medical expenses relief is that the minimum amount has been reduced. There was always €250 that one could not claim. This was eliminated some years ago. Now, it is applied to the standard rate. This will help with the move whereby one can get tax relief at source. If consultants are operating through the larger hospitals, or GP practices or dentists properly registered for tax, it may be possible to get tax relief directly at source, as is happening with mortgage interest, the VHI and private health insurance. It is mooted to happen for trade union subscriptions. Maybe it has happened or is in the pipeline. It is only fair and equitable that those on the standard rate should not have to subsidise those who can get tax relief at the higher rate.

I welcome the provisions of section 13, which has been referred to by a previous speaker. This concerns the abolition of the residency rule. If a person left the country before midnight and was not here at the stroke of the bell like Cinderella, the day was not counted for being in the country. My view, although maybe my understanding is unclear, is that the system facilitated some people not having residency in any country. They were domiciled somewhere but if they split their time between three countries, they would never end up being over 183 days in any country. The could spend three or four months in each country, never amounting to six months in any one. They could legitimately say they were non-resident in any country. This will help us to ensure that people pay tax somewhere. Let us hope it is in Ireland but it might force them to pay tax elsewhere. The measure is long overdue. That people could avoid being resident here gave rise to a perception of inequity. I prefer people to pay the full tax rate in Ireland if they are earning income in Ireland and availing of services here, rather than making voluntary donations to particular causes they are keen on. I prefer the money to be paid in income tax to the Exchequer and to let the Government decide on spending priorities, not the individual taxpayer.

I refer to section 87, where some people can donate heritage items and paintings in lieu of tax. There is a cap on that and someone cannot pay a massive tax bill in this way because there is a limit to what the Government will accept. It is good that it has been limited to 80% of the value. If someone hands a painting worth €100,000 to the State, he or she will be allowed a tax credit of €80,000 from now on. That is fair enough because the person is getting a good deal by not having to write the cheque in the first place. It is only right that the person should forfeit some deduction and 20% is a reasonable amount.

In section 14, a significant deduction has been made to tax relief on pensions. This is only right in the interests of equity, many people shielded much income by having a large pension provision. This was not available to people on lower incomes. Section 15 deals with the farm pollution control relief. The Minister has extended it by a further two years to 31 December 2010. In the few seconds available to me, I might be bold enough to suggest he ask his ministerial colleague to extend the farm waste management scheme by a couple of months into 2009 because much work has not yet been completed. This would tie in neatly to allow the grant scheme to continue for a couple of months if tax relief was allowed on it for next year.

I have a few minutes now and again at 8.30 p.m. While I have the attention of the Minister, who may not be back at 8.30 p.m., I wish to raise the matter of tax relief for medical expenses. When I was debating with the Minister for Defence on budget day, I understood that it was the intention of the Minister for Finance to exempt nursing home fees from the standard rate and to continue them at the marginal rate of tax. The text of the Bill does not do so. It exempts them for 2009 but since the subsection lapses at the end of 2009, the primary section is maintained as law. It will apply to nursing home fees from 1 January 2010. If it is the intention of the Minister that this would apply at the marginal rate, an amendment is required. If he simply deletes the provision referring to the tax year 2009 it is a sufficient amendment to allow the issue to stand at the marginal rate of tax. The argument is that when the Fair Deal scheme is introduced, this will be necessary but the two schemes do not match. The means test in the Nursing Homes Support Scheme Bill is unusual, in that it decides what contribution people will make rather than what entitlement they will get. The higher the fee and the higher the income, the greater the contribution. If one reads the tables for income tax in the Bill, people who qualify for the fair deal are standard rate taxpayers, unless the nursing home fee is very high.

Another quirk is that because it is a means test that decides a contribution, the level at which one gets a rebate will be calculated on income. If a person is paying tax at the higher rate and gets relief at the marginal rate, he or she will be assessed as having to make a greater contribution because the income has increased by that net amount. Under the Fair Deal scheme, it is great that sons and daughters will no longer pay but if they are not paying any longer they will not get relief at either the standard or marginal rates. The issue will not arise.

The Nursing Homes Support Scheme Bill is silent on tax issues. When a family home is attached at 7.5%, it is not clear that there is a tax rebate on that to the inheritor of the family home or at what level that will apply. I am not pushing that case. If someone inherits the family home and there is an attachment of 7.5% of its value, there is not a great case to be made for relief at either the standard or marginal rate but the Bill is silent on this. I understood it was the intention of the Minister to grant this relief. He has not done so in the Finance Bill.

If it will assist in putting the matter beyond doubt, I will have it examined.

Debate adjourned.