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Dáil Éireann debate -
Wednesday, 26 Nov 2008

Vol. 668 No. 4

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

Question again proposed: "That the Bill be now read a Second Time."

This is not so much a Finance Bill as depressing evidence of a Government that is continuing to sleepwalk through a crisis that not only threatens the banking system and the construction sector, but is also slowly bleeding the small businesses that employ most Irish workers and are at the heart of the economy. Hundreds of thousands of working families, whose effort drives this country's economy, have been abandoned in this Bill. They have been condemned to endure higher taxes and more stealth charges to fund the policies of failure. The Government has failed on income tax, on VAT, on tax exile status, on the reform of tax relief and on tackling tax fraud. It has failed to protect the vulnerable. Most importantly, in terms of ensuring economic growth, it is penalising working families rather than rewarding them.

There is nothing in this Bill to incentivise or stimulate the economy. Deputies should not just take my word for it — people outside this House have also criticised the Government's strategy. This Finance Bill has been described as a cobbled together package that does nothing to indicate that the Government knows what it is doing. The initiatives in the Bill have been described as not being of a scale that reflects the seriousness of the economic situation. It has been suggested that this legislation will do practically nothing positive for Irish business. I urge Members to listen to the voices of others outside the House.

I represent one of the parties in this House that was regularly castigated over recent years for pointing out the structural flaws in the Irish economy. There was a brief moment in September of this year when it seemed that the Minister for Finance was finally grasping the seriousness of the economic crisis threatening the Irish economy. I refer to his decision to schedule budget 2009 earlier than expected. Ten weeks on, it is clear that the decision was simply a public relations stunt. The budget was devoid of any substance and lacked any direction to drive the economy forward over the next three years.

Sinn Féin had proposed an increase of 5% in the PAYE tax credit so those on low incomes would get some respite from the higher energy, mortgage and food costs they have endured over the last year. This Bill, which leaves personal credits unchanged, widens the 20% tax band marginally. It does nothing to help families to deal with increased living costs at a time when inflation in the economy is over 4%. Double digit increases in electricity and energy prices have been levied on households this year. Many families face new transport charges for school buses, higher hospital charges, a new VHI levy and increases in university registration fees. When one considers these charges in the context of the tax increases for low and middle income families, it is clear — even at a conservative estimate — that the incomes of hard-working families will decrease by up to €1,500 in 2009.

The Minister has done nothing to restore the purchasing power of Irish families. His proposal to increase VAT to 21.5% is another regressive step that will have an unfair effect on Irish families. Towns on this side of the Border are being emptied of shoppers. The 2.5% VAT decrease that was announced by the British Chancellor of the Exchequer yesterday will exacerbate the gaping imbalance between the two economies. The Minister for Finance is actively encouraging shoppers to leave his tax jurisdiction. It is an example of the economics of "Fianna Fawlty Towers", rather than the financial stability he has promised us.

The 1% income levy on workers who earn more than €18,305 is unwarranted and will damage low income families. The income levy should apply only to incomes in excess of €38,000. A 3% levy should apply to incomes in excess of €200,100. Our proposal to remove the PRSI ceiling would have the double effect of raising much-needed tax revenue while cushioning those on low and middle incomes from the worst effects of these increases.

Sinn Féin welcomes the decision to end the Cinderella clause for tax exiles. I am bemused by the Minister's claim that tougher restrictions cannot be placed on Irish tax exiles because of double taxation agreements. Are we really to believe the Minister cannot act? He can raise taxes on a whim and write a blank cheque for the banks, but it seems he cannot take action in respect of a handful of supposed Irish citizens who do not want to pay tax here but demand to enjoy the benefits of Irish citizenship.

Perhaps we should not be surprised, given that more than ten years have passed since the first revelations of illegal private bank and offshore tax defrauding accounts held by hundreds of Irish citizens were uncovered by the McCracken tribunal and published in the Ansbacher report. We were told at that time that we could not get full access to the details of illegal accounts held by Irish citizens in the Cayman Islands. Following yet another unsuccessful High Court challenge by a Fianna Fáil Government, aimed at uncovering tax fraud, this Bill is making more changes in the tax code to empower investigations by the Revenue Commissioners. Such investigations have thankfully brought hundreds of millions of euro into the State coffers. Why is it taking so long to deal with offshore tax fraud?

The Government has stood by in recent years as billions of euro have poured out of the economy and into property investments in Britain and Europe. In 2006, Forfás estimated that the Irish economy had been a net investor outside this country since 2004, when Irish citizens invested €12.7 billion outside the economy. In 2006, Irish investors spent almost €8 billion on commercial property in Europe. Now that the horse has bolted yet again, the Government is introducing half-hearted measures.

The proposal to change the system of research and development tax credits is another example of a suspect Government measure. IBEC has described the changes in question as disappointing. Questions are being asked about the Government's entire research and development strategy. Such a strategy has to make sense in the boardroom and on the workshop floor, but that is clearly not the case with the current proposal. Much more serious action needs to be taken. The Minister either believes in empowering the knowledge economy or he does not. There can be no halfway house in this regard. When the 2009 budget was unveiled, I said, "We can rebuild the economy, but that means taking bold decisions". There is no evidence of such decisions in this Bill, unfortunately. Where is the investment in infrastructure that will create jobs and build competitiveness?

The Europa Hotel would be a good investment now. It has already been invested in on a few occasions.

We are looking for investment. I ask the Government to introduce a strategy in areas like school building and public transport that will stimulate jobs and get the economy going.

It is still going.

That is more likely to happen if we reduce VAT rather than increasing it. I do not often agree with what the British authorities do, but I have to admit that the UK Chancellor of the Exchequer took a step in the right direction earlier this week. Where is the investment in infrastructure that will create jobs and build competitiveness? How will we help those who have lost their jobs to get back into the workforce as quickly as possible? How can we ensure they are supported properly while that happens? When will we end the era of tax breaks for the rich, while PAYE workers struggle to survive? Time and again, the Government has got the small things wrong, just like it does with the big things. It has failed to tackle the flooding of the Irish market with cheap imports. It has not dealt with contentious issues like sell-by dates and the incorrect labelling of products as guaranteed Irish. Small businesses are being starved of capital as their overdrafts are cut. New businesses cannot get seed capital or start-up loans. This Bill gives more tax breaks to the private health service, but cannot find a tax incentive or funding initiative for small businesses. It does not provide for the retraining of redundant workers. How is that possible?

In this Bill, the Minister proposes that struggling businesses will need to declare their corporation tax earlier. The process of claiming research and development tax credits, which used to take four years, has been telescoped into four weeks. The Minister seems to be more concerned with draining short-term cash flow than with the long-term strength of companies. The economy is in danger of a serious meltdown, but this Bill does not reflect the gravity of the situation. What will it take to get the coalition to wake up? The Minister for Finance, like the Government as a whole, is asleep at the wheel, unfortunately.

I wish to share time with Deputy O'Rourke.

Since 1987, no Minister for Finance has faced such a daunting task as the Minister, Deputy Brian Lenihan, faced when he framed his first Finance Bill. The economic and fiscal challenges we currently face have not presented for decades. Moreover, they have not been witnessed globally in modern history. Corrective measures have been attempted in all major economies, such as bank guarantees, recapitalisation, consolidations and so on. These have largely been unsuccessful in overturning the turmoil in the markets and have to date failed to bring back that intangible element, confidence, which is such a necessary ingredient for recovery.

The global financial crisis leads us to review the two major economic theories of the past century. Under his theory of monetarism, Milton Friedman argued that central government could not micromanage the economy. He also stated that a steady expansion of the money supply was the only wise policy and warned against efforts by treasuries or central banks to do otherwise. Friedman opposed government regulation of all types. His political philosophy, which he considered classically liberal and libertarian, stressed the advantages of the market place and the disadvantages of government intervention and regulation.

Mr. Alan Greenspan, the most famous former chairman of the Federal Reserve of the United States of America, was a disciple of Friedman for up to 40 years. However, he recently stated: "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself especially, are in a state of shocked disbelief." Mr. Greenspan thus acknowledged that his ideology, which followed Friedman’s, is not working. As we have witnessed in recent months, the result of such policies, which were unregulated and allowed to run wild in some economies, has been the demise of some of the most famous banks in the world. Chief executive officers, managers and other staff were granted bonuses on the basis of perceived performances which were found, in many cases, to be fabricated. The outcome is the current chaos in world banking.

The other major economic philosophy is that of John Maynard Keynes who asserted that downturns were not necessarily self-correcting and that economies could become stuck in a downward cycle. In those circumstances, he asserted, governments should pump money back into the economy in an attempt to inject confidence. We have seen this approach in recent weeks in Britain, the United States and elsewhere, with no positive results to date. This doctrine was promulgated up to the mid-1970s but was taken to an extreme by many governments which engaged in sometimes unfettered borrowing and spending, ramping up huge deficits as a result. Consequently, Friedman's monetarist policy became the flavour of the day and was adopted by administrations such as those of Ronald Reagan in the United States, Brian Mulroney in Canada, Margaret Thatcher in Britain, Roger Douglas in New Zealand and Augusto Pinochet in Chile and, after 1989, in many eastern European countries.

The dilemma facing the Minister for Finance and his counterparts throughout the world is to find a balance between these two heavyweight theories of the past century. In the face of unprecedented fiscal and economic challenges, both nationally and internationally, such as the sudden and deep reduction in revenue, the banking crisis, the credit crunch and exchange rate fluctuations which have led to a weakening of sterling against the euro and a consequent adverse impact on our capacity to export, the Minister has produced a balanced budget which maintains public capital investment at high levels compared with national income, boosts productivity and ensures credibility and sustainability in the public finances. Equally important, the Minister has been mindful of the need to protect the vulnerable and weakest sectors of our society, as evidenced by the above-inflation increase across all social welfare programmes.

As Minister of State with responsibility for innovation policy between July 2007 and May 2008, I was privileged to be involved in the development of the policy document, Innovation in Ireland, which has as its goal the development of an innovation driven economy that maintains competitive advantage and increases productivity. The decision by the Minister to enhance the research and development tax credit regime will improve Ireland's attractiveness to small and large companies, thus helping to achieve the goal of the innovation policy statement.

I particularly welcome the decision of the Minister to increase the tax credit for incremental expenditure from 20% to 25% and to give the option to carry back unused tax credit for set-off against the previous year's corporate tax liability, thus generating a tax repayment, and a further option of claiming payment of unused credit where there is sufficient corporation tax liability in a previous year. I also welcome the provision of a tax credit on new or refurbished buildings used for or in these activities. I also commend the Minister on introducing a tax exemption with full relief where total corporation tax liability in any of the first three accounting periods does not exceed €40,000 and allowing marginal relief where corporation tax falls between €40,000 and €60,000.

The Bill confirms increases in excise duties including the rise in betting duty from 1% to 2% from 1 May 2009. Bookmakers were concerned that the original proposal would have led to the closure of many bookmakers' shops. However, the decision by the Minister to allow this betting duty to be deducted in the computing of the profits for bookmaking businesses is a wise one which will ensure that betting funds will not move outside the State and that people will hold onto their jobs.

An income levy has been employed on numerous occasions in the past at times of financial difficulty as it allows for an effective and efficient method of collecting revenue. I welcome the Minister's commitment to ensure that all social welfare and similar payments are excluded from the levy as are welfare payments from other states. It is especially welcome that holders of medical cards will be exempt as will those below the income threshold of €18,304 per annum. I hope that, as has happened in the past, the levy will be removed as soon as possible.

I take this opportunity to congratulate Professor Patrick Cunningham who successfully drove Ireland's bid to have Dublin chosen as the City of Science for 2012. This successful bid will provide the platform to showcase the best of science and research being carried out in the State across all disciplines, whether by indigenous or international partners. Professor Cunningham deserves our gratitude for this tremendous success.

This Bill represents a balance between the need to protect those on low incomes and the need to restore order to the public finances. It contains the measures that are required to promote enterprise and business so that we can return as early as possible to the path of growth on which we were set for the last ten or 12 years.

I thank my colleague, Deputy Michael Ahern, for sharing time. I am pleased to contribute to the Second Stage debate on the balanced Bill produced by the Minister for Finance. It is balanced in that the less well-off are looked after while a penalty is imposed on those who earn a substantial income. What will become of all the moaning Minnies, both here and outside the House, who used the budget as a platform to espouse their cause and point out what the Government was doing wrong? How will they cope now that the new proposals have been implemented, thus removing an essential plank in their armoury?

I welcome sections 30 and 31 of the Bill, which deal with the enhancement of the tax credits for research and development. There is no doubt that the research and development tax credit should be the tax policy instrument of choice for the Government over the next decade. The knowledge economy of the 21st century requires us to attract in new "Web 2.0" companies in the same way as we attracted major pharmaceutical and technology companies over the last 20 years. Companies that win in the 21st century will be those whose intellectual capital is their stock in trade. The ability of companies to convert their unutilised research and development tax credits into cash will be a welcome bonus for start up companies, but also for companies that are making a heavy investment in this country.

There is no doubt the changes proposed in this Bill would propel Ireland to the forefront of locations for research and development in the global corporate world. Allied to the work of Science Foundation Ireland — I join in the praise of Dr. Cunningham, who has ensured that Dublin will become the European city of science in 2012 — and the excellent third and fourth level graduates produced by our universities and third level institutions, we have an opportunity to capture the next wave of economic development in the same way we did in the 1980s and the 1990s. I have read nothing but praise for those proposed changes and I am sure they are welcomed by all Members of this House.

I also welcome the changes to encourage businesses in Ireland, especially the relief from tax for certain start-up companies, which is contained in section 27. We have heard very little about this. Small businesses creating three or four jobs will significantly help to turn the economy around at a local level. This section will provide relief from tax for new companies beginning to trade in 2009, where profits are under €40,000 and marginal relief where profits are up to €60,000 over the next three years. It will remove this particular burden from such companies at their formative stage. Small companies always feel the burden at the beginning and their owners often wonder will anybody listen to them and come to their aid. The owners of three small companies contacted me and said this is the one measure that has made up their minds to develop their ideas for a business. This change in the Bill recognises one inescapable truth. If we are to improve our economic position and rise from the current malaise, the corporate sector will have to lead the way, providing jobs and generating revenues in the economy.

I welcome the changes to the so called "Cinderella" income tax provisions. I know that it is a matter of perception rather than reality, but it is a very important perception. I have listened for years to moaning Minnies moaning about the "Cinderella" income tax provisions. I am delighted that they have been addressed in this Bill. These changes are designed to ensure that those who avail of the benefits of living here and are often citizens of the State, should make a contribution when they spend substantial periods of time in Ireland. At a time when we are all being asked to do our patriotic duty, those citizens who have done extremely well but prefer not to contribute to the tax take of the economy, should pay their fair share. That is why I said that the "Cinderella" clause was an issue of perception rather than anything else, especially the mechanism of it. The time spent in the country was measured up until midnight, hence the nickname of the clause.

The Finance Bill 2008 should be recognised in this House for what it is, namely, a well-formed, comprehensive finance measure that takes from those who can afford to give, encourages small businesses, and has looked at where Ireland should now position itself for research and development. The Taoiseach has always placed great emphasis on the fourth level of education, such as PhDs, Master's degrees and specialisations. I am always amazed to meet young people who are doing a PhD in some particular aspect of their primary degree. I always congratulate them. They will be the people on whom this country and its citizens will rely in the future.

We had a great idea in the 1980s, and I do not think that a previous Taoiseach received enough acclaim for his idea on the financial services centre. I remember those years between 1983 and 1987 when we were in Opposition and that measure was developed. It was developed during a great economic depression. There seemed to be no chance of getting out of it, yet the ideas were formed then about the financial services industry and what it would mean if we could get it going. It mattered much to Irish people that we got so many high-end jobs into the country. The measures on research and development in this Bill will have the exact same effect, and I hope that in the next few years, those measures will be an added allure to Ireland when it shows the world what it has to offer. Small countries can punch above their weight, and that is what we will be doing in this instance.

I am delighted to contribute to this debate. I would like to talk about some of the comments made by Deputy Lenihan. I would concur with some of them, but not others.

My name has been O'Rourke for many years.

Nee Lenihan. I apologise. Deputy O'Rourke claimed that this budget was taking from people who could afford it, but this is not the case. The 1% levy is being charged on people who are paying the minimum wage. In last year's budget, the Government made reference to the fact that 878,000 people were outside the tax net. That is no longer the case, as the budget is taking money from people who can ill afford it.

The Deputy also spoke about the budget helping the corporate sector. There are certainly measures that do this, namely in the area of small business. I welcome section 27 of the Bill, which deals with new businesses that can pay no tax for the first three years where their liability is less than €40,000 per year. However, from my experience as an accountant, I know that tax is not always the consideration during the first few years of a business. The big consideration is access to finance from the banks, but people cannot get that access at the moment. The banks need to be recapitalised as a matter of urgency to ensure that happens. They need measures that will enable them to take on employees.

At the moment, available measures include the PRSI exemption scheme and a revenue job assist scheme. Employers are exempt from employers' PRSI.

However, the people they take on must be in receipt of jobseekers allowance or benefit for the previous two years. That should be amended to allow employers to hire people who have just become unemployed. The Government's key task is to ensure that the minimum number of people possible go on the live register. We must try to ensure that people are kept in employment.

The role of Government is to create a climate which enables business people to provide employment, operate profitably and contribute to the Exchequer through taxes. Through those taxes, the Government can then provide public services, infrastructure and look after the most vulnerable in society. On all those counts, this budget fails.

The budget fails across a range of areas, including education, to which Deputy O'Rourke referred. It sets primary and second level education back by many years. Ireland operates in a global economy and to do so successfully, it must become a knowledge-based economy. We must develop value-added services in the multinational sector to retain jobs and the springboard for that is education. If we do not invest in education at first, second and third level, we will be sorry in the long term. I have been approached by parents and teachers in Limerick who are worried about children not being provided with a proper education. Parents of second level students are worried that the reduction in teacher numbers will mean that certain subjects will only be available at ordinary rather than higher level in some schools. These are genuine worries. The cutbacks in education should be reversed, but the Government has not done so. The Government must ensure that class sizes are reduced and that the number of teachers in schools is maintained at current levels.

In terms of the public finances, the Government is not making the hard decisions that are required. Four wise men will be appointed to a review body, which has become known as An Bord Snip Nua, to make recommendations on public sector reform. The Minister for Finance will make an announcement on this review body at 4 p.m. today. I wish to know the terms of reference for that body and when it is expected to report to the Government.

The director general of FÁS resigned today because outrageous sums of money were spent by executives of that organisation. The call from my party leader, Deputy Enda Kenny, for the board of FÁS to resign is appropriate. We must move on from the current debacle. FÁS has a budget of €1 billion. While I welcome the establishment of the aforementioned review group, it is also critical that a person with expertise in the reform of large organisations be appointed immediately to scrutinise the spending of the boards of all State agencies. That person should examine all expenses incurred and determine whether board members are flying first class or otherwise wasting money. Having conducted such an examination, the appointee should then set out specific rules and regulations on expenditure that will apply to all State boards.

The vast majority of those working in the various State agencies, including FÁS, do an excellent job. However, at the higher level of such organisations, outrageous amounts of money are being spent. This also applies to the banking sector, where outrageous sums are being paid to senior executives, based on perceived good performances. At the same time, some 40,000 ordinary employees in that sector are worried about their job security. Many of those same people have their savings tied up in bank shares. I have not seen one executive in the top banks lose his or her job but we have heard much talk of enormous rationalisation of the sector. The Government must bring certainty to Irish banking. The question of the recapitalisation of the banks in order to allow small businesses to prosper is critical. Equally important, however, is the number of jobs in the banking sector. People are worried in that regard and the Government has a responsibility to try to maintain employment.

Having appointed a person to examine spending in all State and semi-State agencies, the Minister should revert to the House in two weeks' time to outline how immediate savings can be made. We must have proper reform. Those working in the public sector must be given additional mobility to enable them to advance. At the same time, we must reduce or eliminate all wastage in the public sector in terms of administration, bureaucracy, improper procurement and so forth. The Minister of State, Deputy Mansergh, is currently examining the procurement area and I look forward to his up-to-date report on the matter. It certainly appears to be the case that enormous amounts of money are being wasted in a number of areas. One only has to look at examples such as PPARS and the electronic voting machines. The latter machines are still sitting in storage, slowly rotting away, while people are struggling to gain access to education and health services. Much money has been frittered away on useless projects.

I wish to refer to specific provisions in the Finance Bill. I have already referred to the income levy provision in section 1 of the Bill. That levy should not apply to those on the minimum wage. Section 3 of the Bill deals with the parking levy, which is estimated will yield €5 million in 2009. The levy will only apply to those working in major cities, including Limerick. A person who, for example, works in an industrial estate on the outskirts of Limerick city will not have to pay a parking charge, whereas a person working in the city centre will have to pay €200 per year. It is a ludicrous, anti-competitive measure that should be rescinded and I will table an amendment to that effect.

Section 8 of the Bill deals with tax relief for health expenses. I seek clarification from the Minister regarding nursing home charges. There now appears to be no mention of claims for relief on such charges becoming standard rated in 2010. I ask the Minister to make a commitment that nursing home charges will not be standard-rated for all years going forward because the cost of nursing home charges is already prohibitive for families and individuals. Many people are currently getting tax relief at the marginal rate for all medical expenses and, given the inadequacies in and high cost of our health service, that should remain the case.

The provisions in section 12 regarding mortgage interest relief are revenue neutral. The Government is giving relief to first-time buyers, which is welcome. However, it is clearly financing that by taking tax relief away from those who are not first-time buyers. People must move within the market and one of the biggest problems in the current housing market is the fact that bridging finance is not available. If I own a home and wish to move, I cannot do so until I sell my first home. Bridging finance is not provided. Similarly, if a person wishes to move to a second home, his or her mortgage interest relief drops from 20% to 15%, which is a penal measure in the current climate. I welcome the removal of the so-called "Cinderella clause" as it applied to non-residents in section 13 of the Bill.

I have no hesitation in welcoming measures which I feel will be of benefit. Equally, though, I have no compunction about criticising those measures which I believe will not bring our economy out of recession. I have already made reference to section 27 which deals with tax exemption for new businesses for their first three years in operation. However, the recapitalisation of the banks is just as important in terms of making finance available to such businesses.

Section 30 deals with tax credits for research and development, which I welcome. However, the credit should be based on expenditure incurred in the relevant tax year. The reference year at the moment is 2003 which is problematic because it means that if companies made large-scale investments in research and development in that year, they will be penalised. The Government is implying that it will be volume based, but that is not correct. It will be based on 2003. I will be looking for an equal volume basis. Section 30 has a provision whereby claims for research and development expenditure up to the end of December 2007 will have to be made before the end of this year. It was normal to allow a four-year measure. I will be tabling an amendment to the effect that all expenditure up to the end of 2007 could be claimed for up to the end of 2009 to allow people become used to the new measure. As it stands, people are being told they will need to submit a claim for 2007 within the next month. This is a penal and counter-productive measure which should be amended.

Fine Gael proposed that employers should be allowed to put research and development credits against employer's PRSI and I ask the Minister to consider this proposal. Section 34 proposes bringing forward the date for payment of corporation tax by five months for certain companies. It proposes bringing the date forward from November to June. This is a penal measure in the current climate and it will have significant effects on cash flow. It is anti-competitive and this is not what the Government should be doing to get the economy off the ground. Section 39 proposes an increase in capital gains tax from 20% to 22%. This is also a penal measure. Section 80 reduces the top rate of stamp duty from 9% to 6% for non-residential properties for all disposals after the 15 October and this provision is to be welcomed. However, if people cannot have access to finance, this measure will be of no use. The Minister must deal with practical as well as theoretical issues and this is not being done. He must interact with the economy.

Section 50 deals with the airport tax. The Government has rowed back on this measure since the budget and the charge is now €2 for all travel more than 300 km from Dublin Airport. I wish to make specific reference to Shannon Airport which is our international airport in the mid-west and the west. Shannon Airport is being penalised heavily by this travel tax. The €10 travel tax will apply to all transatlantic flights from Shannon. If the Government is committed to balanced regional development, this travel tax should not apply to Shannon Airport or anywhere on the western seaboard because it is a penal tax which works against us.

Section 67 will increase the rate of VAT by 0.5%. There is now a differential of 6.5% between ourselves and Northern Ireland and the UK where the VAT rate is 15% and ours is 21.5%. This is adding to inflation and the Government should not have increased VAT. In simple terms, Fine Gael's pre-budget document proposed no increase in taxes. It made proposals for stimulating investment and proposed €25 million for retraining in the construction sector. I see nothing of that nature in the Bill. Fine Gael proposed that the national development plan continue with investment whereas the Government proposes reductions. This shows a lack of vision on its part. This country has a great opportunity over the next three years to ensure that competitiveness is restored. This will be achieved by keeping taxes down and ensuring that Government charges do not penalise business. We must ensure that local authorities are not being forced to raise rates. The Government has reduced the local government fund by 7% and this will put pressure on local authorities. A charge of €200 has been imposed on non-family homes which is to be collected by the local authorities but which is to be sent to the Central Fund. I ask why this income cannot be retained by the local authorities. I expect the Government to show it has a strategic vision when this Bill reaches Committee Stage.

Agriculture has always been our historical natural resource and it continues to be one of the country's major resources. This budget was penal in its provisions as regards farmers and the installation aid and retirement schemes. Small business must be funded so as to allow it to progress and provide employment. Otherwise, there will be more people unemployed and dependent on social welfare. This is an unhealthy position for both the State and for the people themselves. We must get to grips with the public finances and proper public sector reform. My hope is that the Minister and the Government will appoint someone with significant experience in this area to investigate all the boards of semi-State bodies to see whether there is wasteful expenditure as has been the case in FÁS. This may be happening in other State agencies. This person should then report back to the House within a period of two weeks. The country is looking for confident direction and leadership and a set of strategies. I expect to see the Minister for Finance back before the House next February or March with a supplementary budget because he is projecting a 1% increase in revenue in the budget and this will not happen. There is talk of a 6.5% deficit in the GDP. I expect this will be in the order of 9% or 10%. We cannot continue in this fashion. We need direction and this Government is headless. It does not appear to know what it is doing which is extremely worrying. It needs to take control and come up with a set of policies to ensure that this economy becomes competitive, that people are not becoming unemployed and to ensure that people can stay in their jobs and secure their homes and provide for their children's education. The Minister must rescind the education measures in the budget, for the sake of the families and the children. He must give a sense of direction which currently the Government does not have.

I welcome the Bill and I wish to discuss some aspects of it. I refer to the banking and financial crisis which has arisen both here and in the global economy. The Government issued a guarantee to the banks. It is widely reported in the media and elsewhere that further consultations are ongoing. In the late 1970s and early 1980s, a significant amount of money was given out by the banks in rural communities to pay for agricultural land. This resulted in inflated prices for agricultural land. People were given money to buy land at auction and this put farmer against farmer. It took a long time to repay the money because interest rates rose in the early 1980s to 22% and 23% and this crippled many farming communities. The current crisis has been caused by the amount of money that was loaned out. One could say that the entire capitalist system worldwide nearly came to a halt. It was said to be the biggest financial crisis since the 1929 Wall Street crash but this time governments across the world intervened to prop up the banks and the financial services. It may be time for governments everywhere to consider a fundamental change in the regulation of financial services and the banking sector.

In the Finance Bill, the Government has increased the limits on mortgages which local authorities can give out. There once was a time when ordinary people were only able to get mortgages from their local authority to build or buy a house. The threshold has been increased for low to medium income families to allow them to get local authority mortgages up to €285,000.

After the foundation of the State, the Agricultural Credit Corporation, ACC, and the Industrial Credit Corporation, ICC, were established as semi-State banking bodies. It may be time for governments around the world to provide banking services again, which would assist in ensuring proper banking regulation is in place. In 20 years time the economic cycle will have moved on again with further economic development. Is it time for nationalisation of banks with State-run institutions ensuring checks and balances are in place? It is also important that those on bank boards and elsewhere who got their fingers severely burned in this financial crisis learn lessons from this experience. Whatever guarantees come out of the ongoing negotiations with the banks from the banking guarantee scheme, the economy will develop as the economic cycles change with a boom time returning again at some point. This has happened throughout history but we must learn lessons from the current crisis to ensure it does not happen again.

Small and medium sized businesses find themselves under pressure from the banks, many of which have withdrawn overdraft facilities. They also have to make end-of-year returns for tax, PRSI, PAYE and VAT. Every week, many firms are looking at the fundamentals of their business and letting people go in ones and twos which is not as headline grabbing as large job losses. It is, however, affecting significant numbers of people in rural and urban areas. Many banks made loan deals with farmers for the building of sheds under the farm waste management grant scheme. However, many have reneged on these deals because of the tightening of available credit, which must be condemned.

It is said the measure of a person is if he or she can learn from their past mistakes and move on from them. Fundamental issues have to be examined with regard to the financial services sector. Strict regulatory powers will have to be put in legislation regarding the Financial Regulator and the Central Bank. It might be time to establish a new banking system which will not allow what happened in the past year to recur. As public representatives, we must ensure it will never happen again.

Without wanting to re-fight the Lisbon treaty campaign, if there were ever a case for stronger integration with Europe it must be what has happened in the financial services sector. One need only look at Iceland, outside of the EU, and the collapse of its economy. Several weeks ago figures were given to us from the various financial authorities that €70 billion of EU money was being used to keep Irish financial services afloat. It is all very well for successful and super-wealthy individuals to lead campaigns against the EU and the Lisbon treaty. However, the ordinary people are benefiting in no small way from the amount of money the European Central Bank has been able to inject into the Irish economy and keep the banking system afloat. This is a fact that needs to be made known to the people.

I welcome the increase in the income levy for better-off earners. It was also welcome that the minimum wage sector and social welfare recipients were excluded from the 1% income levy. It is important to look after the less well-off in times such as these. For many years, we have talked about the success of our knowledge-based economy. The emphasis in the Finance Bill on supporting research and development enterprises is, therefore, welcome. The tax credit for research and development has been significantly enhanced to improve its attractiveness to large and small companies alike and to support the development of a knowledge-based economy. While we are going through a very difficult financial period, it is important we continue to fund research and development.

The reduction in commercial stamp duty from 9% to 6% is a welcome step to rejuvenate and kick-start the economy. Claims for tax relief in the business expansion scheme and the seed capital scheme have been extended by three months. The purpose of this measure is to make the system more user-friendly for those availing of the reliefs.

Many have commented on the tying up of the loophole which saw the super-rich blatantly exploiting the non-residency conditions for tax purposes. Those on low to medium incomes watch whether the Government asks the wealthy to contribute in times of difficulty. There are many tax schemes which were introduced for good reasons over the years to stimulate the economy, employment and particular industries. Many of them have reached their sell-by dates and need to be re-examined.

Some argue that if the US had proper regulation of its financial services industry, it might not have the precipitated the current crisis.

Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.
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