Dáil Éireann debate -
Tuesday, 24 May 2011

Vol. 733 No. 1

Finance (No. 2) Bill 2011: Second Stage

Minister for Finance (Deputy Michael Noonan)

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

The purpose of the Finance (No. 2) Bill is to introduce the necessary changes to taxation legislation which give effect to measures I announced on 10 May as part of the jobs initiative.

There is now a broad consensus that the economy will return to growth this year. The Department of Finance published revised economic forecasts the week before last which anticipate that the economy will expand by 0.8% this year and 2.5% in 2012. Other institutions such as the IMF, the European Commission, the Central Bank and the ESRI also anticipate an increase in economic activity in 2011, followed by acceleration in the growth rate next year. We are beginning to move in the right direction and the jobs initiative will add to that momentum.

The recovery is being led by developments in the external sector. Exports grew by 9.5% last year, the strongest rate of growth in a decade, and appear to have continued this impressive trend at the start of 2011. This would be typical of a small open economy. The pharmaceuticals, software, financial and business services and food sectors are all performing well. Exporters are looking to new export opportunities in north and south America and Asia; exports to Brazil, Russia, India and China, the BRIC countries, increased by 12% last year. However, it might be appropriate to note at this point that the success of the royal visit last week may also have economic benefits for exporters trading with our nearest neighbour. The impressive export performance and the increase in FDI inflows have been underpinned by significant improvements in our competitiveness, reversing the sharp losses experienced earlier in the decade.

The Department's forecasts anticipate average growth of 3% per annum in the period 2013 to 2015. Given the need for additional adjustment in the internal economy, notably essential fiscal consolidation and an unwinding of private sector imbalances, recovery in domestic demand will take longer than normal to occur. Nevertheless, the recovery is expected to spread from the external sector to investment and, finally, to consumer spending, while growth is expected to be more broad-based by the end of the forecast horizon. This House does not need me to remind it that the Irish economy has experienced an extremely sharp downturn in recent years. Gross domestic product has contracted in each of the past three years and is now around 15% lower than it was at its peak in mid-2007. This, of course, reflects a substantial decline in construction activity and falling consumer spending. However, despite the downturn, the fundamental strengths of the Irish economy remain and will support growth in the medium term. These strengths include our young, well-educated workforce, favourable demographics and our strong pro-enterprise environment. Building on and developing these strengths is one of the principal drivers of the jobs initiative.

Improving the environment to create a more fertile seed bed for the creation of more jobs is a challenge that this Government is meeting. Improving labour cost competitiveness is a key instrument in creating that improved environment. This is why we are halving the rate of employers' PRSI until end-2013 on jobs that pay up to €356 per week. Reducing the costs to employers of taking on new employees is vital if we are to support job creation. This measure will complement the targeted VAT relief in the labour-intensive tourism sector and help to create more jobs in that sector of our economy. My colleague, the Minister for Social Protection, will legislate for the reduction in employers' PRSI in the forthcoming social welfare Bill which she will publish in early June. The social welfare Bill will also legislate for the abolition of the charge to employers' PRSI on share-based remuneration with effect from 1 January 2011. The imposition of this charge on employers needlessly increases the costs of doing business in Ireland and has the potential to negatively affect current employment levels and future investment decisions. Businesses operate under strict budgetary control in the current economic climate and increasing their costs is unwise.

I remind the House that this not a typical finance Bill. On this occasion, the Finance (No. 2) Bill has been drafted specifically and exclusively to give effect to those taxation-related measures which I announced in the jobs initiative. Accordingly, the Bill is short and focused and covers four areas — the research and development tax credit; the suspension of the air travel tax; the introduction of a second lower rate of value-added tax; and the introduction of a pension levy.

I will now discuss each of these four measures in more detail. Section 1 of the Bill relates to the research and development tax credit. While Deputies will be aware that the corporation tax regime is a vital element of our industrial policy, other measures also have an important part to play. Ireland has a very attractive research and development tax credit scheme which allows, as a general measure, a 25% of incremental expenditure by a company on qualifying research and development to be set off against its corporation tax liabilities or, where there are no such liabilities, for the credit to be paid to the company. Since 2004, the scheme has influenced the decisions of many multinational firms to locate internationally mobile research and development projects in Ireland.

There are various methods by which companies can account for the research and development tax credit, either as a below the line reduction in corporation tax liability or as an above the line write-off against operating costs. I announced as part of the jobs initiative that I intended to amend the research and development tax credit legislation. Accordingly, this section of the Bill amends the research and development tax credit provisions primarily for the purpose of enhancing the flexibility for accounting purposes for the research and development tax credit on an above the line basis. There have been calls by some to do more in this space and, indeed, the programme for Government contains proposals for further improvements to the research and development tax credit scheme, subject to the outcome of a cost benefit analysis.

Section 2 relates to the air travel tax and amends section 55 of the Finance (No. 2) Act 2008, to empower the Minister for Finance to appoint, by order, a day on or after which passenger departures would not be subject to the tax. As part of the effort to boost tourism, I am thereby providing for the air travel tax rate to be reduced to zero or suspended. To be clear, the commencement of this measure is subject to an agreement being reached with the airlines to bring in additional passenger numbers. My colleague, the Minister for Transport, Tourism and Sport, is holding discussions in that regard. If these discussions are satisfactorily concluded, I will introduce this provision by order on a specific date, to be agreed. Furthermore, a review of the measure will be conducted before end 2012. If it is considered unsuccessful the air travel tax will be reapplied. Consequently, the relevant legislation measures will remain in place to allow for them to be recommenced if so required. The cost of this measure, based on an implementation date of 1 July 2011, is €15 million in 2011, €90 million in 2012 and €105 million thereafter. The suspension of the air travel tax is but one of a number of approaches being taken as part of the jobs initiative to revitalise the tourism industry.

Section 3 amends the Value-Added Tax Consolidation Act 2010, to provide for a second reduced VAT rate of 9%, in respect of certain goods and services, for the period 1 July 2011 to 31 December 2013. Thereafter the rate will revert to the 13.5% rate. It is estimated that this measure will cost €120 million this year and €350 million in a full year. As I announced in the jobs initiative statement, this amendment provides that the 9% rate will mainly apply to restaurant and catering services; hotel and holiday accommodation; admissions to cinemas, theatres, certain musical performances, museums and art gallery exhibitions; fairgrounds or amusement park services; use of sporting facilities; hairdressing services; and printed matter such as brochures, maps, programmes, leaflets, catalogues, magazines and newspapers.

The purpose of this targeted VAT relief is to boost tourism and to stimulate employment in the sector and I am confident that it will give our tourism industry a much needed shot in the arm. However, to ensure that the sector is delivering, the effects of the changes will be assessed and the measure reviewed before the end of 2012 in the context of preparing budget 2013. To digress slightly, I would note that these two measures are specifically targeted at the tourism sector.

Much economic activity within the tourism industry is highly intensive in its use of labour. This is particularly true of hotels and restaurants, recreation and entertainment. However, tourism continued to decline last year with the total number of trips by visitors to Ireland down by 13% on the 2009 level. This brought to 25% the cumulative decline in inbound tourism numbers between 2007 and 2010. Over the same period, earnings from tourism and travel fell by about 30%. The United Kingdom is our most important overseas market with close to half of overseas visitors coming from there. It is also the market that has seen the greatest contraction since the recession began. Between 2007 and 2010, trips to Ireland from Britain fell by 32%. If we can recover this lost ground then tourism can make a very substantial contribution to our economic recovery and to the creation of employment in all parts of the country. Again, I would like to think that the success of last week's visit by the Queen may help us in this aim. Much investment has already taken place in the tourism sector and we have a stock of accommodation, a large proportion of which is of a very high quality by international standards. We have entertainment and recreational facilities that have been significantly enhanced by public investment in recent years and a much-improved transport infrastructure. Overall, our tourism products are very strong and present us with a great opportunity for development and expansion.

The various tax reduction and additional expenditure measures announced as part of the jobs initiative are, of course, required to be budget-neutral. This means that money to pay for them must be raised from other sources. Accordingly, I announced on 10 May a temporary levy on funded pension schemes and personal pension plans. This is provided for in section 4. The levy will apply at a rate of 0.6% to the capital value of assets under management in pension schemes approved by the Revenue Commissioners under Irish tax legislation. The schemes affected are retirement benefit schemes, that is, occupational pension schemes, retirement annuity contracts and personal retirement savings accounts other than those known as vested PRSAs. It will apply for a period of four years, commencing this year, and is intended to raise approximately €470 million in each of those years. The levy will not apply to pension funds established here that provide services and benefits solely to employers and members exercising their activities and employment outside the State. In other words, the levy will not apply to a scheme that is intended to provide retirement benefits outside the State. In addition, it will not apply if the trustees of a scheme have passed a resolution to wind up the scheme and if the business in respect of which the scheme was established is insolvent. Provision is being made to give pension scheme trustees or administrators the option of adjusting the benefits payable under a pension scheme on foot of payment of the duty. The chargeable persons for the levy are the trustees of pension schemes and the insurers and administrators who manage the assets of pension schemes.

Section 4 makes consequential changes to certain provisions of the Taxes Consolidation Act 1997 relating to the approval conditions that apply to pension scheme providers located outside the State that seek to provide retirement benefits in the State. Under the existing legislation, unless such providers have a fiscal representative in the State, they are required to enter into a contract with the Revenue Commissioners to the effect that all duties and obligations imposed by the pensions tax legislation will be discharged. These duties and obligations are being extended to include the levy. There has been some speculation that the Government will raid investment funds or deposit accounts. I assure the House that the Government has no plans in this regard.

Deputy Jerry Buttimer

Hear, hear.

Deputy Michael Noonan

The Government's top priority is to safeguard the security of savings. It would not wish to consider any step that would have a negative impact on such confidence. Other savings or investment products have not benefited from the generous tax reliefs that pension savings have historically been granted and continue to receive. Deposit accounts and savings products have already been subjected to additional taxation in recent budgets. I refer to the increase in the rate of DIRT and exit taxes, neither of which affected pension funds.

I am conscious of the concerns of the pensions industry about the impact of a levy in circumstances where the pensions sector, in common with other sectors in our economy and society, is finding the current economic and financial environment challenging. The levy is being imposed for a relatively short period. Its purpose is to improve the economic and financial environment by providing the means to encourage job creation in those areas of the economy that are most likely to deliver employment quickly. The levy is being confined to pension funds because the alternatives for increases in taxation elsewhere would damage the economy at this time. My officials are consulting the pensions industry and other interested stakeholders on the legislative provisions in this section with a view to minimising, where possible, any unnecessary difficulties to which this measure may give rise.

I am aware that the pensions sector is also concerned, given the temporary levy, about the commitment in our agreement with the EU and the IMF to reduce tax relief on pension contributions from next year. I will examine this issue in the context of the results of the comprehensive review of expenditure being undertaken by the Minister for Public Expenditure and Reform. I will consider any resulting scope for fiscally neutral changes to the EU-IMF agreement. I have outlined the four measures in this Bill. There are two further sections. Section 5 relates to the care and management of taxes and duties and section 6 refers to the Short Title and construction of the Bill. These are standard provisions or entries. A small number of matters are still under consideration for inclusion in the Finance Bill. I may bring such proposals forward on Committee or Report Stages. I will also give consideration to any constructive suggestions made by Members during this debate.

Deputy Michael McGrath

I would like to share time with Deputy Seán Fleming.

An Ceann Comhairle

Is that agreed? Agreed.

Deputy Michael McGrath

I am pleased to have an opportunity to contribute to the Second Stage debate on the Finance (No. 2) Bill 2011, which gives effect to the taxation measures announced in the jobs initiative two weeks ago. The Government has decided to target its stimulus measures towards the tourism sector. It hopes this approach will attract additional visitors to Ireland and lead to job creation. As I said in the Dáil the day after the jobs initiative was announced, I hope this stimulus works, helps to attract more visitors to our country and ultimately leads to the creation of jobs. I agree with the Minister that the events of the past week will have assisted us considerably to meet that goal. I compliment the work of everyone involved in the organisation of the two State visits.

On the overall financial numbers in the booklet published when the jobs initiative was announced, the additional cost of the measures planned by the Government is €1.765 billion, comprising €315 million for the abolition of the air travel tax, €880 million for the reduction in the rate of VAT, €500 million for the reduction in employers' PRSI, €41 million in activation measures and €29 million in capital expenditure that is additional to that provided for through the reallocation of moneys under certain subheads. The Government plans to raise €1.88 billion by the end of 2014 through the levy on the pension fund. It expects to raise €115 million more than it intends to spend on employment initiatives. Perhaps the Minister can clarify the rationale for this later in the debate. He may have built some headroom into his numbers. I remind Deputies that many positive things could be done with €115 million. I am sure the Minister would like to comment on that. Fianna Fáil's spokesman on transport and tourism, Deputy Dooley, will speak about the travel tax and other tourism sector issues, such as the impact this initiative is expected to have on tourism.

I look forward to discussing the detail of this brief Bill on Committee Stage. I will focus most of my contribution to today's debate on the planned levy on private sector pension funds. I welcome the enhanced flexibility in the accounting for research and development tax credit on an "above the line" basis. This will help to further enhance Ireland's attractiveness as a hub for research and development activity. The Minister acknowledged that some tax practitioners have expressed disappointment that this Bill does not introduce the key measures proposed in the programme for Government. I refer particularly to the extension of credit or the facilitation of access to credit by small and medium sized enterprises. We can discuss this issue in more detail on Committee Stage. It was expected that the Government would take the opportunity to introduce further measures to make the research and development tax credit regime more accessible to small and medium sized enterprises. Cash flow is a big issue for such enterprises. The acceleration of the refund period from three years to one year would have been a welcome boost for them. The move to a volume-based approach for small and medium sized enterprises would also have been welcome. We can tease out this issue in greater detail on Committee Stage.

The proposed levy on private sector pension funds is deeply unfair. To the best of my knowledge, it represents the first time the State has targeted the savings of private citizens. Some Ministers have compared the levy to DIRT tax, but there is a fundamental difference between the two. DIRT is a tax on interest, whereas this levy is a tax on savings. The more people have saved in their pension funds, the greater the levies they will pay. People are asking whether the Government intends to go after their bank or post office savings, or any investments they may hold. The Minister alluded to this concern in his speech. I welcome his clarification that the Government has no such intentions. We know that a 0.6% annual levy on pension schemes could result in a 21% fall in the value of a private pension fund if it were continued over the lifetime of the fund. In such circumstances, this proposal would mean in concrete terms that someone who was expecting to live on €50,000 a year would have to live on €40,000 per annum.

Although the sunset clause in the Bill will bring an end to the levy in 2014, in four years time the Government will be tempted to extend the life of the levy or to make it permanent. I expect that our public finances will still be under pressure in 2014. People with savings in pension funds want an absolute commitment that this levy will not be extended beyond 2014 and will not become permanent. It is important for the Government to be clear on this point because those who are in a position to do so would like to plan their contributions for the next few years. We should state honestly that Governments are always reluctant to relinquish revenue streams after they have become embedded in the system. This revenue stream will have become embedded by 2014. I accept that the Bill provides that it will come to an end in that year.

Although every private pension will take the same hit in percentage terms, defined benefit schemes, which promise members a guaranteed pay-out on retirement, are most vulnerable under the levy. Already, 75% of defined benefit pensions are underfunded, meaning they do not have enough money to meet their expected liabilities. Without additional contributions from members or the employers who sponsor them, such schemes will be forced to either reduce benefits or wind up. Defined benefit schemes are already being restructured as employers throughout the country negotiate with employees about making changes to them, which generally involves either additional contributions or benefit reductions. What are the options open to defined benefit pension schemes whose financial position will now be worsened? They are to reduce further employee benefits, increase employer contributions — many employers are not in a financial position to contribute more — or raise employee contributions. While it would be great if the cost could be absorbed by a reduction in pension fund charges, such a scenario is unlikely to say the least.

The pensions industry fears that multinational corporations with bases here will re-evaluate the location of their Irish employees' pension schemes and their commitment to future investment. It has been pointed out that multinationals have to consider whether to maintain pension schemes here or move them abroad, for example, to the United Kingdom or Malta. The levy is also a major disincentive to companies considering moving a corporate headquarters or employees to Ireland. Moreover, other centres competing with Ireland for financial services business will be able to use the levy in their marketing and hold it up as a negative on Ireland's scorecard.

Will the Minister clarify whether the Pensions Board was consulted on the levy and, if so, will he advise us what opinion was expressed by the board on the application of the levy? My party leader, Deputy Martin, asked the Taoiseach on Leaders' Questions about an impact assessment. Has an assessment been done on the impact the levy will have on pension schemes? The Minister stated in recent weeks that the pensions industry has exaggerated the impact of the levy. How can he make such a statement in the absence of an impact assessment? He must disclose the facts in that regard. What level of background research was conducted on the proposal and what impact will it have on the pensions industry? More important, what impact will it have on the final payout from pension funds, in other words, on the level of pensions?

I have heard a number of Ministers describe the proposed levy as a modest tax on pension funds which were built up on the back of very generous tax reliefs provided over many years. While a person who pays into a pension fund receives tax relief on his or her contribution, he or she must pay tax at the exit point. As with other forms of income pensions are fully subject to the income tax provisions when they are drawn down.

The key points are that the levy on pension funds introduces an impediment for those who wish to act prudently by providing for their retirement, penalises those who wish to reduce their financial dependence on the State during retirement, acts as a disincentive to saving for retirement and runs completely contrary to the longstanding State policy of encouraging people to invest in a private pension. In its report last week on the funding facility extended to Ireland, the International Monetary Fund touched on this point when it noted that staff "had reservations about the quality of this measure, including potential behavioural responses, but the authorities consider that the temporary nature of the levy mitigates these concerns."

The proposed levy applies to pension funds irrespective of whether the fund in question is performing strongly or poorly or is insolvent. It is not related to the financial circumstances of the pension saver and does not take into account whether he or she is unemployed, has recently been made redundant or is close to retirement. Those hardest hit will be older people who have spent decades building up their pension fund and will lose one fortieth of its value through the levy. People at or close to retirement will not have time to plug the hole left by the levy whereas its impact on people in the early stages of their working lives will be less onerous. To rub salt into the wound, many wealthy people who are holding their retirement savings in an approved retirement fund, ARF, will escape the levy since an ARF is a type of investment fund into which individuals may transfer their pension pot on retirement rather than buying an annuity which pays a regular annual pension.

The Bill provides for reducing the value of pensions by allowing pension scheme trustees or administrators the option of adjusting the benefits payable under a pension scheme. In many cases, the outcome of this provision will be that the levy will be passed onto pensioners by way of a reduced pension payment.

The Minister referred to the reduction of tax relief on pension contributions and indicated it will be considered as part of the comprehensive expenditure review. This matter must be clarified as soon as possible. It has been longstanding practice to encourage people to save for their pensions through the provision of tax reliefs. The EU-IMF deal provides for a reduction in the tax relief on pension contributions on a phased basis and the issue is subject to review. People who are planning their financial affairs and pension arrangements will want to know what tax reliefs will apply in the coming years.

Deputy Ross made a valid point in the House recently regarding the charges imposed by the pension industry. The Taoiseach also referred to this matter. In the case of personal retirement savings accounts, for example, some pension managers charge 5% of every contribution plus a 1% management fee. The industry must consider what contribution it can make to mitigate the impact the levy will have on savers, namely, those who rely on an income stream in retirement from the pension fund in which they have invested. It must provide some answers in this regard.

On the VAT proposals, the Government has taken a prudent approach by deciding not to set a specific target for the number of jobs the measures will create. It would be helpful, however, if targets were set for each calendar year. The Minister stated the VAT reduction would be reviewed at the end of 2012 in the context of the budget for 2013 to determine what impact it is having. I presume the review will also assess whether the reductions have been passed on to end consumers, as I hope they will be. The ultimate goal of the VAT measure is to create additional employment in the relevant sectors by creating additional buoyancy and a stimulus. The Government has decided not to apply a VAT reduction to construction and building work, the most labour intensive of all services. It should have provided some targeted support in this area. Not only would this have stimulated additional activity in a sector that is on its knees but it may also have encouraged some of those engaged in the thriving black economy to move into the normal economy, thus providing VAT returns and benefits to the Exchequer. While the Government had choices, it decided to target the tourism sector. Its measures in this area have the potential to create additional employment and improve Exchequer receipts by way of additional VAT, income tax returns and so forth but other areas could also have been targeted in a manner that would have had a positive impact on the economy. We can discuss some of the individual proposals in greater detail on Committee Stage.

Deputy Sean Fleming

I welcome the opportunity to speak to the Finance (No. 2) Bill 2011. While the general view is that the levy on pension funds will raise €1.88 billion over four years, I believe the Minister fully expects it to raise at least €2 billion over the period in question. I concur with Deputy Michael McGrath that the measures will result in reductions in revenue of the order of €315 million from the air travel tax, €880 million from VAT and €537 million from employer PRSI. In addition, the Bill provides for additional capital expenditure of €29 million in the first year and €164 million over four years on labour activation measures. This brings the total cost of the measures to €1.95 billion. Clearly that is more than was suggested in the original statement, which was €470 million. It is clear therefore that the Minister is expecting that there will be some increase in value in the funds over the period and he has factored that into his initiative. He expects to raise closer to €2 billion and if there is growth in the fund I expect him to raise in excess of €2 billion, which is a considerable amount of money. When the industry takes that fully into account it will appreciate that the amounts are much greater than have been suggested publicly, to date. While the money is being raised and I am sure the Bill will be passed by the House in due course, we on this side of the House will have no option but to vote against Second Stage. That is due to the harshness of the measure, including the imposition on private pension funds and in particular because so many wealthy people will be exempt.

In the section dealing with payment dates, the Minister states that the first payment date in 2011 will be 25 July and the next payment date will be 25 October. The first payment date next year will be 25 March 2012, while from thereon in he will bring forward the payment date to 25 September each year. Therefore in a 14 month period from 25 July 2011 to 25 September 2012, we will have a full two years' pension levy being implemented and collected. In that case, a 24 month levy will be collected in a 14-month period, which in itself will cause another significant shock. It will be in the region of €1 billion, which is much less than people originally thought of as €470 million this year and the next two years. When one examines the dates the Minister has specified in the legislation one can see that he has taken 50% of the four-year amount in a 14-month period, which is significant. People will have to take that seriously into account when they are considering their views on the legislation. Will the Minister address that point from a cash flow point of view, as well as explaining in further detail why the two years amount is coming out in a 14-month period?

An important issue concerning the Bill is to clarify the situation of people who have worked or are working abroad. The legislation says that excluded assets will relate to people whose employment in relation to the scheme was wholly exercised outside the State when this measure is enacted. I understand what the Minister is doing, but its implementation will cause phenomenal practical problems. Will the Minister create a new regime for tax exiles here? I do not know the names of companies involved, but it is important that in the course of debating the Bill we should be told the type of characters to which the Bill applies. I am thinking of ESB workers who gave up a pay increase to top up their pension fund because it was in deficit recently. Meanwhile, their colleagues' portion of the fund may be exempt from the overall fund because they were working abroad for ESB International. This may also be the case for Aer Rianta staff. In addition, in recent years, Ryanair staff have been based at a greenfield site in London. Will that pension fund be excluded from this provision because they are deemed to be based in London?

I am thinking above all of the Irish banks. Apart from not managing what they were doing at home, many of them extended too far and too vigorously abroad. Many of their staff are also working abroad. Will we therefore find that the AIB, Bank of Ireland and Anglo Irish Bank pension funds are exempt from this legislation for employees based in England, the Continent, the USA or elsewhere abroad? I would like that matter to be clarified. People would find it offensive if on the one hand we bailed out AIB and Anglo Irish Bank at the taxpayers' expense, while on the other hand we introduced a measure to exclude employees of such organisations who are working abroad, either in a foreign branch or a subsidiary. That point needs to be clarified.

Staff of many other semi-State companies could have worked abroad, although I do not know the employment contract details of those who work for agencies such as Fáilte Ireland, IDA Ireland, Córas Tráchtála — the Irish Export Board — or other such companies. We need to know the number of people who will be exempt from this measure by virtue of being employed overseas. In addition, how will the Minister work out how the Bill will apply to those who were working abroad for part of their careers, but not all their working lives? What is the definition of someone whose employment was almost wholly abroad? How will the value of their pension fund be calculated versus that of their salaries when they were contributing to such a fund while abroad? We need to get details on this because I see it as a way for many people to wriggle out of paying, which was the original intention of the legislation. These exemptions could cause more trouble than they are worth.

Some of those people could have been working abroad but might have been resident in Ireland for tax purposes. They therefore got the benefit of tax relief going into the scheme, but will they be exempt from the levy because they were, or are, working abroad? I do not know. The House, the people concerned and industry generally need to know the answer.

In his statement, the Minister said that the levy will not apply to the extent that the scheme is intended to provide retirement benefits outside the State. Does that refer to people who are currently abroad and are no longer living here, or those who worked outside the State but are now living here? Do they have to have been in both categories? We need to have that matter spelled out in further detail because it is not in the Bill. It is important that we should know because it is relevant to a person's domicile during the course of their working career.

Even though I cannot see any Labour Party Members here, hardly a week went by in the last five years when Deputy Joan Burton did not refer to tax exiles and non-resident tax dodgers. Will this Bill open up a new scheme for tax exiles to avoid the levy? If so, I would like to hear the Labour Party's view on the matter. It needs to be thrashed out in further detail.

I am concerned that some wealthy people will be able to escape from the fund, which would be horrific. On 12 May, the Taoiseach, Deputy Enda Kenny, confirmed that the retirement income held in flexible pension accounts will not be liable to the pension levy. He added that approved retirement funds, into which most wealthy people have moved their pension funds on retirement for tax efficiency and estate planning purposes, were not considered pension funds. It is abhorrent to the public that a select handful of people will get away with it again. The general view seems to be that Michael Fingleton's pension pot will be exempt from this levy, as will that of Mr. David Drumm who is regularly preaching to us from the east coast of the United States. If so, it is abhorrent. If the Minister has to amend the legislation to bring those people back into line, he will be doing what everyone in this House, and the general public, consider is the right thing to do.

There is something immoral about the fact some of the people we are bailing out will avail of a tax loophole in the legislation. It is bad enough to have to deal with legacy issues concerning some of these people, without introducing new measures whereby they can escape from the new levy. Everybody here would find that abhorrent. I hope the Minister will work on that. We need to know much more about wealthy people who may escape the levy.

I am also concerned about whether there will be a flight of assets from the country during the period of this levy. Some experts say there might be such a flight of funds out of the country. Ireland has been renowned for its excellent financial services facilities. Ireland has developed a market as a financial services centre. Arising from this single measure, our country might well see a significant outflow of funds and employment in related services, perhaps extending beyond pension assets. This will put the shiver up people who have other assets under management.

Will the Minister clarify a point? I am not as convinced as others by his statement that he will not touch people's deposit savings. A few minutes ago, he stated: "I assure the House that the Government has no plans in this regard", that is, to raid investment funds or deposit accounts. Of course it has no plans, but it must give the House an absolute guarantee for the lifetime of the Government that the latter will not do it. There is no use in saying that it has no plans today, as it could have them tomorrow or next week. The statement is unconvincing.

Deputy Michael Noonan

The Deputy has been too long in Fianna Fáil.

Deputy Sean Fleming

It is fine in the present tense, but it does not extend into next week, next month or next year. The Government might grow to like the €470 million it will get every year. It might believe there is an easier way to deal with it.

Deputy Michael Noonan

The Deputy has been dealing with tricky people his entire life.

Deputy Sean Fleming

This measure will create a major problem for defined benefit schemes, the participants of which are the most vulnerable. The pension industry can make some contribution. Everyone knows how, when one takes out a life assurance policy, the commission charged in the first year is astronomical. The industry should contribute some portion to the levy by way of a reduction in its costs.

While we are referring to 200,000 private sector workers, it is also important to remember that many public sector workers have taken out additional voluntary contribution, AVC, policies to buy additional years. Many of the teachers, nurses, departmental staff and other public servants who took career breaks have taken out AVCs to ensure that, when they retire, they will receive full benefits. The State did not have a system whereby staff could arrange this efficiently or competently, leaving them with no other option. Their AVCs will also be hit by this levy.

I do not accept the argument put forward by some in the private sector that this levy has only been placed on the private sector and should also be placed on the public sector. The public sector pension levy has been biting for a long time and public servants were the first people to take the hit. They were probably the easiest target. Since I did not hear those same people in the private sector volunteering to take the pension levy deduction when it was introduced for public servants, it is difficult to take them seriously at this stage.

I would like some clarification regarding the points I have raised. The legislation is short and, in the interests of its acceptability among the public, some of its points should be clarified to ensure that the wealthy and the big players, those who have done this country enormous damage, are not facilitated by the establishment of a new loophole that would allow them to escape these provisions.

Deputy Pearse Doherty

When the jobs initiative was announced, I stated that it would come as a major disappointment to the 440,000 people out of work. The Government missed an opportunity to use the resources at its disposal to invest in job creation and to have a proper stimulus package that would support businesses and struggling families. Not only will the initiative announced by the Minister fail to create meaningful employment, it might make matters worse. Perhaps the measures are not included in this Finance Bill, but those the Minister announced on the day could potentially depress consumer spending and lead to an increase in unemployment levels. I say this with particular regard to the review of labour agreements.

After the announcement, the media asserted that at least something was being done and that it was better than nothing. This was the general feeling, but what has been done? Consider the detail of the Minister's first Finance Bill, which represents the Government's first opportunity to reverse some of the draconian, drastic and horrible cuts introduced by the previous Government. The Bill is nine pages long, has little detail and contains nothing substantial that will create jobs.

People who, through no fault of their own, lost their jobs in the middle of this recession or came out of college with degrees, masters or PhDs are asking for job creation and opportunities. Many people waited with anticipation for the new Government to bring a fresh approach and a new era, but many of them have been genuinely and deeply disappointed. The Bill will not significantly stem the flow of emigration. Recently, I had an opportunity to visit the Passport Office on behalf of a relation. I chatted with a number of young people who were fed up with what had happened. Despite all of the buzz and feel-good factor following yesterday's address by the President of the United States and his creed, "Yes we can", people believe they no longer can because the Government is not stepping up to help as it should. Like the programme for Government, the initiative contains no job creation targets.

It is worth reminding the House that, while the Government proposes spending €135 million on capital projects, €106 million of that is from existing allocations. There will only be additional spending of €29 million in this regard. The €29 million is to be welcomed. Donegal County Council received approximately €3 million for additional capital spending on roads it or its officials did not have an opportunity to decide on, since the National Roads Authority, NRA, told councils on which roads to spend the capital. However, it is likely that no jobs will be created by the additional money. It is a pittance. January's snow and frost caused road damage amounting to €8 million in County Donegal. An additional €3 million is being allocated to the council under this jobs initiative. I stress this point because the Government could have done a great deal and taken immediate, decisive and brave action to put people back to work while bettering the environment for people living in that community and for those travelling in and out of some of the most scenic areas in Ireland.

I do not know whether the Minister has ever had the opportunity to visit County Donegal or use Donegal Airport. It is a fantastic airport and I am delighted its public service obligation, PSO, will remain. For a peripheral county, such a service is important. We always hear about the large amount of work done by Aer Arann to fly charter flights between there and other parts of Europe, but when one leaves the airport, one is on a roller-coaster trying to dodge potholes here and ditches there while lines of cones warn people about soft verges. It is a disaster, but the frost damage has created further problems.

The Government could have used the resources of the State to invest in job creation and capital projects, to get our roads back up to scratch and to invest in our sewerage schemes and water treatment plants. The leaking pipes through which approximately 40% of all of the water in our distribution network is lost could be repaired and made fit for purpose, which would serve to reduce water charges on business. Not only must businesses pay for the water they consume, they must also pay for the 42% or 43% of water lost due to inefficiencies in the pipe network.

All of this could have been done, but there was unwillingness to increase investment in labour intensive capital projects significantly. It is nothing short of scandalous at a time when so many willing and able people in the construction sector are sitting at home on social welfare payments but want to return to work and build our communities.

The same type of thing can be said about the 20,900 new training places promised in this initiative. Of course they are welcome, and the people who will avail of those projects will deeply welcome them, but they are a far cry from the 60,000 education and training places and work placements promised by both Government parties during the general election campaign. What amplifies the problem is the fact that the total additional expenditure in this area is a meagre €11 million. Paying a mere €11 million extra for job activation measures is not acceptable.

All of this is set against the commitment to cut tens of thousands of jobs from the public service and drive down the wages of more than 300,000 of our low-paid workers who are covered by JLCs and REAs. That is what we must measure it against. I thought it was pathetic — I say that advisedly — that we had three days of debate on a jobs initiative. I would welcome three days of debate on a jobs initiative if it was actually going to create jobs, because that is what we need to be talking about, but what was announced by this Government did not warrant three days of debate. This week, we have two days of Second Stage debate on a nine-page Bill which contains four real measures, three of which I have no real problem with and one of which I have a serious problem with. However, this is not what we should be dealing with. We should be dealing with the major crisis in our country. I have already addressed the fact that we have three crises: a banking crisis, the deficit crisis, and an unemployment crisis. A nine-page Bill as the Government's major initiative is not what I and the majority of people expected.

By having this review and by lowering the wages of our low-paid workers who are covered by JLCs and REAs, we will be reducing the spending power of people who are already on very low incomes. This will create economic hardship and further poverty. It will have a devastating impact on thousands of households and on the small and medium-sized businesses that are depending on those people to survive. It is hard to believe that a Government that was elected on a platform of investing billions of euro — those are its words — in job creation and economic recovery is now proposing a jobs initiative that will not create any meaningful long-term jobs, while at the same time putting tens of thousands of public and private sector jobs at risk through its policies of crippling austerity.

Deputy Peter Mathews

Wait for NewERA.

Deputy Pearse Doherty

Tell that to the people at the passport office and in Dublin Airport. Get in a taxi and go up to the 23 year old who did nothing wrong and nothing to cause this crisis, and tell him to wait for NewERA. Tell the mother who is crying at home because she must watch her child go off to Australia, America or Germany, maybe never to return. I am the son of an emigrant. Tell them to wait for NewERA. Tell them to wait for the strategic investment bank. Tell them the Government has some great plan.

Deputy Peter Mathews

I have a son in that position.

Deputy Pearse Doherty

For 14 years, Fine Gael and the Labour Party sat in opposition.

Acting Chairman (Deputy Tommy Broughan)

I ask Deputies to make their comments through the Chair.

Deputy Pearse Doherty

They sat in opposition for 14 years, and for many of those years they cried out about the then government not doing enough about jobs. They are now in Government, and the mantra, "We have only been there for a couple of weeks" will start to become exhausted. They cannot use it time and time again. They have had opportunities to introduce proposals. They actually put proposals before the people. There was a proposal for a €7 billion investment in job creation. The Labour Party talked about a stimulus package of €500 million. What we have here is a pathetic excuse for how to address the biggest crisis faced by the State. The Deputy will get his opportunity to speak.

Deputy Peter Mathews

My own son was in the Deputy's position.

Deputy Pearse Doherty

The previous Tánaiste spoke on the BBC about the plight of young people emigrating, saying it was a great thing that they were walking away with PhDs and degrees in their pockets. The people had their verdict on that type of attitude, and I believe they are genuinely disappointed. However, they still have hope that this Government can do a lot better than this Finance Bill. It needs to get to grips with a major problem.

Deputy Peter Mathews

I support the Deputy's sentiment.

Deputy Pearse Doherty

As we have said, there are ways of doing this through proper stimulus. Sinn Féin has pointed out that we should use the resources we have available. We should inject €2 billion from the National Pensions Reserve Fund into a stimulus package. We argued that we should invest €2.9 billion in total over the next 12 months, which is not only affordable but urgently needed if we are to break the downward spiral created by Fianna Fáil's policies of austerity, which are now being followed by those of Fine Gael and the Labour Party. Such a stimulus would not just get people back to work but would also result in a reduced deficit, increased tax revenues and a reduction in social welfare expenditure.

Sinn Féin would use €2 billion from the National Pensions Reserve Fund to fast-track labour-intensive infrastructure projects, such as constructing schools and hospital buildings, upgrading water infrastructure, developing public transport networks and rolling out State-wide broadband. We would inject a further €500 million into the economy in the form of a family stimulus package, funded through additional tax revenue. The aim of the measures would be to reverse some of the heavy burden placed on working families and those on social welfare by the last Government and, in doing so, boost consumer confidence and spending. In addition, we would abolish the universal social charge.

We have argued consistently that the only way to get out of the mess we are in, the only way to get out of the grip of the recession, and the only way to reduce the deficit and return to positive growth is by investing in jobs, boosting consumer spending and strengthening local economies. The policies of austerity simply are not working. They have not worked in the past and they are not working now. Every time we have a new budget of austerity, we see deepening inequality, a rising deficit and more debt being heaped on ordinary people, and it simply is not working.

When I talked about this before, I told the House it is a case of see no evil, hear no evil, speak no evil. We are in serious trouble. I know the Government understands that. We are probably heading for a second bailout. The Government can present as many fairy-tale figures as it wants, saying we will return to 3% growth by 2013 or 2015, but it is hugely unlikely. The agenda of this Government, which is one of austerity and further cuts, is not likely to lead to anywhere near such growth. As a result, we will not be able to go back to the international bond markets, which is where we should be going, but will have to go back to the pot of the EU and IMF.

There are many things in the Finance Bill as presented that I do not have any problem with. Abolishing the travel tax is a great idea, but that is not what the Bill does. We must recall what the Taoiseach, Deputy Kenny, said during the general election campaign. He described the travel tax as destructive, saying it had cost the economy 3,000 jobs and cost the tourism industry €480 million but had netted only €100 million for the Exchequer. In the programme for Government, Fine Gael and the Labour Party promised to abolish the travel tax as part of a deal with the airlines to restore lost routes. Despite the promises that were made before the election and in the programme for Government, the Bill before us does not abolish the travel tax. Rather, it gives the Minister the power to suspend the tax by way of an order.

The programme for Government also clearly states that the travel tax will be abolished in return for the restoration of routes, but that is not what was stated in the jobs initiative, nor is it what the Minister stated today. He said the Government was now proposing the suspension of this tax in return for an increase in passenger numbers. We are not going to get back the lost routes; it is just a matter of passenger numbers. I can understand the negotiation behind it. We wanted Ryanair to restore lost routes, but it is not doing that, so we are asking it to increase passenger numbers. We will have a review in 2012 and if the proposal is not working, we will reintroduce the travel tax. What if Ryanair decides not to do that? Do we punish every other tourist who comes here for the intransigence of Ryanair? Does the Government not believe what the Taoiseach said just a couple of weeks ago — that the travel tax has cost 3,000 jobs? Why would we keep a tax that has resulted in a loss of €480 million? Those are the Taoiseach's figures, in which I am sure the Minister has full confidence. We should not only suspend the tax but abolish it, and it should not just be about passenger numbers.

Perhaps it should involve the introduction of routes. If, however, the intention is to remove it, then this should be done. We should not punish tourists who wish to enter the country.

Many people are inquiring with regard to why this tax has not already been removed. Those opposite have had approximately ten weeks to remove it and a commitment in that regard is contained in the programme for Government. However, it has been diluted time and again. There is no doubt this tax has caused damage to the tourism industry. I will support the measure but I wish the Minister had brought forward a proposal which lived up to what the Taoiseach, Deputy Kenny, stated previously and what the programme for Government contains.

The Bill gives effect to a reduction in the rate of VAT to 9% in respect of tourism-related goods and services from July next until the end of 2013. This measure must, of course, be welcomed if the effect of it is to boost spending in the tourism sector. Once again, however, we are faced with a Government presenting a half-baked measure against the backdrop of more general policies that will have a negative impact on the economy. I do not have a problem with the measure contained in this Bill but we all know what is going to happen to the other elements involved because the position in that regard is set down in the programme for Government and the EU-IMF deal. Basically, what is involved is that the higher rate of VAT will increase to 23%.

The Finance Bill that will give effect to the budget to be introduced in December will contain the necessary measures relating to VAT. What effect will the implementation of such measures have on the Government's jobs initiative? The Minister should visit Donegal and neighbouring counties and discuss with local retailers the effect an increase in the higher rate of VAT — from 21% to 23% — will have on their businesses. The previous Administration increased VAT at a time when VAT in the North was reduced as a result of a decision taken at Westminster. The scale of the increase was only 0.5% but the retail sector in the Border region was hammered as a result. The Minister's Government is now proposing to increase VAT by 2%. This will not just affect the retail sector, it will also have an impact on people who have very little disposable income. As already intimated, it will have a major effect on those who live in my constituency and in other constituencies in the Border region.

The core element of the Finance (No. 2) Bill 2011 is the imposition of a 0.6% levy on pension funds for the next four years. The Government plans to raise €470 million by means of this levy. In my view and that of my party, the pension levy proposal is deeply inequitable. It excludes the approved retirement funds used by many high earners to invest in their pensions. It also fails to differentiate between pensions held by ordinary workers and those of high earners.

I was extremely interested to discover the position of Fianna Fáil in respect of this matter. When I heard about the impending introduction of the pension levy, I carried out some research regarding when it began to emerge and who was responsible for bringing it forward in the Dáil as an option. I did not know whether it was the brainchild of Fine Gael or of the Minister. However, I discovered it was first raised on 19 January by the former Fianna Fáil Deputy Charlie O'Connor. The latter tabled a question to the then Minister for Finance in which he asked whether consideration had been given to introducing an annual levy on pension funds. The former Deputy also inquired whether the levy would be set at various levels from 0.25% to 1%. The then Minister, Deputy Brian Lenihan, less than two weeks prior to the dissolution of the previous Dáil, stated, "An annual levy on pension funds is a potential alternative that could be considered in this regard." I place this matter on record because I wish to illustrate the thinking of Fianna Fáil. I accept that elections change many things, but that was the thinking of the then Minister for Finance in response to a matter raised by another member of the Fianna Fáil Party.

There are far more equitable ways to raise funds through the pension system in order to assist job creation. Sinn Féin has long advocated the standardisation of pension tax reliefs at the lower rate. I am sure this will happen in due course. A measure such as that which we propose would not only remove an unjustifiable inequity in the current system, it would also generate significant revenue for the State to invest in economic recovery right now. Based on figures from a 2009 ESRI report on pensions, standardising pension tax reliefs would generate an additional €1.1 billion, of which €616 million would come from the top 10% of earners. It is estimated in the report to which I refer that in 2009 some 82% of all pension tax relief went to the top 20% of income earners. This demonstrates — if ever such a demonstration were needed — the grossly unequal nature of this relief and also the need for its immediate reform.

Sinn Féin would invest the money to which I refer in a very different way than that outlined by the Government when it announced its jobs initiative. In the context of the Finance (No. 2) Bill 2011, the Government had a clear choice between raiding the pension funds of all or targeting new revenue-raising measures at those who can most afford to pay. Those were the options. The Government decided to target everyone, regardless of how large or small their contribution or the size of their income. It did not consider standardising tax reliefs. As already stated, 82% of the tax reliefs to which I refer, or just over €8 out of every €10 foregone by the State in such reliefs, goes to the top 20% of income earners. That is simply amazing.

The Bill does not deal with an issue which it should address, the universal social charge. I accept the Government's position on this charge is that it will carry out a review in respect of it at some stage. I am aware it has stated that the terms of reference of the review will be published and we will be in a position to participate in it when the time arises. The Bill before the House presented us with an opportunity to get rid of the universal social charge. We could have ensured that one of the most grotesque and unfair taxes or charges ever introduced by an Irish Government would be abolished. Everyone is aware this charge hits workers on low incomes. In addition, it significantly shifts the tax burden away from high earners and places it on their low-paid counterparts.

I previously tabled a parliamentary question to the Minister in respect of the number of people brought into the tax net as a result of the introduction of the universal social charge. If I recall correctly, his reply indicated that the ballpark figure was 500,000. That highlights the impact of this charge. Those to whom I refer are not 500,000 high earners and neither are they tax exiles. They are the people who did not have much money in the past and from whom the Government now wants to take a little bit more to pay for the recklessness of the bankers and the developers and to offset the lack of regulation applied by regulators and the lack of oversight exercised by senior politicians.

The Bill presented an opportunity for us to address this matter by replacing the universal social charge. At least there was some measure of equality in respect of the income and health levies, which were superseded by the universal social charge. The rate of the latter is 2% in respect of those with incomes upwards of €4,004. These people earn just over €77 per week. The rate of the universal social charge increases to 4% at €10,037 and to 7% at €16,017. That shows how progressive is this measure, which the current Government has left in place. A person earning €308 per week is paying the charge at the same rate as someone who earns €3,000 per week. That is simply not fair.

The changes relating to the universal social charge have led to an increase in what are termed the "working poor". As already stated, the charge is less progressive than the health and income levies which it replaced. When the previous Government introduced the universal social charge, consideration was not given to people's ability to pay. In addition, an impact assessment was not carried out in respect of the real affect this charge would have on tens of thousands of ordinary people.

Fine Gael and the Labour Party had, in the form of the Bill before us, the opportunity to abolish this charge. Any decision to do so would have improved the daily lives of 500,000 of the State's lowest earners. This is the second such opportunity with which it has been presented in as many months. However, just as in the case of Sinn Féin's Private Members' motion relating to the universal social charge, the Government has again chosen not to take action.

We have been informed there will be a review and that the terms of reference relating to this will be published. However, the Government has still not indicated when the review will take place, when the terms of reference will be published and when people can contribute to the review in order that they might argue their case. There are Fine Gael and Labour majorities on many local authorities throughout the State and these have informed the Government, by means of voting in favour of particular motions, that they want the universal social charge to be abolished. The local authorities are of the view that this charge is simply wrong.

Earlier today I raised with the Taoiseach, Deputy Kenny, the issue of the civil partnership Act, which has been in place for almost a year. In January, the Minister, the Labour Party's finance spokesperson at the time, and I had a meeting with the then Minister for Finance.

At the time, we were told by the then Minister for Finance, Deputy Brian Lenihan, that because of the rushing of the Finance Bill, the measures to give legal effect to tax arrangements under civil partnership legislation would not be prepared in time. Consequently, he said, a second finance Bill would be required. All parties around the table gave a commitment to introduce such legislation as quickly as possible.

This Government's legislative programme, published in the first week of April, stated the Finance (No. 2) Bill would include these measures. Again, however, these measures are missing in the Bill as presented to the House. What is the hold-up? Why have the measures not been included? They have been worked on by departmental officials for over two years. While I accept there are pressures on the Department, why is this necessary legislation not in place? When will the finance Bill dealing with the civil partnership tax measures be introduced and enacted? Will it be used specifically for such measures or will it be used to sneak in several more austerity measures?

The Finance (No. 2) Bill is a missed opportunity. If the Government had kept to its pre-election promises, we would have been debating real and substantive measures aimed at creating jobs in the public and private sector. We could also have been discussing changes to taxation aimed at boosting consumer demand and easing the pressures on struggling businesses and families.

Instead, we have more of the same tired old approach of the last Fianna Fáil Government. These austerity policies, designed by Fianna Fáil but now supported by Fine Gael and Labour, are not working. These policies, written under the watchful eye of the European Commission, the European Central Bank and the International Monetary Fund, will continue to push our economy and society further into the cycle of unemployment, debt and deficit.

This Finance (No. 2) Bill reinforces the lack of ambition and political will that underlies the jobs initiative itself. It will not play any meaningful part in creating jobs or stimulating economic recovery. Only an alternative approach, based on investment in jobs and boosting consumer demand, can break this cycle. The economy is crying out for stimulus while ordinary people are crying out for a change of direction.

There is an alternative. It is one that sees investment in jobs, the country's future and society while stimulating the economy. It is time for the Minister to wake up and realise the other way has failed. The policies that have been pursued have not just cost billions of euro but have broken families and imposed real hardships. Will the Minister for Finance examine the alternative proposals put forward by Sinn Féin again today?

Deputy Joe Higgins

I wish to share time with Deputies Luke ‘Ming' Flanagan, Catherine Murphy and Richard Boyd Barrett.

Acting Chairman (Deputy Thomas P. Broughan)

Is that agreed? Agreed.

Deputy Joe Higgins

Sadly, this finance Bill is a caricature of a real job creation strategy. This is all against a background of almost 500,000 of our people unemployed, the spectre of long-term unemployment within that cohort increasing and thousands of young people leaving the country yearly. In all of this hardship, we have had a consistently reducing scale of ambition by the Government parties from the general election campaign through to the programme for Government and lastly with the announcement of the jobs initiative. Fine Gael's election programme spoke about creating 100,000 net jobs up to 2015 while the Labour Party promised a strategic investment bank and other such measures. Yet, the Minister for Finance could not put any figure on the number of jobs that will be created by this jobs initiative when he unveiled it. When I pushed him in the Chamber, he said some of the agencies involved referred to a figure of 6,000.

T.S. Eliot's somewhat appropriately named poem, "The Hollow Men", comes to mind:

Between the idea

And the reality

Between the motion

And the act

Falls the Shadow.

There is a massive shadow between what Fine Gael and Labour promised through their posturing in the course of the general election campaign and the reality of the proposals contained in the Finance (No. 2) Bill. The Government is tinkering around with taxes and VAT which are really peripheral when compared to the scale of work needed to be done in job creation. The Government reminds me of a child with a new toy; when it presses a button, the toy will perform the tricks it would like to see. That is about as optimistic as we can be when it comes to this Bill's proposals.

For example, the initiative has a huge reliance on the tourism industry to assist job creation. I hope tourists will visit Ireland in large numbers. We want to see good jobs in tourism which is why my party opposed the rush to drive down the wages of many workers in the sector as has been discussed at the joint labour committees in the past several months. The Government, however, has put a weight of expectation on the tourism industry that is simply unachievable.

The Government organised two major State visits, one by the Queen of England and the other by the President of the United States. It appears the Government then had the idea of hitching the depressed tourism industry to these royal horses so the industry could turn into a magic carriage that would bring us tens of thousands of visitors as a result. Unfortunately, real life is not like that. There needs to be a reality check on the specific measures proposed in the jobs initiative. The idea that removing a €3 tax on airline tickets will result in a clamour of front doors banging shut from Land's End to John o'Groats as people in England rush to their nearest airport to visit Ireland does not belong in the real world.

Deputy Michael Noonan

Deputy Joe Higgins should make the great leap forward.

Deputy Joe Higgins

Sadly, the reduction in VAT from 13.5% to 9% will not have the dramatic impact the Government hopes it will have. We are, unfortunately, talking here about the background of the wider crisis. Ordinary working class people from Britain, those on whom we depend most to come here and share their hard earned wealth with us, are being mercilessly hammered by Prime Minister Cameron and the Lib-Tory Government by way of £81 billion in cuts to their living standards over the next four years. While this continues, those people will have difficulty coming here. Also Irish working people cannot as a result of cuts here afford to take holidays, thus generating the type of work we would like to achieve within the tourism industry.

The additional €29 million for modest projects, as announced in the jobs initiative, is completely incapable of meeting our needs, against a background of a €1.7 billion cut this year alone in the State capital spending programme. The Government desperately hopes that making these few cosmetic changes will assist the private sector in creating jobs. In this regard one needs only look to the private sector and the cataclysmic collapse of private investment. I could not believe my eyes when I read that the gross domestic fixed capital formation fell from €50 billion in 2007 to €17 billion in 2010. The Government hopes these minor adjustments, along with the austerity programme which is savaging the ability of our people to buy goods and services, will rectify the situation.

The only way we can create the massive number of jobs we need is through major programmes of public investment. The Minister did not link this initiative to the economic recovery initiative which mentions infrastructure such as energy, communications and water or the Labour Party's strategic investment bank proposal. What we need is massive investment in infrastructural projects that will create tens of thousands of jobs, with progressive taxation. We should stop the ruinous policy of repaying the bondholders and so forth.

Is cúis mhór díomá dom an tionscnamh seo maidir le poist a chruthú. Faraor, tá sé soiléir nach bhfuil aon straitéis réadúil ag an Rialtas chun na mílte post atá ag teastáil a chruthú agus nach bhfuil an infheistíocht chuí á pleanáil nó á cur isteach a bheadh riachtanach chun an leibhéal fostaíochta atá riachtanach a chruthú. Dá bhrí sin, agus is mór an trua é seo, leanfaidh an géarchéim dífhostaíochta ar aghaidh leis an bhfulaingt agus an crá croí a chruthaíonn seo dos na daoine atá dífhostaithe.

Dá bhrí sin, caithfimidne athrú straitéise amach is amach a chur i bhfeidhm, agus na billiúin euro a chur isteach in infheistíocht phoiblí — straitéis dhifriúil ar fad seachas an méid atá annso ag an Rialtas — chun na poist atá riachtanach a chur ar fáil. Sin an t-aon fhreagra atá ar an ngéarchéim seo.

Deputy Luke ‘Ming’ Flanagan

I will be voting against this Bill for reasons I will outline, including how it is being funded, which is questionable, and how, if we manage to get our hands on it, the money will be spent.

On the way to Dublin this morning, I listened to an interview on RTE radio with Mr. Eddie Hobbs, who was praised by the Government when in Opposition for barracking the previous Government. It now appears he has issue with the current Government in that he believes this legislation could be unconstitutional. Who knows? Perhaps he is right; perhaps he is wrong. Earlier I heard Deputy Ross being abused for not being perfect in the past. Perhaps the Government recalls what he had to say on the last occasion we spoke about this issue, namely, that there is another way of extracting this money from the pensions industry.

This afternoon I received a letter from the Irish Nurses and Midwives Organisation in relation to the pension levy. In the letter the INMO appeals to me to use my vote to prevent any attempt by the pension fund administrators to pass on a 0.6% job creation fund tax levied by Government to their customers. The INMO confirmed that it has raised the issue with its staff pension fund administrators and with AVC providers. According to them, the levy will be imposed on the trustees or administrators, which in the majority of cases is not the insurer or life company. The levy is not imposed directly on the member or members' fund and the Government must not provide for any such option. The following sentence of the letter was underlined: "The industry, based on a previous levy imposed in 1998, are presuming they will be given such an option and have run a slick campaign suggesting no other choice."

The letter goes on to say that since the announcement of the Government's jobs initiative the pension industry, through highly articulate spokespersons, has managed to convey the impression this payment towards the nation's recovery must be extracted from contributors to pension funds. The INMO believes the levy should be taken from the profits of the pensions industry or, more appropriately, their marketing and hospitality budgets, which are wholly unnecessary in the current climate. I do not know if that is the perfect answer. However, I do know that it is going to be very difficult to get this money. Whether or not it is difficult to get we must be careful about how we spend it.

I do not propose to put forward solutions to the lack of jobs countrywide. However, I can propose solutions for my area, which can be replicated in other parts of the country. I agree with Deputy Higgins that the tourism industry cannot be grown by that much in places such as Galway, Dublin, Killarney and other parts of Kerry. However, there is massive potential for growth in my area and similar areas. On the day the jobs initiative was announced I said in this House that reducing the price of a bag of chips by 5 cent will not encourage people from England, if they can get over Deputy Higgins's barriers on the east coast, to come to places like Roscommon and south Leitrim. Perhaps it might. I cannot imagine it encouraging them to visit other areas. What would make tourists come to my area and other similar areas would be a tourism product. I do not believe it too ambitious that places like south Leitrim and Roscommon could reach one third the level of tourism enjoyed by Galway. This would mean €90 million in extra revenue. Taking industry figures that for every €30,000 spent on tourism one job is created this would mean an extra 3,000 jobs for my area. When canvassing during the recent general election I put forward this proposal and was told it was unrealistic. If it is unrealistic then we will have to rely on some big company to locate in the area if we are to solve our jobs problem. That is not going to happen and as such we will have to make my proposal work.

Roscommon-South Leitrim has all the ingredients, including an able workforce, excellent transport and an abundance of self catering accommodation, something I could not have said a few years ago. In other words, the many empty houses throughout the countryside. We also have the attractions to bring people to our area. One reason people might like to visit the area is that they may not meet too many tourists, thus enjoying a little tranquility. They could then, when they leave, tell other people what a wonderful area it is. I am not being parochial. There are many other areas around the country that could develop tourism. If the product is put together correctly people will come. I agree with most of the other ideas behind the initiative although they will not change everything. Instead of reducing the price of a bag of chips in south Leitrim or Roscommon, can we have the €17.8 million to develop a tourism industry? The vehicle is already in place, in the form of the Leader companies, to distribute that money. We will be able to create jobs. I reckon in the region of 3,000 jobs could be created in an area as small as the one I come from. That would have a massive effect.

What the Government is planning will drive my neighbours, friends and relations to leave my town and my county. If the Government's figures are to be believed, nearly 30,000 people have left the country since it came to office.

Deputy Catherine Murphy

The Minister himself described the jobs initiative as modest. It is no surprise, therefore, that the Bill is a technical one, reflecting the jobs initiative. That is the difficulty with regard to it.

The Minister has set out a number of areas where jobs might be provided. The tax credit for research and development is, in itself, a good initiative but it will not, necessarily, provide huge numbers of jobs. Research and development is a small section of any industry and manufacturing is not always carried out in the place where research and development happens. The number of jobs to be created by this measure should be quantified and the Bill should require an actual return on the tax credit from the companies that will benefit from it.

The reduction in VAT and the abolition of the air travel tax will have a positive effect on the tourism industry but the effect will be small. The primary reason American and British people do not come to Ireland is they find the eurozone too expensive. The problem is not with Ireland but with the eurozone. They go to countries like Turkey where they feel they get value for money. Poor value for money in the eurozone and reduced income are the two reasons British and American people are not holidaying in Ireland. The UK and US economies are not doing particularly well, although not as badly as ours. As a consequence, British and American people holiday where they get value for money.

Our 12.5% corporation tax rate is seen by some countries as an unfair advantage. Is it not interesting that the same is not said about the effect of currency devaluation by countries that are in the EU but not in the eurozone, which gives them a competitive advantage?

I am concerned about halving the rate of employer's PRSI until 2013 for incomes up to €356 per week. The minimum wage is €337 per week. This measure will mean €356 will become a maximum wage. I am concerned that jobs will not be offered above that rate. This threshold is much too low and should be increased.

Construction is the sector that has lost most jobs, yet home insulation has not been targeted. In fact, grants for woodchip boilers, heat-pumps and air-space heating have been abolished and the grant for solar initiatives has been reduced from €1,800 to €800. The greener homes scheme has been abolished and all contractors must re-apply to be included in the better homes scheme. We had something ready to go but difficulties have been created by these changes.

How will the initiative be funded? The Bill is ambiguous in this regard. We are told it will be funded by the pension levy but not who will pay. Trustees of pension funds are accountable to their shareholders and will see their shareholders as more prized than savers. People who are paying towards their retirement will pay, if the choice is left to the market. At the very least, we should make it clear the levy must be paid out of the fees charged and not by savers.

Much of the pension reserve fund has been flushed away. We will face a major problem in 2025. This is the next big problem coming down the tracks and we will have to face it as soon as we have got through the current problem. There must be a commitment to a root and branch assessment of the pensions issue. The people who are stuck in Ireland in negative equity and with big mortgages are the very people who, when we reach this threshold in 2025 and just when they have got their heads above water, will be asked to pay. A major review of the pension system must happen. Otherwise we will have a serious problem.

Deputy Richard Boyd Barrett

The centrepiece of the Bill is the pension levy. It is outrageous and economically stupid that we should attack the pensions savings of 750,000 workers and 65,000 pensioners, who are already struggling under the impact of the current crisis, and that this attack should take place to fund a jobs initiative that will do next to nothing to deal with the unemployment crisis and may significantly worsen it.

Like their Fianna Fáil predecessors, there is no low to which the Government will not sink to protect bankers and bondholders who caused the crisis and to protect the super-wealthy in our society. I would like to have asked the following questions of the other Minister at the Department of Finance, Deputy Howlin, but I will ask the Minister for Finance. Why is it okay to attack pensioners and the pensions savings of ordinary working people but not to repudiate the debts of bankers and bondholders? Why will the EU-IMF allow one but insist the other is not on the agenda? Why is it not okay to impose wealth taxes on multimillionaires and billionaires or to put higher taxes on people who earn more than €100,000 per year, which is more than enough to live and survive on? Why is it okay that approved retirement funds, one of which Seánie Fitzpatrick, for example, has, will not be touched by these measures? It is extraordinary and outrageous that this Finance Bill will, yet again, attack the poor to protect the rich and those who caused the current economic crisis. Why will the Government not take something from the super-wealthy, bankers and bondholders? Why does it insist on hitting the poor, working people and pensioners again and again?

This theft of pensioners and ordinary workers is being carried out to fund a jobs initiative that is a joke. The amount of money the Government is putting into roads, schools and retrofit is pathetic. Roads will probably receive less than was just spent on the Obama and Queen Elizabeth visits. Is that not just appalling, even if we cannot get a straight answer on how much those visits cost? Is it not sickening to think the new investment programme in schools under this jobs initiative may be less than we have just spent on the jamboree that has taken place in this country over the past week?

The reductions in PRSI are not contained in this Bill but are part of the same jobs initiative. They apply to employers who employ workers earning €356 or less, which is essentially an incentive, probably a deliberate one, to create a low wage economy and to pin down wages further and depress demand, which will accelerate the downward spiral in the economy.

With regard to the focus on tourism in the Bill, while of course all of us would welcome measures that boost the tourism sector, the Minister should examine the experience of IMF intervention elsewhere, particularly in the developing world, where it has imposed structural adjustment like that it is imposing on us, adjustment that has devastated the indigenous economy and impoverished the local people. What is left for those people when the IMF does that? Tourism is what is left. Impoverished, immiserated people are left begging for the tourist dollar, which seems to be the direction we are heading. The IMF-EU package will cripple our economy and all that will be left is to beg for the tourist dollar. When one cannot walk around a corner in Dublin without seeing somebody begging for the tourist dollar, one might get some sort of vision of where the Government's current economic strategy for the whole country is going. Of course, all of these paltry, pathetic and in some cases counterproductive measures also take place against a background of the slow, or not so slow, attrition of jobs as a result of the public sector recruitment embargo, which is throwing more of a burden onto our social welfare system, week in, week out, month in, month out, as more jobs are lost.

There is an alternative. The Minister often challenges those on this side of the House, telling us we are all very good at criticism but asking what is our alternative. There is an alternative and it is implicit in what I have said. Why do we not introduce a 5% emergency wealth tax, even on a short-term basis, on the assets over €1 million, excluding the family home, of the super-wealthy in our society? There are wealth taxes in France and in other countries in Europe. Given the hit everyone else is taking, including ordinary workers and pensioners, why can we not impose a wealth tax on the super-wealthy in this country who, we have discovered yet again in the past few weeks with the publication of the latest rich list, are even richer than they were before? Why can we not also establish new higher taxes on people earning over €100,000 a year? If we did that, we could marshal considerably more resources than will be marshalled from this pathetic Bill to invest in a real jobs programme.

What a real jobs programme would involve is as follows. There would be big investments in public works programmes to develop vital infrastructure such as a water system, schools, hospitals, local amenities and public services. It would involve public investment in strategic industries in areas such as wind, wave and tidal power, generic medicines, IT, recycling and more traditional industries and developing the food sector — we could develop all sorts of areas. It would involve not selling our State assets or our natural resources and developing these for employment and other economic and social goals. It would involve a massive curtailment of the costly and completely inefficient outsourcing practices and use of consultants by local authorities and the State, moving instead to the more efficient and employment-beneficial direct employment of people in those programmes.

Finally, will the Minister consider introducing differential rates for small and medium businesses so the big, profitable companies pay more in rates and so small, struggling businesses get a break in regard to rates, which might help deal with the apocalypse that small businesses in this country are facing?

Deputy Dara Murphy

I wish to share time with Deputy Peter Mathews.

Acting Chairman (Deputy Thomas P. Broughan)

Is that agreed? Agreed.

Deputy Dara Murphy

This is a very important Bill that has been brought to the House just two months after the new Government was put in place. It is important to stress that Governments do not create jobs. They can create targets for job creation over the term of a Government but they do not necessarily create specific jobs through the creation of proposals. All a Government can do is to create the environment in which other people can create jobs. It is the case that we have been through 14 years where the outgoing Government did not bother with that objective and failed to deliver imaginative proposals that would allow the people of our country, who have traditionally proven themselves to be extremely innovative, to create work for themselves and for others. What we are seeing today is a small step towards turning our country around and delivering a new environment for the people to create employment.

Many Opposition speakers referred to a very broad range of the issues that face the country whereas the Bill is targeted and specific legislation aimed at addressing a number of the proposals announced in the jobs initiative some weeks ago. Deputy Higgins referred to T.S. Eliot's poem, "The Hollow Men". It is an appropriate poem because hollow vessels create the most noise but they are also empty. From all those in opposition, including Fianna Fáil, we have not heard alternative ways of bringing in the necessary funding of €1.9 billion that will give rise to this new employment and allow these initiatives to progress.

We must acknowledge and take on board that our hospitality and services industry is, in line with the building industry, one of the key areas that has been very hard hit in recent times through unemployment. I have been contacted by a person who has two restaurants in Cork and who told me the proposals included in the Bill will allow him the very modest potential to employ two more people in each restaurant. With regard to hairdressing, if Members were from my part of the world, they would be aware of Mick Moriarty, who is known as the baldy barber. He has said for years that we must stimulate small businesses and remove from them the burden of higher VAT rates in order that they can pass the benefits on to the people in their communities and, consequently, that they will be in a position to employ. These measures work.

What we have heard today from the Opposition is a complete misunderstanding of how economics works. The reductions in VAT rates, and the future PRSI reduction that is planned, are marginal reductions. We are looking at an economy that we hope will grow by 0.8% this year and we hope to increase that growth over the coming years to 3%. This happens in any economy, even a small economy such as ours, through marginal improvements and through measures such as reducing or abolishing the travel tax. To suggest it is trivial that one family sitting in England will look at a reduction of €10 and decide to visit Ireland, as was suggested today, shows no understanding of how economics works. I will tell Members——

Deputy Richard Boyd Barrett

It does not work.

Deputy Dara Murphy

——how economics has not worked in our country — it was by making our economy an expensive place to do business and sell our products abroad. All over Ireland we are competing with other destinations. Such marginal reductions in how our costs are passed on to people will indeed be of benefit to us over time.

There is a type of balance between the proposals we have today in that they address the cost of travel to our country for people coming from abroad by means of the travel tax reduction. Equally, most of the industries that can benefit from our lower VAT rate and reduced PRSI, when the latter is introduced, are in sectors where both people who travel to this country and our own people can benefit. They include the hospitality and hotel industries and other services that people can purchase. As was stated, this is a step in the right direction. If we marry that to what happened with the visit last week of the Queen of England and that yesterday of President Barack Obama it will point to a sense within the country of stopping the domino effect of negative after negative; of at least trying to push the dominoes back in the other direction. This has been a successful period in this country and there is no doubt the direction in which the country is being sailed by Captain Kenny, as the Taoiseach has been termed, is one in which all of us can have great confidence. We can have great optimism in that future.

I came from Cork City Council. Many Members of the Dáil have served on local authorities. When we do our annual budgets they must be revenue-neutral. One of the new experiences, indeed, the reality all Members face is that when measures are introduced that incur a cost they must also provide from where that cost will come. That is how local authorities function. When I chaired our budget meeting last year one of the standing orders of the council was such that if a member stood up with a proposal as to how we would spend money he or she had to marry it with the method of saving the money concerned. We have not heard that plan in the Chamber today, particularly not from Fianna Fáil, all of whose members focused on where money would come from and on their concerns and criticisms regarding the levy on the pension industry. There was not one suggestion from Fianna Fáil as to what savings and incentives could be put in place to get our people back to work.

We need to get a sense of creativity, determination and of leading the people and this is coming from the Government. In criticising, the Opposition, particularly those parties that regard themselves as serious, will have to state what they would do.

Deputy Richard Boyd Barrett

I gave three suggestions.

Deputy Dara Murphy

We cannot come up with nonsensical suggestions such as raising taxes which would put further pressure on the people and reduce the potential we have as a country to go forward and create growth.

Deputy John Halligan

Tax the multimillionaires. That is creative.

Deputy Dara Murphy

The Government has been in place two months. I commend the Minister for Finance, Deputy Noonan, and his team for introducing these measures. Nobody suggests this jobs initiative will put in place in one go all the proposals, dreams and aspirations we have for our people. However, it is certainly a start, one that was long overdue.

Deputy Peter Mathews

After the week that was in it our challenge is to encourage one another. We were encouraged by our visitors and responded with warmth and welcome.

Second Stage of this Finance Bill is one part of the jigsaw of reconstruction. In this country we are finding our voice. We are at the Sexton half-time stage, a rallying call, but let us base it on realism and start with the real picture. This Finance Bill is one part of the jigsaw from which we must build. However, the picture is stark. I say as much and will not pull my punches or lower my voice. Our country is getting out of a mess of €100 billion of bank losses that have smothered and buried the households and people of this country. It behoves us to face up to the people who have provided interim financing, on shaky grounds, for the balance sheets of our banks that need structural repair. We are getting to that repair slowly but we need to focus our story on the people who provided the banks with that €100 billion, all mixed up in the funding which came from the ECB and our Central Bank. Our European partners have to understand our story. They have been bewildered by a long saga of confusion for the past two and a half years and are only beginning to see the picture out of the fog.

Reference was made by various contributors to the younger people who are emigrating. I commend everybody's contribution today. I made notes on every one and I acknowledge all that has been said. However, we must explain clearly that the story which was told for the past two years was unreliable. We must say to ourselves that although it is a tragedy that young people are emigrating at present, still they escape to some degree because they are not smothered in debt. It is the families, households and businesses which are struggling that are smothered by debt. They are that way because the banks are smothered in debt as a result of the huge losses they made.

The challenge, therefore, is to continue to request of our banks' creditors at the ECB and of the remaining outstanding bondholders for a write down of that debt. I suggest that of the figure of €50 billion in amounts owed to the ECB the majority of those loans had a provenance in or derived from funding the repayment and redemption in full of the senior bondholders to last year. The figure of €50 billion might be the starting point for a write down of the amounts owed to the ECB, with €25 billion for the amounts outstanding to senior bondholders of our Irish-owned banks. This amount of write-down could, in turn, be cascaded back to businesses and households in Ireland, relieving them of debt.

Debate adjourned.