Seanad Éireann debate -
Wednesday, 16 May 1984

Vol. 103 No. 13

Finance Bill, 1984 [Certified Money Bill] Second Stage (Resumed).

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

Mr. Lanigan

Yesterday I started to speak about the problems of local government financing. Those of us who are involved in local government will have seen in the last 12 months the huge need for a fresh look to be taken at the structure and financing of local authorities. The problems of local authorities have not been created by themselves but rather have been created by central Government not giving, from an ever increasing tax take, the necessary moneys to run these authorities on a strong financial basis. For a number of years now we have seen, year in and year out, an increase in personal taxation and an increase in indirect taxation. We have seen the impact of indirect taxation taking from the effectiveness of local authorities.

One of the main ways in which we could give some extra financial help to local authorities is to change the VAT coding system which is at present in operation. It seems to me ludicrous that a local authority which has its own plant and employs its own people to operate that plant would have to pay a 23 per cent VAT rate for the materials that are used by the country council workers using county council plant, whereas if they bring in an outside contractor that outside contractor has only to pay a 5 per cent VAT rate on his material purchases.

In the last 12 months in Kilkenny County Council the VAT payment for direct purchases amounted to £1 million. When one considers the effect of this it means that when central Government say they give to local authorities £1,000 or £1 million or whatever, for every £1,000 worth of material they purchase they have to give back £230 to the Government. It is ludicrous to think that central Government should claim to be giving so much to local authorities when, in fact, they are clawing back 23 per cent on their material purchases.

There is a definite need for reform of local government finances, but I believe that the approach of the Government in reacting to problems on an ad hoc basis is not a proper one. I believe that local authority structures should be strengthened and that simultaneously with an imposition of local changes on taxes there should be a drop in the taxation take from the locality under the jurisdiction of the local authority which goes to central Government. If a properly structured financial arrangement could be made for local authorities much of the duplication at departmental and local government levels would be eliminated and we would have a much better managed public service scene. In the past number of years we have seen the movement of power and autonomy inwards towards the centre to the detriment of the nation. This loss of autonomy has led to weaknesses of local bodies. The Government should actively seek ways and means of delegating responsibility and accountability to the greatest possible extent to all bodies who are serving local needs or providing local services.

Power to raise finances locally should be a replacement of and not an addition to present methods of and taxation. This is where the debate has been going in the past number of months. The charges being levelled at local level for water, sewerage, refuse collection and other services provided by local authorities are seen as an addition to taxation and not, as it should be, a replacement for taxation at Government level. In local authorities throughout the country revolt is taking place against the imposition of these charges. I do not think these revolts would take place if the local charges were being imposed and if the tax take of the Government were lessened. The taxation base is too narrow and taxation levels are too high. There is an onus on the Government to create an environment where reward follows effort, and this incentive is completely lacking in this Finance Bill.

A good reward system can be effective in the public sector as well as in the private sector. The absence of a reward/penalty system invites inefficiencies and induces stricter and more costly control procedures. The gap between gross earnings and take-home pay is far too wide. Workers must be rewarded for effort, for only then can one hope to raise output and create wealth for the nation. In this context Government current expenditure must be curtailed to provide relief on taxes and to reintroduce the work incentive. The level of indirect taxes in the form of VAT encourages the expansion of the black economy to the detriment of those who contribute their fair share. The growth in the black economy, in turn, places a greater burden on the tax paying community. It is, therefore, vital that VAT levels be reduced to prevent this effect.

As one who is very close to the motor trade we have seen the black economy grow in that industry. We have seen the numbers employed fall. Of course, we do not hear very much about the reduction in numbers of people employed in the motor industry, because every job created in the motor industry was created by the industry itself without help from the State. If the number of jobs which have been lost were lost in manufacturing industry we would hear about them ad nauseum. Every one of the jobs that was lost in the manufacturing industry would have cost the taxpayer thousands of pounds whereas every job created in the motor industry was set up at no cost to the State. To give credit to Deputy Dukes as Minister he did, in the case of garage workshops, reduce the VAT rate from 23 per cent to 5 per cent. It has had an effect in stopping to a degree the drift of workers out into the black economy. On the other hand, because of the huge taxes and duties to be paid on motor vehicles, the motor industry is getting smaller and smaller.

When referring earlier to the absence of any effective job creation programme emerging as a result of this year's Finance Bill, I did not refer to the almost total lack of interest in the agri-business sector in the Bill. There is not doubt that with proper planning and financial incentives the potential for increasing output at farm level is enormous. Most of regions of the country could double or more the present output levels before hitting technical capacity constraints. Increases in output at farm level are, however, of little use if corresponding changes in processing and marketing are not brought about to obtain integrated development. The absence of a planned approach to the agri-sector leads to difficulties and failures. When we look at the agricultural training scene we see that in 1983 there were 20,000 people given industrial training at a cost of £90 million and only 6,000 got agricultural training at a cost of £6 million. The imbalance there is enormous. The potential we have in the agri-business sector is enormous.

When one looks at the importation of food, and not alone of food but of products other than food which could be produced here such as plants, horticultural products and so on, we can see that there is an enormous potential for growth. One of the features of the commercial sector throughout the country at present is the growth in the number of shops which are selling plants and flowers, shrubs and trees. You will find at least one in the smallest town. There has been an enormous growth in interest in that sector. The unfortunate thing is that the Irish growers have not yet emerged in numbers great enough to support the industry. There is a huge importation of the products which are sold in these outlets. On small acreage there is an enormous potential in that area. We do need Government help. This Bill is not giving the type of help which is necessary.

When workers pay an employment levy they need the assurance that they are getting value for money. This fund is being used more as an increase in general taxation rather than as a genuine means of giving more employment prospects to our unemployed. Unless a concerted effort is made soon to co-ordinate all the efforts of all the agencies who get support from this levy it will be of no benefit to the people for whom it was set up. I hope the Minister will undertake and analysis of all projects aided up to now and ensure that the money is used for genuine long term employment purposes rather than, as is happening at present, being used as a means to artificially keep unemployment figures down. There are a number of agencies in the training sector who are duplicating their efforts around the country. One sees what would appear to be useless work being done by well educated young people, on a six months temporary basis, and then they are thrown back, having supposedly got work experience for six months — work experience leaning on shovels and so on. I was looking at a group of young people recently and they had wire brushes which they were using to scrape the top of a bridge. I have never seen a worse use of anybody's time or money. That was the type of exercise we had in the Famine time here when the British made people build walls around fields on the tops of mountains. That type of useless exercise is going on now. The moneys that are being taken from the employment levy, the hard earned gross wage earnings of people, is a complete waste. This is creating an artifically low unemployment figure.

We must look equally at the role of the Department of Education in relation to employment and try and get the Department of Education to co-ordinate all training schemes in Ireland. We should not have, as is happening at present, agencies in the training and education area under different Ministers, the Department of Labour, the Department of Education, the Department of the Public Service. There are so many people involved in training under different headings now that there has to be duplication and there has to be a tremendous waste of money in it.

I will not go into detail on the main provisions of the Finance Bill. This will be done on Committee Stage. Suffice it to say that this Bill will do nothing to allay the feeling of depression around the country. There is not a Member of this House who would not stand up and give encouragement to a Finance Minister who would bring in a budget which was imaginative and innovative and which would embrace within it elements which would give encouragement to all, which would be reforming and create equity in our society. There is not a Member of this House who is not disappointed by the blandness of this budget or who feels that it will make any change except for the worse in our economic and social environment.

Mr. Hourigan

This Finance Bill clearly acknowledges the very serious problems that exist in our economy. It does not in any way try to attempt to ignore that those problems are real, that they are there and that there is positive intent in the Finance Bill towards a solution of those problems. We must acknowledge that the problems referred to are extremely serious and extremely real. They will not disappear of their own accord, they will not disappear by Government action alone. Government will require very definite co-operation from all forces right throughout the economy if a solution is to be found to the serious economic ills. There is no doubt that the Government are giving leadership and can give more leadership, but unless the various persons involved in industrial development and other developments put their shoulders to the wheel the results will not be forthcoming.

One of the most important factors of all in any Finance Bill is the question of taxation, the question of establishing equity in taxation. There has been a lot of talk over many years about the need for an equitable system of taxation. That objective of equity in taxation has not yet been achieved. It is for that reason I stress that not effort should be spared on the part of the Minister, the Government and all concerned to make certain that we arrive at a formula that is equitable and seen to be equitable.

It is very important that everybody see quite clearly and quite positively for themselves that there is this thing called equity and fair play in regard to taxation. There are a lot of myths about all these millions of pounds that are out there uncollected, vast sums of money that could put the economy right. Those who circulate and talk about these mythological millions are doing a great disservice to the community. They are causing unrest and disturbances and causing divisions between the different sections of the community. I submit quite positively that there are no millions out there of the order that has been talked about and circulated in the press over the past couple of years. That is a very important point. This division in our society is one thing that can be removed provided we get across to all concerned that people are pulling their weight. I do not acknowledge that as of now there is total and absolute even balance in regard to tax application. I recognise that there are people over taxed to a degree. There are people in this country who perhaps should pay more tax. This is not confined to any particular sector or interest. It extends right across the board to the various strata in our society. All efforts must be made to remedy that.

People talk about services that the Government must provide and so on. The services the Government can provide are dictated by the amount of taxation it is possible to collect. A good Government have the role of being financial manager of the affairs of the nation. They ensure that all correct measures and procedures and steps are followed for the collection of revenue and ensure that that revenue is spent to make certain that people who need help get help, that services that need to be provided are provided and so on. We have in this economy the area of earnings, the area of productivity that returns income into the Exchequer. We have the area of agriculture, we have the area of tourism, many industrial areas and so on. These are the areas on which we depend to get money. There are many vital areas, no less important than the areas I referred to, such as the whole service area, the educational area, the health area and many others that of their very nature cannot earn money. They need finance for their effective operation. People must realise that to provide all the things that are needed, to maintain law and order, for example, vast sums of money are needed. Vast sums of money are needed in the health area, in the education area and so on. The money must be found somewhere so the Government must look to the area of taxation.

There are various forms of taxation. We have direct income taxation, we have indirect taxation from VAT and so on and we have also of course certain capital taxation. It all adds up to a situation in the end, as I said earlier, that we must in all these branches of taxation make certain that we arrive at formulae, they have to be different in different cases, that are correct, reasonable, fair and seen to be so. That is extremely important.

In the agricultural sector, the continuance of the stock relief at the level of 110 per cent is a very progressive move by the Minister. It is something that will create greater expansion, greater investment in the whole agricultural industry. It will lead to a very significant increase in the numbers of livestock. Up to now many farmers have not availed of the stock relief measure. Perhaps it was unknown to many of them, it was something they were not familiar with, but it is a measure that can do a great deal for this country to get our stock numbers moving. Unfortunately, as members of this House may know, our livestock numbers are essentially the same now as they were 10 or 11 years ago. That is an extremely serious thing when we depend so heavily on agriculture and particularly on livestock and livestock products for our exports which, of course, are a fundamental ingredient of making certain our balance of payments position is put at the best possible level.

In relation to section 84 I think this has been a step in the right direction and I believe it will help to give a greater stimulus all round. I compliment the Minister on that. This has been a very progressive development.

In the agricultural sector there are two distinct categories, and they are no longer defined by size of enterprise, by size of farm, they are defined in my estimation by those who are in a borrowed position and those who have not borrowed. It is as simple as that. The situation with regard to farmers generally is that margins have narrowed and are narrowing steadily. By that I mean the position with regard to gross profit is satisfactory from a farmer's point of view but the actual net profit, what he has left when he has all his inputs paid for, is in fact reducing on a very alarming scale. This is where I segregate the two branches of farming. This is aggravated all the more when there is a borrowed situation, because when we talk about inputs we talk about fertilisers, we talk about feedstuffs, we talk about oil, we talk about machinery, but in recent times the biggest and most costly input of all has been money.

For those farmers who are in the borrowed state, which represents the vast majority of farmers, this seriously further diminishes the return that can be got for the man and his family for living purposes. This is something that is not always acknowledged. Farmers are seen to be getting a reasonably satisfactory gross return from their enterprise, but the costs of that enterprise are not always acknowledged. People do not realise that it costs a lot of money to replace animals on a farm and do all the other things that are necessary before a sales situation is reached whether it is in milk or beef or cereals. I would like to stress that we do not have a satisfactory price/cost ratio in this country. If we did succeed in having a satisfactory price-cost ratio the farmers would be better off without many small grant aids that are in existence and in the long run do very little to stimulate and progress the position of Irish farming.

I would be working towards a proper price-cost ratio. In the agricultural sector there is millions of pounds worth of produce that we can readily replace which we are now importing. At present our food imports in the broad sense would be something like £750 million. That is the cost of our food imports. That would include feedingstuffs for livestock which indirectly are feedingstuffs for human consumption, and also human foodstuffs. We could replace at least one-third of that figure by home produced goods. We could be producing about £250 million of the £750 million at home. Significant sums of money are being spent on the importation of cereals, potatoes and many other items that we are geared to produce here but have not got down to doing.

There is an urgent need for the establishment of a national development agricultural agency. I fully subscribe to a view already expressed that there is need to pull the strands together so that we will ensure that what we produce will be something the consumer wants. There is no point in Irish farmers and those in the agri-business at any level producing foodstuffs or any other articles that the consumer does not want. I would urge very strongly that we apply ourselves more vigorously and more diligently to the area of market research in the broadest sense, which would incorporate processing. What I am advocating is going from the consumers to the producers and tracing along the line, having established first what the consumer wants and going back to the various processes of marketing and primary production. In that way, if the Irish consumer gets what he or she wants there is not doubt that that item would be purchased.

What we have failed to do so far is to produce to the requirements of the market. There is a great deal of difference in these two areas, because up to now we have produced something, then we have established a dynamic approach to marketing, sometimes far from a dynamic approach, but we have failed to learn in the first instance what was required. This could not be over-emphasised. It would have to be done under the aegis of some national development agency. All existing agencies — the ACOT advisory schemes, An Bord Talúntais and many other national agencies — could be incorporated and used to do what I am talking about. There is endless potential there. We would reduce our balance of payments deficit very significantly.

I mentioned an import saving of £250 million. That figure, as we got near to establishing what the consumer wants, could be raised. It would give better employment and would also reduce our balance of payments deficit, which needs reducing. That is an area we must work on very hard. On a more specific area of the agricultural front, the added value factor has not been explored sufficiently. If we added more value to our exports of agricultural goods we would benefit our economy very substantially. We have sides of beef being sent out as sides of beef, which is only one step removed from live animal exports. It would return dividends to us if we got nearer to the final product stage, because the consumers abroad, in Germany, France or even outside Europe, would be getting what they required at a more finished stage. We have got to get more sophisticated.

With regard to marketing, I was speaking more specifically of the home market but there is an urgency for marketing in the broad sense at home and abroad to be looked at more positively, taking account of the basic things like producing for the market and going out to sell the product well. These are two areas on which we have fallen down very badly.

In the Finance Bill, the proposals put forward by the Minister with regard to long-term capital are on the right lines. He is to be commended for that line of approach. There is an incentive provided in those proposals of £25,000, and I am confident and hopeful that it will yield results. It has been stated that the unemployment position is chronic. Many more policies must be geared towards alleviating an already serious situation. The unemployment figure is extremely serious and gone beyond the sustainable level. We must make certain that employment is tackled. Since this Government came to office they have done a magnificent job. They have performed outstandingly well. The Government inherited an impossible position in November 1982, and had to adopt very stringent measures. Few now honestly can disagree with that point of view. The Government during that period of 15 or 16 months have done trojan work in identifying clearly what is our position. Up to that time our position seemed quite unknown even to those close to the scene.

I genuinely compliment the Government for their great performance during that time. Having achieved so much by way of getting figures correct, getting the broad outline of future policies right, I now urge the Government to address themselves more and more to such vital areas as unemployment. Unless we do that we will not have a sustainable, social, not to mention an economic, position. There are areas that can and will yield more jobs if money is ploughed directly into them. Indeed agriculture is one area that offers fantastic prospects because the potential in the agricultural sector has not at all been exploited.

Our level of agricultural production, whether it is yield per cow or per acre, or the yield in hundredweights of beef per acre or tons of grain per acre or sugar beet or whatever, is far below the capacity of the Irish land for production. For that reason there is vast scope for the Government to invest in these areas. If the money is invested directly in these areas I believe that, wherever the finance can be found — I appreciate that it is a very scarce commodity — it would pay dividends.

The same would apply in the tourist sector. Money invested there would yield results, and the Minister is to be commended for his approach towards tourists with regard to the refund of VAT on certain items purchased by people here on vacation and on the question of the 5 per cent VAT on vessels rented here. These are the kind of things that will help us enormously to get people to come here on vacation. We want more people to come to this country regardless of whether people think we have no hope, in isolation, of sustaining our position. We must make certain that people are encouraged to come here and an injection of more funds into the tourist area will help enormously in that direction.

We must develop our infrastructure and our construction industry because we expect an upturn in the world economy and in order to avail of that upturn we must have the machinery here to reap the benefits that will accrue from it. Money invested in that area also will pay dividends. I would like to see more direct incentives to employers for employment of people, something in the way of tax credit for each job that would take account of liability of a company for PAYE, PRSI and so on. It is important that there would be an incentive per job in relation to companies, and more inducements for workers to work must be introduced, because there is not sufficient incentive and inducement for people to work even if work was available. An extension of the £10 per week corporation tax should be possible.

The uncertainly about the future is very serious. Meeting people in various spheres and various lines of activity one notices a great deal of uncertainly and lack of confidence in the future. This comes from people in business, people working, people farming and so on. People are not sure what the position will be like next year or the year after. We have an obligation as leaders to make certain that we instil as much confidence into the people as we can because without that confidence the whole future development of our economy will be seriously and greatly impaired. That uncertainly is aggravated, of course, by situations like instability in parts of the world to which we export, like Libya, the Lebanon and so on. We also must recognise that a lot of this instability is something that we can control ourselves by instilling more confidence into people. Major decisions affecting us, particularly in the agricultural sector, are made in Brussels or in Europe, not in Dublin. We must come to grips with this. For that reason we must put our best foot forward at all times as I am certain people will agree we have done in recent times.

The achievement of the Government, the Taoiseach, the Minister for Finance, Minister for Agriculture, Minister for Foreign Affairs and indeed the entire Cabinet and all others concerned in getting the deal from Brussels for the agricultural sector, which effectively was for the entire community, was a fantastic achievement. Something which has not been said is that rather than having got a 4.65 per cent increase we effectively got 20.65 per cent. I base that on the fact that we got 4.65 per cent but we also succeeded in getting 1983 as the base year, which differed by 16 percentage points from 1981, which is the base year applicable and appropriate to all the other European countries. It is indicative of what can be done with hard work. The Taoiseach and the other Ministers to whom I have referred spent endless and tiring time working hard at this job, and the results are there to justify the great effort they put into it, and this is important to the entire economy. Agriculture is not in a position to take any greater input costs based on present prices. Prices are likely to remain static, or marginally better at best, and for that reason every effort must be made to control input costs. That is something that we have a big responsibility in.

I have referred to the tourist area, but I should like briefly to highlight its importance. Approximately £260 million is turned over in the 700 hotels in this country. In addition to that, we have another £255 million turnover from drink, bed and breakfast and so on. That is a lot of money circulated throughout our economy each year. The whole question of stability of lending rates is a matter that the Minister for Finance has got to address himself to very positively. I appreciate the difficulties and limitations involved. Quite honestly, interest rates may be the cause of preventing many industrial, agricultural and tourist projects getting off the ground. If interest rates are at a sustainable level, things will go; if they are not things will not go.

I talked about self-sufficiency. I believe that that is important. We must endeavour here to produce more of what we require. There is great scope for that. One thing I did not refer to which I think is extremely important is the question of stamp duty. On the transfer of farm lands to sons or daughters, the exemption period has been extended by 12 months. It is important to give an incentive for the transfer of land at an earlier stage.

I agree wholeheartedly with those who talk about the need for rewards and penalties in the whole area of taxation to make the taxation system work more effectively. There is no doubt about that, but I stress again the need for a national agricultural development authority.

As I said at the outset, the Minister for Finance, the Government and the Cabinet are invested with the responsibility and charge of running the economic affairs of the country, but a Government can only be as effective as the general population is. The Government can give and are giving good leadership, but we all must make certain that we get a measure of co-operation that will make their leadership effective. We have tended to ask what are the Government doing about this, that and the other.

The position at present, while it might not look extremely delightful, offers promise. It has come a long distance since November 1982, and we must salute the Government for their achievement in getting the position this far. Unfortunately, many measures adopted in the last 16 or 17 months by the Government have not yet manifested themselves into benefits that any of us can measure and see. It does not really matter now whether they are quantifiable, in my view: in the time ahead, with good management and perhaps a greater leaning towards job creation and associated matters we can have a very good situation to look forward to in the next year or so. I will conclude my remarks by fully supporting this Finance Bill. In so doing I urge the Minister again to place greater emphasis on the vital key area of unemployment which is, no doubt, a very serious cancer in our economy and in our social life.

Professor Hillery

In the course of this brief contribution I want to refer to three aspects of the Bill and to make certain suggestions to which I hope the Minister will respond when replying to Second Stage. The three areas are advance corporation tax — the subject of Chapter VII — profit-sharing — the subject of section 31 and long-term risk finance, which is the subject of Chapter III. In respect of the advance corporation tax, my main point is this: the Minister for Finance changed the tax rules retrospectively in the 1983 Finance Act. This change has shaken the confidence of companies which undertook substantial capital investments in recent years. There is a basic question of equity involved. The enactment of advance corporation tax, ACT, in the 1983 Finance Act brought about a retrospective change in tax. It is a matter of fact that several companies undertook very substantial capital expenditure in recent years on the basis of tax laws as they operated up to the passing of the Finance Act, 1983.

I want to refer to the inequity of not providing a transitional arrangement for companies which undertook these capital expenditures. In several instances, these companies received official encouragement to invest in our county and they invested millions of pounds on the basis that the tax laws would not be changed. The position now is that distributions made out of accumulated profits will be faced with a retrospective taxation which in effect is a levy on past tax profits. This is inequitable. A Coalition Government's predecessor of the present Minister in the Department of Finance, Mr. Richie Ryan, published a White Paper on Company Taxation in 1974 which stated:

It would be inequitable to require advance payment of tax in relation to distributions out of accumulated profits which at the time of the changeover had fully borne income tax and corporation profits tax.

The change in the tax rules which the Minister made in the 1983 budget cannot but shake the confidence of a company which intends to invest on a substantial scale. Such a company today has not alone to tackle difficult markets in recessionary conditions, but also to face the possibility of changes in the tax rules. The uncertainty about the tax laws may well lead to a reduction in investment and therefore to fewer jobs in industry, a situation that we cannot afford at the present time. I would, therefore, make a plea to the Minister for a transitional arrangement for companies concerned so that advance corporation tax will not apply until the accumulated capital allowances due on past investments have been fully utilised.

The second area to which I want to refer briefly is that of profit-sharing, the subject of section 31. Profit-sharing — that is where companies allocate part of their profits to profit-sharing schemes, has not been a significant factor in helping to improve industrial relations, as studies have shown in the United States. I would like to draw this to the Minister's attention because in the Dáil Official Report he said that profit-sharing can contribute to the improvement of industrial relations. Evidence from studies in the United States would not support this view. With regard to profit-sharing in the present recessionary conditions, many Irish firms are battling for survival and the timing would be inopportune for the introduction of profit-sharing schemes.

Financial participation by employees is, of course, a vehicle for employee participation. I would not personally put it at the top of the list as a means of employee participation. I do feel, however, that share option schemes, as opposed to profit-sharing as such, would hold out more promise of success. By share option schemes I mean the situation where employees could purchase shares in their own companies from their own resources. Such schemes would spread the holding of wealth and would link the growth of wealth to company performance. The result experienced by employees would help them grasp the realities about business risk, capital and profits.

Where a person is both an employee and a shareholder his understanding of the business should certainly be increased. I would like to see employees investing in companies which will qualify for relief for investment in corporate trades I will have more to say later about this relief which is the subject of Chapter III of the Bill.

Given the benefits that could flow from employee shareholding, it seems worthwhile to make every effort to attract employee interest. I wish therefore to put the following points to the Minister in relation to dividends, capital gains and interest relief to facilitate and increase the incentive for employee shareholding schemes.

Firstly, in regard to dividends, it is evident from the First Report of the Commission on Taxation that the shareholder is taxed more heavily on his share of profits than if he received the same income from any other source. To encourage employees to subscribe for shares in their own companies there should be no further tax on a certain ceiling of dividends received by employees or, alternatively, employees who are also shareholders should only be liable for tax on a proportion of dividends which they receive.

In respect of capital gains tax, I would suggest that no capital gains tax should be payable on gains made by employees on shares sold in their employer companies. Clearly a pre-condition would be necessary for the nil capital gains which could be that shares must be held for a minimum length of time.

My third suggestion, to increase the incentive for employee shareholders, relates to interest relief. The present specific interest relief for employees who borrow money to invest in their employer companies is restricted to £2,400 per year where the company is a public company. There is no such restriction applicable to private companies. I want to put it to the Minister that this anomaly should be rectified to provide a full interest relief where an employee has taken the risk of borrowing money to invest in his employer company. At present there is discrimination against employees in public companies as distinct from private companies.

To conclude this brief contribution, I want to refer to the third area that I mentioned, namely, long-term risk capital which is the subject of Chapter III of the Bill. This is a welcome initiative but it is in need of improvement. Perhaps there is no better time to improve it than in the run up to Committee Stage in the Seanad. The objectives of the scheme envisaged in the Bill include the maintenance and generation of employment, secondly to provide additional equity for industry and certain services and thirdly to provide a closer identification between the community and industry and in these designated services.

The Irish scheme is heavily modelled on the UK scheme but it is much more restricted and not particularly suited to Irish needs. The scheme as outlined in Chapter III, however, should make some modest progress in relation to the first two objectives I mentioned, namely employment maintenance and creation and the provision of additional equity but it fails to provide a closer identification between the community and industry. I say this because how many families could closely identify with a scheme which provides for a £50,000 write-off against income?

There are two main types of scheme available. First, the British scheme on which the proposed scheme here is modelled but is much more restricted in scope. The British scheme provides very large write-offs and attempts to carefully control investment of these funds. The European scheme is deserving of close attention and provides a much lower write-off and is quite liberal as to how the money is invested. It also gets a much wider range of people involved. For example, the Belgians estimate that two-thirds of the population will eventually be investors in industry.

It is probable that the most appropriate scheme for Ireland would have been one which combines the best of both main types of scheme. In other words, a lower write-off with less stringent requirements than in the UK.

On looking at the provisions of Chapter III the bulk of the proposals deal with the negative aspects of the scheme, that is, on how to avoid abuse rather than what should be the constructive objectives of the scheme. If the allowance had been a more realistic figure, the gain from any abuse would have been much more limited and as a consequence the correct constructive emphasis could have been made.

I have referred to the failure of the proposed scheme to meet our specific Irish needs. What happened is this. The Minister has copied the UK scheme but has made it more restrictive than the UK scheme. There has been a failure to recognise the specific needs and differences between the Irish and the UK economies. Irish industry is very small. The Wilson Committee Report, for example, on the UK financial system in looking at the needs of small firms classify companies as being small if their net assets, in 1984 money terms, were less than £10 million. The fact is that over 80 per cent of Irish companies have net assets below this level and yet they are precluded from any help under this scheme as it stands.

One of the main problems in Ireland for the providers of development capital funds is the lack of good projects in which to invest. The scheme does not particularly assist potential investors in this respect. Typically, of course, companies start with the idea generation stage which is the most risky stage. It is estimated in the United States that 95 per cent of companies fail at this stage. However, without the idea generation stage there will be no further stages. Few rational investors under the proposed scheme will be prepared to invest in this highly risky phase when they can get the exact same write-off for the much safer downstream investments.

In a nutshell then I would make a plea to the Minister, and I hope he will respond to this when replying to Second Stage, that write-offs should be reduced.

There should be lower write-offs under the proposed scheme and they should be reduced as the company moves out of the seed and growth stages.

The scope of the scheme is far too restricted and it should be widened to include a much broader range of companies than envisaged in the Bill. In this respect I have a few specific suggestions to make. The scheme should be available to companies, first, if their net asset value is below £10 million and secondly, it should be available to companies which are quoted, as well as those unquoted which are provided for in the Bill. Under the scheme as proposed it is likely that the limited funds available for investment in Irish companies would be channelled away from quoted companies. This would be an undesirable development.

My third and final suggestion is that since employment creation is a primary objective of the scheme, I believe that the service industries covered under the Bill, which are confined to IDA grant assisted service industries represents far too restrictive an approach. I would urge that all service industries which meet the employment creation and other criteria should be included. In conclusion I am glad that Senator Hourigan underlined the vital importance of the tourist industry to Ireland. I could not agree more with him and I welcome the limited incentives that have already been provided by the Minister for Finance. Surely the tourist industry is a classic case of an industry that should be included under the scheme. It makes a vital contribution to employment, to foreign earnings and to the utilisation of our natural resources. The reality is that the tourist industry is chronically short of investment.

Mr. Daly

As most Members are aware, the motor industry is going through one of its most difficult periods ever. If we are to judge by the number of new car registrations in the first three months of 1984 the motor industry will be doing very well indeed to sell 55,000 new cars in the full year. I do not think we will even sell 55,000 cars, because for the first three months of this year car sales were down by 10,000. Last year we sold 61,000 new cars. I do not see how in the months ahead we will make up that. The figure of 55,000 represents an optimistic view. The level of this year's expected sales is more appropriate to the late 1960's rather than the middle 1980's. The industry managed to sell only 60,769 cars last year. That was a drop of 16½ per cent on 1982 but that followed a drop of 31 per cent on the previous year's figures. In other words, sales of new cars this year are likely to be at half the level of three years ago. This is an appalling and depressing state of affairs. To emphasise the point, the motor trade in Northern Ireland, notwithstanding their depressed economy and all the problems they have to contend with, managed to sell 64,000 new cars last year compared with the 60,769 new cars sold in the Republic. They have six counties, we have 26 counties.

One might argue that the fall-off in demand for new cars is due to the economic recession, but most other EEC countries have managed an increase in new car registrations despite the recession. We must look like the poor relation with a massive 50 per cent decline in demand for new cars in three years. There is no doubt in the motor industry but that the finger of blame for the sharp fall-off in car sales must be pointed at the inequitable and excessive burden of taxation which has been piled on new cars year after year by successive Governments. In 1981 excise duty on cars was 40 per cent and VAT was 10 per cent. Three years later excise duty is 54½ or 64½ per cent depending on the horse power. It is 54½ per cent for cars under 16 horse power and 64½ per cent for those over 16 hp. VAT is 23 per cent.

Excise duty and VAT double the price of new cars before they leave distributors' premises. A car that costs £3,000 in the North of Ireland costs £6,000 here. I am sure people in Dublin and other parts of the country where they get BBC and UTV are upset when they see the price cars are advertised at in England and Northern Ireland. Is it any wonder that so many potential purchasers find that when they go to trade in their three or four year old cars for a new car the price they have to meet is beyond them?

I would have a lot to say about benefit in kind, but I spoke about this on last year's budget. There is a good deal of confusion about what will happen in 1985 in view of the termination of restrictions on motor vehicle imports at the end of this year. The Minister has made it clear that the ending of import restrictions will not have any effect per se on Government policy with regard to the imposition of excise duty or VAT on cars. It was right that he should make this clear, because there is a widespread belief that, through some miracle, tax on cars in this country will be harmonised next year with those which apply in the UK and other EEC countries. We would all love that Utopian situation to come about but the reality will be otherwise.

What is the position regarding the sale of used cars coming from the UK? How the Minister will assess the duty on those cars will be vital for the motor industry because if there was freedom of movement on those cars, the second hand motor market in this country would collapse. The difficulties in the motor trade would be greatly increased if there was a flood of used vehicle imports after the end of this year. We in the industry fully accept that we are moving into a totally free trade situation and we are not asking for nor do we expect protection against all legitimate competition. We do not want to see the situation where, because of the difficulty of assessing the value of used cars, imported used cars might enjoy an unfair advantage from the point of view of tax treatment over used cars originating in this market.

The Society of the Irish Motor Industry has had discussions with the Revenue Commissioners on this topic and has put forward a proposal designed to assess the value of used cars for excise duty purposes as a proportion of the new price of the same or comparable model discounted by reference to age or year of first registration of the imported used car. The proposal submitted by the society is modelled on a similar system used by the Dutch authorities for many years which has worked very well. It would be a system which would be easy to apply by the customs officers and would be easily understood by the importer.

It is important that importers and the industry in general should know, as a matter of urgency, what systems will be operated from 1 January as the new arrangements have serious implications for the trading policies of dealers between now and the end of the year. I would, therefore, ask the Minister to give an assurance that a decision will be forthcoming for the motor industry before the end of June which, in the light of the fact that the matter was raised by the society last December, seems to give plenty of time for the most detailed examination of the subject.

As a result of the substantial fall-off in the demand for cars and the general difficulties of the industry we have seen a large number of car dealerships and garages close down in all parts of the country in the last few years at approximately the rate of about one a week. Many have had to trim their sails to such an extent that they are employing no more than half the number of persons that were on their pay roll. One of the principal problems of car dealers is the necessity to borrow large sums of money to invest in the high cost products they sell. Car dealers have been more seriously affected by inflation of stock values than most, if not all, other trades and industries, principally because of the impact of taxation. Stock value inflation creates a paper profit on which car dealers have to pay corporation tax with the result that their net return is very much short of the amount required to meet additional working capital each year. Dealers are, therefore, forced to borrow more and more each year at extremely high interest rates which are proving too much of a burden for many of them.

In view of the importance of the motor trade and car sales to the Exchequer and the high employment content of the motor trade, it is very disappointing that the Minister could not see his way to extending stock relief to the motor trade, thereby giving them some opportunity to generate the profit which is needed for ever-increasing working capital requirements.

There is considerable disappointment also among vehicle importers and distributors that the Minister has not yet been able to agree to an arrangement which would relieve them from the bank guarantee requirements in respect of VAT payable on imports. We believe that it is not unreasonable to ask that an exception be made in respect of vehicle importers and distributors to the extent that they have also to provide a substantial guarantee in respect of the payment of excise duty. The bank guarantee requirement in respect of VAT on imports is tying up large amounts of working capital which the companies could put to much more productive and effective use. I ask the Minister to look with the greatest possible understanding and sympathy at the most recent proposal which he has received in this regard from the Society of the Irish Motor Industry on behalf of importers and distributors.

The demand for heavy commercial vehicles has also fallen dramatically in the last five years, from a level of 5,000 sales in 1979 to just under 3,000 last year. It is rather strange that a company can obtain an immediate 100 per cent depreciation allowance for virtually all types of equipment, plant and machinery but is denied it in respect of the purchase of commercial vehicles. It does not make sense to distinguish between commercial vehicles and other necessary types of plant and machinery in relation to their treatment for tax concessions.

It is clearly in the interest of efficient distribution that companies should be encouraged to use the most modern transport vehicles. I doubt if the extension of free depreciation allowances to commercial transport would result in any significant net cost to the Exchequer. I would hope that the Minister will look again at this proposal which, I understand, has the support of industrial organisations, accounting bodies and the Commission of Taxation.

I should like to refer to the decision of the Minister last year to reduce the rate of VAT on garage repairs and servicing to 5 per cent while retaining the normal rate of 23 per cent in respect of sales of parts across the counter. The Minister should be commended once more for this decision even though he meant to make it self-funding by an appropriate increase in the excise duty on new cars. However, I am happy to say that the 5 per cent VAT arrangement has worked very well. It has enabled many garages to recover some of the business which had been passing out of their hands to unregistered outlets and to nixer operators. But for this arrangement, the employment position in the trade would have deteriorated rapidly in the last 12 months.

VAT paying garages have a very distinct selling advantage when it comes to marketing their workshop and service departments. They will be able to exploit this advantage more fully when hopefully the car owner has a little more disposable income. There is no doubt that many car owners are putting necessary services and repairs on the long finger because of lack of funds. The reduction of VAT from 23 per cent to 5 per cent has meant very significant reductions in car repair costs which all motorists must welcome. I am only sorry they do not appear to have yet seen any benefit from the VAT reduction in car insurance premiums. There must have been a substantial saving to insurance companies from that reduction. Most insurance claims today, by virtue of the high price of cars, can run on average £2,000 to £3,000. That VAT saving to the insurance companies must reflect on their profits for their year's trading and they should at least give some of that benefit to the motorist. I would like that to be examined.

I commend the Minister for the reduction of VAT on car hire from 23 per cent to 18 per cent. That is a help. I hope that in next year's budget he will see his way to reducing that further. The Minister and all Ministers for Finance, when asked to relieve taxation or ease it in any way, ask the same question, "Where do I get the money I lose on that to give to you". I would say to the Minister today, as I have said to previous Ministers going back to 1973, that the Department of Finance and the Government could hold a national lottery such as is held in many countries. That would solve a lot of our problems.

I had a meeting with the county council and the Taoiseach a few days ago in Tralee and I raised this question of charges for water and other services. If the local authorities held a lottery they would not have to charge for such services. It may be suggested that a national lottery, which is a great success in many other countries, might be difficult to operate but there is a simple solution to that.

If the services of the Irish Hospitals Trust were used to operate this national lottery on a commission basis not only would the benefit to the Exchequer be seen but the benefit of continuing employment in the Irish Hospitals Trust, which is declining because of technology and the difficulty in selling tickets overseas where they are illegal, would be seen. This would benefit the taxpayer, the Revenue Commissioners, the Minister, the people and employent.

There is another point I would like to refer to. The Irish Tourist Industry Confederation wrote to me a few days ago saying:

Dear Senator,

During the Dáil debate earlier this week on income tax relief for investment in corporate trades, it was pointed out that the tourist industry was excluded from the incentive contained in the scheme as outlined by the Minister for Finance in his recently published Finance Bill. As a concerned legislator, you will know how important tourism is to our national economy. The vital contribution this industry is making through employment, foreign earnings and utilisation of natural Irish resources is in danger for lack of financial investment.

Tourism is chronically short of investment. The recession of recent years has left the industry severely under-capitalised and new capital is urgently required. That is why, as a representative of the industry nationwide, we are concerned and disappointed that the new scheme is confined to investments in manufacturing industry and those services companies which are IDA-grant assisted. This, we note, is in contrast to the revised British scheme called "The Business Expansion Scheme" which applies to investment in any trade, including tourism, with some specific exemptions, such as banking, leasing and insurance.

I would like to ask the Minister when replying to deal with this because, apart from being a legislator and the spokesman on tourism, I am also actively involved in the tourist industry. The tourist business, which is our second biggest revenue earner, is going through a tough time. Notwithstanding the great projections at the start of the year for a big influx of tourists this year, I now understand from hoteliers, and from my own experience in the car hire business, that cancellations are coming in fairly rapidly, when we did not foresee any cancellations at all. I would ask the Minister to look at this to see if anything can be done. If it cannot be done in this Finance Bill, perhaps he would keep it in mind for the budget next year.

Mr. M. Higgins

I will be very brief. I want to comment on a few aspects of the Bill and the introductory speech made by the Minister yesterday. May I begin by thanking the Minister for responding to the case made to him in relation to VAT on theatre tickets. This is my first opportunity to thank him publicly. I suggest that in the years to come the overall allocation to the arts and the facilitation in regard to the funding for the arts, will assume even greater importance. The case for such assistance is sharpened rather than lessened in times of unemployment and in terms of the adjustment of time available to people due to changes in the balance of work, unemployment and leisure. This gratitude is widely shared among people within the arts community. The only observation I would make is that the final removal of this VAT would eliminate administrative difficulties. In other words, it would not be necessary to make returns and so forth.

The main reason I wanted to contribute to this debate, however, was because the Minister referred to the National Planning Board in his introductory speech. This is important and I hope we will have an opportunity later to debate all the reports which have appeared in recent times. They have been of historic significance. There is the very significant report on unemployment published by the Economic and Social Research Institute and contributed to by every member of the staff. There is the debate which will have to be held very shortly on the new shape of Ireland's industrial policy and there are different reports on employment policy in circulation. In last week's debate on the Hours of Work Bill we touched on aspects of an employment strategy before we had an opportunity of looking at the overall structure of an employment strategy in its general principles.

Might I have the temerity to urge some caution in relation to the adoption of the thinking of the report of the National Planning Board? May I say the reasons I believe this? I must confess to some initial disappointment at the title of the report, "Proposals for a Plan, 1984-87". Over the years when I have spoken in this House and in the other House I have drawn a distinction between programming and planning. Indeed, the reluctance of Irish people to use the word "planning" is a neglected thing within scholarship. There is a long ideological background to it. The word "planning" at the end of the fifties and early sixties was felt to be ushering in, in a tacit way, some form of State direction. There is a background of aptipathy to the planning process. I would have hoped that this would have long gone. The evidence of this is interesting. In the discussion which preceded and surrounded the publication of the First Programme for Economic Expansion up to 1958 the reasons have been teased out as to why the word "programme" was used as opposed to the word "plan". There was a Second Programme for Economic Expansion and then there was the abandonment of not only plans but programmes. There is something tenuous about proposals for a plan rather than the planning process itself. I do not intend to dwell on this but it is an important contextual point.

We should thank the Minister for drawing attention to the proposals of the Commission on Taxation and the National Planning Board. I repeat what I have often said here in relation to the overall receipts side of the country's revenue. The usual argument against extensions in the area of capital taxation is that they have a distinctive effect. I hope that when all the reports on the structure of Irish investment decisions are published this disincentive argument will be disproved and I am willing to await the publication of reports in this regard. All I want to say at this stage is that I think the disincentive argument against forms of capital and corporate taxation is grossly overstated. I suspect that when one pursues this one will find within Irish investment decision a lack of will to take risks which is regarded as the very bedrock of the so-called private enterprise sector of the mixed economy. Perhaps I am wrong but I think the examination of banking patterns will tend to prove rather than disprove my statement and I would be very glad to have that statement disproved.

My argument in favour of wealth and capital taxes has never been totally in terms of their yield. It has been in terms of the information it would release in relation to the total disposal of wealth, thus creating a base for initiatives in relation to redistribution. My case for redistribution was never made in relation to welfare philosophy only but also in relation to some principles of justice which are the important ones. One could argue also that a better distribution gives better economy in terms of the total activity of the economy, spending patterns and so on.

As I said, I intend to speak very briefly. I want to home in on a few points in relation to the quotation from the National Planning Board in the Minister's speech. He said:

Ultimately, the crucial factors are the determination to find new markets, to be more efficient and to be more competitive.

I agree that we must find new markets and be more efficient and competitive. Unfortunately on the next page of the speech the question of the contribution of pay norms and levels of pay to effectiveness, the price of exports and the behaviour of Irish products on the market, to my mind is over-stressed. We know that Irish productivity levels in relation to pay are very high by international comparison and we should bear this in mind. It is a little over-simplified to suggest that one can approach the unemployment problem by selling more products more effectively. I believe this is insufficient and a misplaced trust because the nature of the unemployment problem, which is contributed to by our population expansion, demands a totally different response. I am perfectly willing to listen to the response that one should wait for a debate on employment strategy and policy to take up these issues but the arguments adduced have a bearing on the overall approach to the unemployment problem.

It is in relation to agriculture that I have some things to say about the National Planning Board. Chapter 3.2, headed "Agriculture and Forestry Policies" on page 167 of the report of the National Planning Board, should be addressed by the Minister with some concern. The opening paragraph of the chapter says: "Agricultural policy refers to the set of measures or instruments which the State employs to achieve stated objectives for the sector itself and for the economy as a whole. The objectives of policy are a mix of efficiency and equity goals." This chapter, which has implications for the structure of incentives that are going into the agricultural community, misses some points about the contribution to the economy that agriculture makes.

This chapter is inclined to look at the question of productivity in an exclusivist way. I would be willing to take on board many of the arguments they make about a productive agricultural sector but if one wants to take up the larger question of employment which is given a stress in the Minister's speech — and I welcome the emphasis being given to the unemployment problem — and if one were to talk about the contribution that the agricultural sector has to make to the unemployment problem and its reduction, for example, by slowing down the number of people coming off farms and entering the unemployment pool, what one has to deal with are questions about the relationship of the agricultural sector to the food industry. This emphasis is missing in the National Planning Board's report. I want to put it much more simply. The arguments about agriculture and its contribution to national welfare and unemployment are not in regard to productivity only.

I will give an example which is directly related to this Bill. If you are talking about getting jobs and getting wealth from agriculture, you must speak about the value added that is flowing from agriculture. In the west of Ireland 60 per cent of the products go out of the region with no value added and the remaining 40 per cent has less than 15 per cent of value added. Look at the tax element. You can start offering tax facilities to people to get into the food industry almost to buy in inputs, when what you really need to do is to speak about the facilitation of food processing extensions of agricultural production. I hope the financial incentives which chapter 3.2 seems to suggest are not followed literally. The argument that you can identify an efficient productive group within agriculture and that you should concentrate your advisory services and assistance on these, is one which could have very serious implications. The evidence is that if your goal is the creation of the largest possible number of farm households and farm people in agriculture, and if you pursue as an instrument for that the generation of adequate farm incomes, you must look at people who are below the development ranking by European Community incentive standards. You also have to look at the position of people who are in the most marginal position in relation to productivity, the question of part-time farmers, and so on.

It would be a very misplaced emphasis that looked at the most productive element within the agricultural community and concentrated either community or national incentives on that group. What would happen would be that you would be losing jobs you could create below that level within the agricultural community. I worry about the report's emphasis on the concentration of facilities in times of scarcity and so on.

There is a need for far more innovative thinking than was offered on the flimsy proposals in relation to forestry. I could give examples of that but this is not the place to develop them. Such incentives should enable private people to get into forestry, by making it possible for trees to be planted, capitalising these people, giving them an income and later allowing land to revert to them, avoiding the question of changing ownership and so on. I would have expected the National Planning Board to come up with far more comprehensive, workable and thorough proposals in relation to agriculture. They missed altogether the composition of the agricultural community. It is not good enough to mention the number of people who have left at primary school and all of these other things.

In future when the Minister is looking at financial incentives for greater efficiency and productivity from agriculture I suggest that he give the most serious regard to what might appear to be a heresy that it is worth keeping people in what would be regarded as unproductive agricultural holdings if you can create rural farm incomes of an adequate standard. This will require an integrated approach between social welfare measures, health measures and so on, mirrored in relation to the redesigining of community instruments but the notion that one should take an efficiency norm and structure both national and community incentives towards the idea of getting productivity in agriculture is a recipe for rural demoralisation. I have made this point in extenso. I would argue that financial measures should not depart from that premise. I am not suggesting that that is the Minister's thinking; I am only saying that in so far as a reference was made to the National Planning Board this is one area in which I hope the Minister's views will not be influenced by the National Planning Board because the thinking is insufficient and the plans are too general and vague. They would not be welcomed as a social contribution in rural Ireland.

In relation to planning and this Bill, it is time to look again at the whole question of industrial and worker co-operatives and the facilitation of as many incentives as possible to bring them into existence as a contribution to the reduction of unemployment.

The concept of a productive State sector would be new and in my view a productive State sector has a major contribution to make in reducing unemployment, particularly in the area of internationally traded services. The popular antipathy to use different State utilities and State companies as we have known them should not be allowed to stand as a prejudice in the way of economic recovery. Whether these services are provided by the State or private concerns, it is most important that people begin to think again about general antipathy to the concept of services and its contribution to economic regeneration.

In all these measures of economic recovery — and this is referred to in the Minister's speech — it is important for us to bear in mind the difficulties being created by the United States' economic attitudes in relation to the dollar and its position. If we are to have a recovery it will possibly come about by far greater co-operation within member states of the Community than by isolationist measures.

Mr. McDonald

I want to put it on record that I have great confidence in the ability of the Minister for Finance to reform our taxation system. The vast majority of people in the production sector, the PAYE workers, people who are paying tax, find the present situation devoid of incentives to work to a greater extent either for themselves or for the country as a whole. The upper rates of taxation are far too high and they are counter-productive if we are seriously tackling the problem of greater output and greater production in order to turn the economy around.

A few years ago when speaking on a Finance Bill one could confine one's remarks to individual sectors or areas, but in the last few years all individuals in the State and every industry have the same problems and they feel oppressed. I hope Deputy Dukes, the Minister for Finance, who has shown a tremendous depth of understanding and has a singular approach to the problems of the country, will be able to rationalise this mass of legislation and make it more meaningful for the ordinary person. This Finance Bill should give some hope to the people who want to work, not only for themselves but for the country.

I should like to refer briefly to the ability of the Government to assist local authorities to provide the same level of services this year that they provided in the past. In many areas the financing of local authorities has reached crisis point. I hoped the Government would, as a first step, examine very seriously the possibility of appointing an all-party committee not only to examine local authority financing but to propose new ways of financing them because no matter what system is proposed by the Government, it will be looked at from a political angle by other parties and that will delay its implementation. Local democracy is so important for our country that we cannot afford not to grasp the nettle at the earliest possible opportunity. I hope it will be possible to have an all-party committee to tackle that problem as a matter of urgency.

In County Laois traditionally we had a rate collection in excess of 99 per cent, in good times and bad. That operated until 1977. Since people were relieved of what could be described as the burden of rates there has been a very noticeable change in the attitude of the public towards meeting their responsibilities and payment for services. Last year the percentage of people who paid their contributions towards water, sewerage and refuse collections was surprisingly, and unfortunately, extremely low. This has contributed to the fact that the county manager had discontinued services people were enjoying up to now. This is not in the interests of the national economy as a whole. There is a need to re-examine as a matter of urgency the financing of local authorities and to give back to them as much power and as much decision-making as is possible. It was a mistake for the Department of the Environment to take so much power from them vis-á-vis the arterial roads. They seem to dictate and they only supply adequate finances for the arterial roads, and county road and other services are in an unfortunate situation. I hope the Government will look seriously at the best possible way of tackling this problem as soon as possible.

Senator Higgins was dealing with the National Planning Board and the proposals made by that board. I have read through that very comprehensive document with a great deal of interest and I want to compliment the people who put so much effort, thought and research into it. Sometimes we feel that these reports may gather dust on some shelf for a long time but I hope this does not happen in this case. I hope the Government will not be tempted to adopt the nicer points and postpone those recommendations which may not prove to be so popular with the public. In dealing with a report such as this, and also with the interim report of the Commission on Taxation, the Government and the Minister for Finance should not be tempted to pick the more popular points. They should take a balanced view of the problem and try to include a balanced set of recommendations in Government policy.

The Commission on Taxation have already made a valuable contribution. Under our piecemeal system of legislation, each Finance Bill adds new sections to already complicated legislation. The big point is that there is no encouragement for people to work harder or to work longer hours and there is no encouragement whatsoever for people to take risks. There are too many rates of income tax and the rates are far too high. Income tax should be such as to hold out some inducement and if necessary a greater share of the revenue should come via indirect taxation. I hope the Minister will leave his mark on the Department by way of reforms that will recognise clearly those who work or provide jobs and contribute to the national economy by their industry.

Unemployment is one of the greatest problems. The Government have taken some initiatives in this area this year and there seems to be a positive response to those from young people. The Manpower section of the Department of Labour are doing wonderful work but they are understaffed especially at regional and county office levels. The new schemes will create difficulty for the Manpower offices at county levels in meeting the inquiries and dealing with applications for the work experience programme and the Youth Employment Scheme.

I should like to compliment the Minister for Labour and his Minister of State for the work they have put into legislation. It is proving successful because it is giving young people an opportunity and an incentive to work and in many cases to work in public. Our educational system in the past ten years or so was leaning towards the situation where people were educated move towards white collar jobs with those people following traditional technical education being regarded in some way as second-class citizens.

Through the efforts of the new Youth Employment Scheme, there is a turning about of this situation and people are being encouraged in a very practical way to put their own ideas into operation. The new grant system which supports young people with ideas to provide work for themselves is, initially anyway, proving successful. I hope these young people will be able to build up worthwhile employment opportunities not only for themselves but perhaps for others too. We must avail of every opportunity to encourage job creation. The only sector who do not seem to be aware of the fact that there is a depression in the economy are the income tax collectors. It is extremely difficult to understand the mentality of income tax officers or of VAT officers in dealing with a taxpayer who is experiencing difficulty in paying tax. The collection notice is sent to the county sheriff or the county registrar but when the person is in a position to pay and sends on a cheque, that cheque is returned to him with a direction that the money be paid through the county sheriff or through the courts. If a person finds it difficult to pay tax, the Revenue Commissioners should be glad to get the payment of tax, whether direct taxation or PAYE, whenever people are able to pay and not to have so much red tape attaching to the procedure.

Last year on the Finance Act I raised the matter of the PRSI allowances and referred to the difficulties experienced by workers whose parents were directors of companies. Although the Minister undertook then to look sympathetically at the PRSI allowance, I notice in this year's Finance Bill that nothing has been done about it. This is disappointing because it cannot be above the ingenuity of the Minister and the Revenue Commissioners to devise a system of differentiating between people who would want to avoid taxation and the ordinary person working in a workplace where one or both of his parents might have some share capital or might be working. Therefore, I would ask the Minister to look sympathetically at that again especially in regard to the PAYE worker who may be married and consequently in a home of his own.

I would ask the Minister to redouble his efforts in that regard. If errors are to occur, the benefit of the doubt should be given to the workers. It is unfortunate that the Minister has not been able to solve this problem in the past year. When the Minister is replying he might be able to offer some hope that people who have been denied the PRSI allowance can be granted it in the future.

Section 99 is having the desired beneficial effect and I trust it can be continued for many more years. It is important to have a greater proportion of young farmers in farm ownership. The agricultural industry is going through a difficult period. It is important that farmers should be encouraged to sign over not only the ownership but the running and management of their farms to younger people who may be able more easily to assimilate the changes that have come about in the management and husbandry of farms in the past number of years. Section 99 encourages young farmers to avail of the agriculture educational services and the green certificate. It is becoming more difficult to balance the books in this industry so it is important that the educational aspects should be stressed.

I hope it will be possible to affect some amendments to the farm retirement scheme because it certainly is tied up with agriculture in general. In the case of the smaller farmers who avail of the farm retirement scheme, even if they have only 20 or 30 acres and opt to retire and lease their land, their income is very easily defined and computed. Therefore, even if they have £1 over the amount of the social welfare means test they finish up worse off than if they had retained the few acres irrespective of whether they farmed them. I hope the Minister will look at the possibility of including people who availed of the farm retirement scheme so as to include with that the old age pension benefits of free electricity and other small fringe benefits. We are talking of people who have come through the difficult times of the thirties and forties and who are very anxious about the possibility of not being able to meet their overheads. Therefore, I hope the Minister will amend the farm retirement scheme in conjunction with the EEC to at least put those people on a par with the small farmers who qualify for the old age pension in the normal way.

Very briefly I will deal with another point. I get a lot of feedback from older people and retired people in regard to tax on the interest from even very modest savings. Last year in the Finance Act the Government decided that in respect of savings which earned interest in excess of £50 per year the banks would be directed to return details of the amount earned to the Revenue Commissioners. This is having an unfortunate effect on many of the older small savers. And there is a tendency for people to revert to the old tradition of keeping a few pounds in a stocking or under the mattress. This is unfortunate in that we hear cases frequently of old people being beaten up or murdered in their homes for a few paltry pounds while the itinerants or whoever are responsible seem to go free. Some of the older people are afraid to get involved with the tax people. The £50 limit should be increased somewhat or there should be concessions made to people who are over the retirement age to encourage them to have their savings either in some of the banking institutions, in the Post Office or in the building societies. If fewer of these older people kept their money in their houses perhaps there would not be so many attacks on old people. Unfortunately the sanctions against the gangsters who are responsible for these attacks do not appear to be as heavy as they should be. Certainly there is no great deterrent in the way these gangsters or vagabonds are dealt with.

I will deal briefly now with Part IV of the Bill and the banks levy which was introduced a few years ago as a once-off £5 million levy on the banking profits but which this year is designed to yield some £25 million. The need for adequate profits for the banks is linked directly to the need of the banks to maintain adequate levels of capital to a more significant extent than with most industries. The maintenance of adequate levels of capital relate to the risk and size, of vital importance to an industry like banking which has to be founded on confidence.

I understand that the Central Bank lays down strict capital adequacy ratios to protect depositors and the capital of the associated banks must not fall below something like 7 per cent of their gross assets. One of the means by which banks help to maintain this capital adequacy ratio is through the retention of profits. However, they say that their profits are inadequate for this purpose and that as a result the banks are compelled to seek injections of equity and loans. These capital injections would be unnecessary if the banks were making appropriate levels of profit. It is not very popular to be defending commercial banks especially after the difficulties that so many people have experienced in the past number of years but in regard to the problems and difficulties which the farming community particularly got themselves into in an attempt to expand in the latter half of the seventies, the banks seem to point a finger at Government policy and Central Bank policy and to claim that these policies are making it even more difficult for the banks to continue the service they have been providing. They point out that they are liable to corporate tax at 50 per cent of profits. This compares with the rate of 10 per cent for many other forms of industry.

The banks say also that the misconception that banks do not pay their fair share mainly arises from the fact that the banks receive tax relief through providing tax-related financing to industry. This low cost financing takes the form of leasing under section 84 loans which the Minister has dealt with in this Bill. But it is interesting, in reading through the latest report of the Commission on Taxation to determine whether the banks pass on the full benefits of the lower tax bill to the borrowers. The report states that the banks pass on almost all of the tax savings arising from tax-related lending operations to borrowers, that therefore there would appear to be no case for special taxation arrangements for financial institutions on the ground that their tax payments appear artificially low in relation to their profits and that there is no case for special levies on these grounds.

I would just like to ask the Minister if this special levy on banks which was introduced a few years ago as a once-off levy is now to be a permanent feature of taxation in this country? I should also like to hear whether the Minister expects any relief from that in the very near future.

Section 106 of the Bill deals with discretionary trusts. People in this category may get some encouragement from the remarks of the Minister yesterday when he said that:

The changes in capital acquisitions tax and the new tax on discretionary trusts, which I announced in the budget, are the main items in the final sections of the Bill. The case for taxing discretionary trusts is that otherwise these trusts can be used to avoid or delay payment of tax over a long period. At the same time, trusts can serve a very important social function in certain circumstances and it is for this reason that I have aimed for a scheme which will avoid taxing trusts set up for genuine purposes while minimising the opportunities for avoidance or evasion. This legislation secured a reasonable balance and will not cause hardship.

I take it that that amounts to the spirit of this Finance Bill so far as sections 105, 106 and 107 are concerned? It will be appreciated that some properties falling into this category may not necessarily yield huge incomes despite the value of the properties involved. The Minister must assist such properties back into production, especially where there is an opportunity for job creation, and not set about breaking up these estates. There should be a very definite effort on the part of the Government, in the administration of these provisions, to maintain existing jobs and to create new ones.

In section 106, subsection (i) (c), there is reference to the principal object of the trust being under the age of 25. I am wondering why the Revenue Commissioners hopped on the age limit of 25 whereas in the section dealing with the change of ownership of farms, the age the Revenue Commissioners hopped on was 35. In respect of land held in trust the same kind of encouragement would be required to encourage people to hand over to younger farmers. Would the Minister not consider amending section 106 subsection (1) (c) to 35 years just to have both provisions on the same line? I am referring to section 99 where the age limit is 35 years. It is important for many reasons that as many as possible of these estates and properties should remain intact and should continue to be sources of valuable employment. I hope the Minister will be able to meet some of those problems.

A few years ago when death duties were in operation here, the rate was something like 20 or 24 per cent. These rates were acknowledged to be an intolerable burden. The Minister has increased the taxation on inheritance tax this year up to 55 per cent.

There was a tremendous political campaign waged to get rid of death duties but that exercise must have been lost on the Revenue Commissioners. Now when things are much tighter and when there is less availability of capital the Commissioners are substituting death duties by a tax of 55 per cent of the balance on larger properties. In addition, there is the 3 per cent on top of that. As the market is going at present, and I hope the Minister will understand this, people have a lesser capacity rather than a greater capacity to pay these huge fees. The underlying question must be whether the Government desire democracy, do they want to see people working hard at making a profit or have we reached such a socialist situation that we should all be like the Chinese — in the one kind of suit and uniformity about everything? A 55 per cent taxation on inheritance is totally unacceptable and beyond the ability of people to pay, especially when you are talking about property. It is not much use having to sell off the greater portion of property inheritance because it then would become impossible to maintain as before and neither could one sustain the same labour force level.

There was a raffle last year for a big estate outside Mullingar. It seemed a great bargain to get a farm of 400 acres and a nice Georgian mansion for £200. Politicians are a fairly soft touch for people selling tickets. Up to a few years ago it would have been easy to say "yes" to any such request to purchase a ticket because it would have cost £1 or 50 pence. Now they can cost anything up to £200. Consequently, one would want to make diligent inquiries before agreeing to buy. I remember being asked to buy a ticket for that place in Mullingar but I had no hesitation in declining because even if there were only two tickets in the raffle I would not take a present of one. I say this because to operate and maintain a place of the size being offered would cost a fortune. It would be outside the scope of most people to take on an operation like that because up to £200,000 might be needed to stock it and manage it.

The Minister is a brilliant man. I regard him as the brightest spark to come into the Department of Finance for a long time.

Sitting suspended at 1 p.m. and resumed at 2 p.m.

Mr. McDonald

I would like to mention a few points that I hope the Minister will consider during the year. In the main, these are points connected with our role in the European Community. I believe the European regulations and the way they are administered are open and give the Minister and the Government some flexibility on how best they can use the resources that are being made available to this country through the various policies of the Community through the Treaty of Rome. I think there can be some significant improvements in this field.

At a time when resourses are scarce perhaps it is appropriate for the Minister for Finance to review the procedures especially in his own Department wherby the Departments seem to have a stranglehold on every "bob" that emanates from Europe through all the various sources. If we take the Regional Fund, I believe, having been closely identified with the policies and with the financing of the fund itself back in 1974-75, that a greater say should be afforded to the regional development associations and the local authorities in deciding on the priority problems, the priority areas or the priority of the projects which should be submitted for funding from the Regional Fund. It should not be a huge problem for the Department to listen a little more attentively to what the various development organisations would wish for their own areas.

This year the county councils in practically every part of the country have a financial problem, and I dealt with this earlier on in my speech. At the same time there would appear to be considerable funds available for perhaps projects that are closest to the hearts of those in the Department of Finance who are charged with this responsibility. I would hope that the Minister might avail of the opportunity of looking again at this and see if we could get better value for money, and perhaps there should be some regard given to the employment content of the many millions that are made available in this regard.

I would like to compliment the Minister and his colleagues, the Minister for Agriculture and the Minister for Foreign Affairs and indeed the Taoiseach, on the skill that they all showed in the recent negotiations regarding the super-levy and the derogation that they secured for our country. It gives the farming sector a boost to their confidence to know that the people who are charged with the task of negotiating on our behalf are so expert and have proved to be so successful despite all the odds. This is underlined significantly when you remember that the organisations representing the European Organisation of Co-operatives or indeed the farming organisations were not able to get the support of their European colleagues to assist our Ministers in their task. I was disappointed, and I think it is a great pity, that our members in the various groups in the European Parliament were not able to sell to their colleagues of four-and-a-half or five years' standing the seriousness of the Commission's proposed implications for the Irish dairying industry and the Irish economy as a whole. Our members in the European Parliament will have to devote more attention to this area. They should look very closely at the practice of lobbying which perhaps has been perfected in the United States Congress and Senate. The importance of their having a friend in the European Parliament when it counts is what should matter most. Greater emphasis should be laid on that.

During the next couple of years the greatest problem that our Government faces is the problem of creating job opportunities and of helping business, especially small business. I am disappointed that the IDA have not adapted their tactics or they have not changed their role in any way to more effectively meet the problems of 1984 and 1985. Perhaps the Minister might be able to give some indication of what the possibility would be of the Irish Management Institute, an institute that has given such tremendous service to the major industries in this country, financed to some degree from the European Social Fund, to enable them to extend to the small family businesses throughout this country a service, advice or encouragement, to make them more effective and perhaps give them a better change of surviving in this very difficult period for businesses. I have looked at the work that the Irish Management Institute have carried out over the years and I would like to see them paying more attention to small family-type businesses, employing half-a-dozen or 20 people. I think it is through a greater emphasis on that kind of development that we will get the vast majority of our people back to gainful employment in this country.

I must say that I was encouraged last week to read that the Minister for Industry, Trade, Commerce and Tourism, Deputy John Bruton, announced a new industrial incentive package for Ringaskiddy in the Cork estuary. It shows that the Government are tackling head-on a grave problem in that area. Designation has not been a feature of the last few administrations, for may be ten years or more. —the last one I remember was in Clara, County Offaly in the early seventies. It had its effect. It shows that the Government are determined to meet the challenge in whatever area.

We have just finished a workforce survey in the Leinster coalfield area which is in Crettyard and Doonane on the Laois-Carlow-Kilkenny border. That survey was organised and financed by the Youth Employment Agency. Unfortunately the figures from that show that almost 40 per cent of the work force are registered as unemployed. I hope that the Minister for Industry, Trade, Commerce and Tourism will face the problem there where the unemployment rate is almost three times the national average. I know it is a small area but the Government must address themselves to problem areas like that. Granted it is not on the same scale as Cork which has suffered significant losses with some well known commercial firms going out of production or getting into difficulties of one kind or another. Nevertheless, places like Portlaoise and the Doonane-Crettyard and areas like Rhodes, Edenderry should come in for special assistance.

I would like very briefly to ask the Minister to look very closely during the coming months at a local problem in the constituency of Laois-Offaly in particular but nevertheless a national problem, the problem vis-á-vis the ESB and Bord na Móna. The Government have to decide for these two warring factions. The ESB and Bord na Móna are the biggest employers of skilled and semi-skilled workers in Laois-Offaly. I went to considerable trouble to look in depth at the industry and the problems that the proposals of the ESB posed for the skilled workers in those areas.

I sent a copy of the documents I painstakingly prepared and I was surprised to find that neither of those semi-State organisations had the 22p to stamp a card acknowledging the fact that the newly set-up An Post was working normally and that the correspondence had been delivered. That is just an indication that these two companies, who have built themselves into empires, completely disregard the views of anyone and everyone. It is absolutely ridiculous that the price of milled peat was just jacked up a couple of years ago on a par with oil. The last chief executive of Bord na Móna said it was necessary to have the price of the milled peat directly related to the calorific value of oil and turf. That would be all right if the price of oil was not subject to inflation and to the vagaries of the dollar. It is bad enough having to purchase oil at a price which is arrived at because of so many outside and difficult influences, without pricing turf at the same level.

In my perusal of the annual reports of both the ESB and Bord na Móna over the past couple of years I find that even with the inflated price of milled peat the cost of producing electricity from peat is on a par with the best performers bar one of all the other power stations. From that point of view it is absolutely unacceptable that when the economic facts clearly state that there is nothing to be gained from changing from peat to coal the ESB should do so. I hope the Government will take a strong stand on that. What would the reaction be if Bord Bainne decided that they were going to import milk? That is the same as importing coal from South America, Poland or South Africa while there are ample supplies of native fuel which gives tremendous employment. I hope that common sense will prevail and that the Government will demonstrate that they have been elected to rule this country and to ensure that semi-State organisations which have been established and financed from public funds will not be allowed just to continue on in their own cocoons as if nobody else mattered in the whole Republic only themselves, and that they will be made answerable to the public.

It would be outrageous if in the midlands we were to lose several thousand jobs and those jobs and the wages paid to the workers transferred to some other Continent. This is a problem in which the Minister must interest himself. It is one that affects thousands of homes in the midland counties. If the ESB were saying they were going to reduce the price of the unit of electricity by one penny or by a half penny to the housewife, I would have some sympathy for them because the housewife, the consumer, would be standing to gain. But they have said in their document that the rationalisation, the change over to imported coal, will not mean cheaper energy for the consumer.

For those reasons I think the whole thing is a fake. I do not think these bodies should have been allowed to embark on empire building in the first place. Ordinary common sense should prevail and the future livelihood of the workers in both those empires, Bord na Móna and the ESB, should rate a higher priority to the upper management than they obviously do. It is quite clear from statements issued by the chief executives of both organisations that they do not give two hoots about future employment prospects for the workers in those areas. If the boards concerned are not prepared to make a significant contribution not only to the economy but by providing job opportunities for the people living in the counties where they operate, then it is time the Government stepped in and scattered those boards and did that very quickly.

As far as Bord na Móna are concerned, areas of bog that were developed are coming to the end of their life cycle. We have the problem of the cut-over bogs and I hope the Government will not allow the creation in the midlands of a new brown desert. We need a policy, without any further delay, on what is to be done with the cut-over bogs. We are talking at present of 6,000 acres and before the end of this century we will have over 80,000 acres. That will be in the next 15 years. That is a sizeable amount of land when you consider that the average farm size in this country is something like 29 acres per holding. I hope we will have a Government policy on what is to happen to these large tracts of land or, at least, space for land and I would like to know how the Government intend to maintain the highest possible number of industrial type jobs on that land. While I have left that point until last I see it as one of the most serious problems facing this country. It is important that the Government of the day should have a very positive and direct say in the development of national resources like this.

In conclusion, I hope the Minister will leave his mark on the Department of Finance through reforms that clearly recognise and give credit to those who work or provide jobs and contribute to the national economy through their industry.

Mr. Lynch

I do not claim to be an expert on either finance or income tax but as a legislator, a member of a local authority and as a businessman and someone who is in constant contact with the people of the country and the problems they face, I would like to voice my feelings on certain aspects of the Finance Bill.

We are all aware that the economic future of the country rests with the Minister for Finance yearly when he produces his budget. I certainly did not come here today to criticise the Minister. I am fully aware of many of the problems he faces. The Minister said that he has set out to encourage employment and that the Government have made the creation of employment their greatest priority. He mentioned also that the Government would provide opportunities. I am sure the Minister, Members of this House and members of all political parties are fed up listening to reports about the fiasco that has taken place with regard to unemployment. Apart from the world recession and accepting that there is a depression in the economy in Europe and across the world and that there have been signs of this depression lifting, however slightly, surely we must look at our own situation in Ireland in more depth and examine what has taken place when successive Ministers for Finance and successive Governments were in office down through the years following the set pattern and expanding on it to provide a financial guideline for the year ahead.

If we look back a few years to the time when a simple 2 per cent turnover tax system was introduced into this country and see what has happened in the space of a few years we will see that we are now in a situation where there are six rates of VAT, 0 per cent, 5 per cent, 18 per cent, 23 per cent and 35 per cent. The result is that the small business sector is crippled. Something will have to be done to reduce the standard of rates. Certainly the number of VAT rates should be reduced to three at the most.

We are all aware that our economy is in a sad state. Many reasons for this situation have been put forward. There is one economy which is booming and that is the black economy. I live in an area where this black economy is at a high level. The magnitude and range of the black economy is so great that I believe the officials in the Minister's Department cannot be fully aware of the amount of revenue that is lost. Yet in successive budgets the honest working-class people, be they employees or the self-employed, are taxed out of existence. We are certainly taxing them out of business. Apart from PAYE, PRSI and VAT, ordinary running costs are escalating rapidly. There is VAT and tax on everything: light, water, refuse, commercial rates, etc. There is something wrong in the country when old age pensioners get into buses and cars and drive across to another State to spend the social welfare money being paid out by the Government and the taxpayers and something will have to be done about it. I appeal to the Minister to take to heart the findings in the report of the Committee on Small Businesses of which I am proud to be vice-chairman. I appeal to the Minister to give serious consideration to adopting many of the policies advocated in the report of that committee when it comes before both Houses of the Oireachtas.

I see the tourist industry as the industry with the greatest potential in this country. It has served us faithfully over the years but in my opinion it has never reached its full potential. It is the cheapest possible industry in which to provide growth in the economy and also much needed employment. In the budgets of 1983 and 1984 further tax burdens were imposed on the tourist industry which is now fighting for survival. The set pattern still prevails. Duty is imposed on the old reliables of drink and cigarettes. There are increases in VAT, PAYE and PRSI rates and because of these increases coupled with the ever-escalating costs of running a business, be it hotel or bar, with the fall-off in sales and the commitments to the bank or elsewhere, many of these businesses are now in serious trouble. The incentive the Minister gave to the hotel industry by reducing VAT on payment for overnight stays created as many problems as it relieved because VAT still applies to the food and drink end of the industry. It means two sets of book-keeping for each customer who avails of this facility.

Coupled with that, in the 1984 budget we had the health contributions scheme as administered at present by the Departments of Health and Social Welfare. We also had the youth employment levy and the Government 1 per cent levy. Though on paper it seems acceptable, there is a tremendous amount of money involved for the small business sector and the farming community. I would appreciate if the Minister would give at least an estimated figure of the amount of money that will be collected from this source, but more important how much of that money will go into the Youth Employment Scheme and what employment it will create.

This may be more appropriate to the Minister for Justice, but I would bring to the notice of this House the ridiculously outdated laws in relation to the sale of alcoholic drink. It is no wonder that the drug problem has escalated to a danger level. We have people who are doing their business, ordinary family publicans and being patrolled by the Garda night after night while at the same time private clubs have licences to sell drinks until all hours of the morning. It is impossible for the Garda to enforce the law in these private clubs. On top of that you have political parties having extensions until all hours of the morning.

An Leas-Chathaoirleach

I do not like to interrupt you, but I would accept one or two remarks on this. You are dealing now with the Minister for Justice: we have the Minister for Finance here.

Mr. Lynch

The shops of small business people, who have locked up their shops for the night after Garda patrols leave the town, are raided by thugs and thieves in the cities. It would be much better if the Garda patrols came into the towns at 1 a.m. and stayed until five to protect the people and their businesses. They are harassed enough with tax burdens without having their properties broken into and being robbed. This is happening in an ever-increasing scale.

It is time legislation was enacted to prohibit the sale of alcoholic drink after midnight anywhere in the country. The drinking hours are long enough up to midnight. We should look further into other areas that would provide our greatest source of revenue in the tourist industry. In this centenary year of the GAA, Aer Lingus should be encouraged to introduce realistic programmes to bring more people into Ireland. Last year it was cheaper to fly from London to America than to fly from Dublin to London. I am sure the Members of this House would like to congratulate the GAA and wish them well in their centenary year.

The social welfare and employment problems will be the cause of serious headaches for any Minister for Finance or Government. I wonder would the Minister tell the House if he has examined in depth the present system in relation to the Department of Finance and the Department of Social Welfare. I would refute any allegation that the young people or the middle aged section are loafers or spongers. People want to work to earn a living. Many people find that there is nothing so degrading as to have to go week after week to join the queues at the employment exchanges. The building industry is on its knees, there are problems in relation to local authorities, there is much work to be done on our roads and infrastructure while so many are unemployed. Is it not possible to delve into the EEC Social Fund and by use of simple economy to provide pound for pound to give extra employment and initiate the programmes and continue the development of this country by taking people from the dole queues and using their social welfare payments, coupled with the extra grant aid from the EEC, to continue development? As unemployment grows, social problems become more common and law enforcement becomes almost impossible. We will finally reach a stage when it will be almost impossible for people to live in the manner in which we would hope that all Irish people would live.

The health service is experiencing a severe crisis and hardship. The embargo on employment in the public sector is creating severe problems in the health service. Where constant care is needed in geriatric and phychiatric hospitals we find that only one of three vacancies may be filled. How the medical staff in these hospitals have coped is nothing short of a miracle. Theirs is much more than a job, it is a vocation.

This is one area. There are other areas we could mention on the Second Stage of this Bill. I am sure the Minister for Health receives pleas for extra nursing staff but while this embargo exists the sick, the old and the needy are threatened with a certain amount of deprivation. There are many areas one could go into in this respect. Lack of funds in local authorities has created many serious problems. The work carried on in the development of the country, the building of roads, the housing programme, water and sewerage schemes are all under threat due to fiscal policies. If there was waste I would be the first to agree that these areas should be looked into, but it is proven that local administration is almost two-thirds cheaper than regional administration. The country has gone mad on regionalisation, and it is time we looked into the many areas of development and to the administration of the various sectors in the economy. I am sure the Minister is aware that many drainage schemes, for instance the Boyne Valley scheme in County Meath, will shortly come to a close and the number of people who will be thus unemployed give us cause for great concern. We are bitterly disappointed that no provision was made in the budget to put the building trade back on its feet. The people employed on drainage and so on would have no problem getting further employment from the building industry sector. This is one sector that we hoped would help to bring down the number of unemployed, but nothing has been done for it.

Mr. O'Leary

I thank Senator Howard for making the speech I should have made yesterday. Unfortunately I was delayed and could not get here. Therefore I do not intend to delay the House by making the normal kind of speech one makes on Second Stage of a Bill like this. What I intend to do is to go through a number of areas in which I think the Bill is noteworthy and to indicate the kind of consideration which Members might bring to mind when considering this Bill in Committee.

First of all, the Minister is to be congratulated for a number of the provisions in the Bill and I will mention one or two of them that I think are worthwhile and beneficial. First, and the reason it is first is because on the one hand it is most important and on the other hand it is in the first portion of the Bill, we should put on record that the marginal rate of tax of 65p in the £ is excessive and unacceptable. I realise the necessity to collect substantial sums of money to make sure that the services provided by the State can continue to be funded in a proper and adequate fashion, but I do not think it is necessary that we should continue to have a marginal rate of 65p in the £.

The thrust of various advice which the Minister and previous Ministers have got over the years is that this should be changed by a reduction in or the elimination of allowances which are being given under various other headings and consolidation of these benefits into a single unified system with considerably lower rates than 65p in the £. The reports of the Commission on Taxation in that regard are worthy of consideration. A commitment to the examination of this by the Government is vital. I accept that it is a dangerous political step as there will be considerably more acceptance of the reduced rate of tax and very little acceptance indeed of the abolition of many special allowances which have grown up over the years.

There is a difficult political problem there but it is a problem that must be tackled. One of the reasons that it is so urgent to tackle it is that Ministers for Finance are now finding themselves in a position that without raising taxation levels at all marginal rates of tax are so high that a disproportionate amount of growth in the economy associated with inflation is being taken in taxation. That makes balancing the books each year easier and in that regard it does a disservice to us, because if we had more difficulty in balancing our books we might examine the various categories of public expenditure more fundamentally.

While recognising the difficulties associated with it, and particularly the difficulty associated with introducing the thing in one fell swoop, some brave Minister for Finance will have to tackle the problem and I hope and pray that this Minister will be the one who will grasp that nettle.

It is true to say that the level of taxation now is excessive and particularly in certain categories. A single self-employed person, or indeed a single person employed in a PAYE capacity, to a slightly lesser extent, will pay top rate of 65p in the £ on £11,450 upwards. That is just unrealistic. It is not acceptable. We cannot allow this situation to continue. In respect of a person who is in employment it is a few hundred pounds more than that. You have to balance that against the fact that that person in respect of the first £11,000, £12,000 or £13,000 of his income will pay a substantial amount of PRSI which will raise his marginal rate of taxation, even though it might not be called taxation — the amount which the State will be taking in his case will probably be 65p in the £ or in excess of 65p in the £ from about £10,000 onwards. So in respect of anybody who is in employment who is single, any income which he has over £10,000 is being taxed at a rate of approximately 65p in the £. That is unrealistic.

We will have to reorganise our tax base by taking away allowances from the likes of myself and other people and it is to our benefit that that should happen because in the long run it will force successive Ministers for Finance to restrict the growth in public expenditure because they will not have such a ready built buoyancey of revenue without changing the tax bands. It is vital that that be tackled and I accept the difficulty in tackling it.

The Minister has a very imaginative scheme indeed which, I think must be welcomed, to do with relief for investment in certain corporate trades. That investment relief which the Minister proposes is within the framework of the kind of system we have. It is an excellent idea. I am glad the Minister has limited it to three years because I would not like to see it becoming a permanent feature if by it becoming a permanent feature we would avoid tackling the problem of the 65p in the £ tax rate. While the 65p is there, reliefs like this are necessary, but reliefs like this could be abolished if we had a more realistic tax rate. I suppose anybody with an excess income will be tempted to get involved in this investment relief. The Minister has drawn the rules fairly reasonably in this regard. It is a matter we might consider when we are on Committee Stage, but by and large the Minister has been wise to resist the call to expand this.

There are people in the tourism industry who have a particular sectional interest to promote and there are other groups of people who are afraid of the introduction of something like this because it may disclose the lack of entrepreneurial skill and initiative in the community if people are unable to find openings for investment. I do not think the way to solve the problem is to expand the categories of investments to which it applies but rather go out and encourage people to start new ventures which is the rationale behind the thing.

The Minister is right to confine it to manufacturing industry. Throughout the Finance Bill it has struck me the number of times that special things are being done to aid manufacturing industries. That is a very right and proper approach, but we need a better definition of what a manufacturing industry is. There is considerable confusion in the Revenue Commissioners as to what does and what does not constitute a manufacturing industry and there is considerable slowness in determining any particular application. As long as we have these special schemes the Minister should give some consideration to a specialist group being available. This would be also relevant to the allowance. There should be a specialist group of people available to whom companies may make applications, not necessarily through their own ordinary inspectors of taxes, because they have so many things to do that very often they reject the initial approach and by the time the case is decided many years will have passed.

The definition of manufacturing could be expanded to include not agriculture of the ordinary type but many of the intensive type agricultural developments or horticulture related industries like the intensive type growing under glass of flowers mentioned by Senator Lanigan. Doing that will encourage people to develop these areas. They are labour intensive and that is of extreme benefit to us at present. It would also diversify people away from the traditional areas of agricultural production which, because of the surpluses throughout the world, are coming under increasing scrutiny at national and international level.

The Minister is right with regard to advance corporation tax. The position with regard to advance corporation tax has been blatantly misrepresented by those who put themselves forward as spokesmen for industry and industrial interests in this country. They misrepresent what consequences the advance corporation tax may have on their enterprises. It is a very narrow sectional interest who could not see that in the long term the advance corporation tax is in the common interest, particularly when you have certain industries being taxed at a rate of as low as 10 per cent or maybe not taxed at all because of capital allowances. It shows a lack of breadth of vision by the leaders of some of the most substantial manufacturing companies in the country to criticise the way in which the advance corporation tax has been implemented. I know the Minister is making some slight adjustment in that regard, but there is not too much logic in what is being done. However, if it smooths the way towards the eventual implementation of the advance corporation tax it would be a good investment in the long run. It is yielding to unnecessary pressure, but I do not criticise the Minister in that regard.

I should like to refer to stock relief. I have a vested interest in stock relief, not that I use it but I advise people from time to time about using stock relief. The Minister is wise to go on to a permanent basis of stock relief. There are certain transitional arrangements which I would like him to have made but circumstances made it impossible. The problem with stock relief as it existed is that — the Minister may not recognise the validity of this — because it was done one year in arrears people were left in a very uncertain situation for a period between 6 April in a particular year and the enactment of the legislation or the announcement of the intention to enact the legislation in the following budget. People whose year of account ended after 6 April found themselves, six or seven months afterwards, not knowing what stock relief they were entitled to. As an adviser, I regard that as a disastrous position. Leaving aside the temporary embarrassment, it is not a good thing that a person should not know for seven or eight months what tax liability he may or may not have. Any stock relief arrangement should be changed in that regard.

I have two criticisms to make of the new stock relief arrangement. One would cost the Minister money and the second would give him more money. I must now put on a different cap from the cap I am speaking with as a Member of the Seanad. The 3 per cent is too small. If the Minister is talking about stock relief and if he believes inflation has been of the order of 10 per cent to 12 per cent, he should allow considerably more than one-quarter to one-third, if he is genuinely trying to recompense people for the added expense of having to carry an increased value of stock. It appears to me that this stock relief will be available to people in the future whether their stock increases or decreases. It appears to me as an accountant that not only did the Minister decide not to claw back relief, which he should not do, but from reading the legislation somebody who had opening stock of £100,000 and whose closing stock was £50,000 would not only not have a clawback stock relief of the £50,000 but he would be entitled to stock relief based on £100,000, even though in the meantime his stock had dropped to £50,000. I would have preferred if the Minister had used the money in that regard to increase the 3 per cent and not to allow the person to take stock relief if stock had been reduced in value. I only came to grips with stock relief in the recent past; otherwise I would have passed my information on to the Ministrer much sooner. The Minister might consider that. If adjustments are necessary, if I am reading it correctly they can be made at some time in the future.

Section 29 deals with bond washing. The Minister's action in this regard has been correct and totally vindicated. The practice of bond washing was a legitimate way of reducing taxation but at the same time it became so prevalent and expensive and had such a significant effect on the amount of tax being collected that the Minister had to tackle the problem. His rules concerning certain exemptions for people who hold the securities for periods of longer than two years are sensible and positive. The reaction of the Stock Exchange to the action on bond washing was hysterical and showed a number of things.

First of all it showed that they were not politicians. Secondly it showed that they had very short-term priorities. If they thought that they were going to frighten the Government of the Republic of Ireland by such scare tactics, they were incorrect. The way in which certain portions of the Stock Exchange acted during that period of time reflects no credit on themselves or on the social system to which they owe an allegiance. The way in which they frightened people whose money was entrusted to them was truly an Irish example of the unacceptable face of capitalism. The Minister was quite right to have tackled that problem, and he has my full support and that of all Members of the Fine Gael Party in this House.

What is the Minister's rationale about section 89? It appears that it extends considerably the powers of the inspectorate regarding VAT. In so far as I am concerned that inspectorate are very courteous but their powers have been gradually extended to such an extent that they might now, if in the wrong hands, be capable of being used. For example, VAT inspectors are now inspecting the books of companies for matters which have nothing to do with VAT. They are looking at PAYE and various other returns and that in a case where a company or individual taxpayer has already been subject to examination in respect of a PAYE record. It is not just a question of one inspector doing all the work. There is a multiple series of inspections taking place now of the same record. This is not efficient. I have no objection to one inspectorate looking after all the inspections but the VAT inspectorate should not be poking their noses into areas which are not theirs. The more people who know about one's business the less satisfactory it is. I notice from section 89 that they are permitted to take copies of certain records and documents. I would be very unhappy to have copies of my records and documents held permanently by these inspectors. It appears that they have power to hold them permanently and not just for the purpose of determining liability to tax or VAT in a particular year. There is no indication that at the completion of the investigation the documents must be returned. I would like the Minister to give some consideration to this matter either at the end of Second Stage or on Committee Stage.

The provisions of the Finance Bill reflect a top class effort by the Government and the Minister, within the confines of the system in which we are working, to present a Bill which will meet the challenges of the time and help towards solving the problems which face the country. As I said at the beginning, a more fundamental re-examination of our whole taxation policy is necessary. The Finance Bill before us does not attempt to do that. The scale of taxation and the scale of marginal taxation in particular is such that we cannot delay it for long so as to preserve the confidence of the people in the system. That is essential for its operation.

Minister for Finance (Mr. Dukes)

During the course of the debate Members have ranged over a wide number of the provisions of this Bill. They have also pointed out a number of areas where attention needs to be paid to the way in which we go about raising revenue and how we operate our tax system in order to achieve particular results. I am grateful to Members for making those comments and for bringing their own insights to bear on this debate.

Some Members ranged over a number of matters which do not come within the framework of this Bill. I know they will understand when I say that I do not intend to follow them over that country. I do not intend to follow Senator Lynch into the intricacies of the licensing laws. Tax law is bad enough but licensing law is an even more dangerous area. Senator Smith complained that this year's budget consigns almost 250,000 people to permanent unemployment. That type of claim really has no place in a debate of this kind. We are not doing anything of that sort. That is not what a Finance Bill or a budget will do but it is what our conduct as a society will do.

A very large part of the rationale for budgetary policy last year and this year was to avoid a situation in which we deliberately, as a community, continued the kind of behaviour — I am not criticising any person in particular in saying this, I am criticising ourselves as a community — which we have followed for many years now and, by so doing, consign large numbers of people to permanent unemployment. We will do that if we continue to spend more than we earn, consume more than we produce and to try to carry on the habit we have acquired of saying “Well if we cannot pay for it today we will make tomorrow's taxpayers pay for it”. That is what borrowing to sustain an excessively high level of expenditure requires us to do. That is what we are doing today. We are paying today for the standard of living we enjoyed in earlier years at a time when we have less flexibility to do so than we had in some of those years for which we are now paying. That is the essential core of the Government's concern with ordering the public finances: it is to get us out of the situation where we load the cost of today's consumption onto tomorrow's taxpayers and where we find that when the bills have to be paid, there is no room or flexibility to deal with the real concerns that we have to meet today.

Senator Smith asked a number of questions about what the situation would be if we arrived at a point where we had the kind of balance in public finances which he claimed should be the objective of financial policy. The only simple answer that I can give to Senator Smith is that if we had a situation today where, for example, I was not obliged to borrow £1,800 million to cover both our current deficit and our capital borrowing requirement we would have a greater degree of leeway to use the resources that we produce and apply them to the problems that we have. The most striking illustration of this, and the simplest one, is the fact that during the course of this year I will require 12½ per cent of total tax revenue to pay the interest on foreign debt, which means that £1 out of every £8 which we take from the fruits of the labour of our taxpayers cannot be used for the benefit of anybody who lives, works or is being educated in this country or is being cared for in hospital. It goes to pay interest on foreign debts.

There is nothing immoral about foreign debts but when we get to the point where we use one-eighth of our tax revenue to pay interest, we must recognise that we cannot indefinitely sustain that situation. We must make headway against it, principally for the reason that we want to get back control of that 12½ per cent of our tax revenue and we want to be in a position to use today's income today to deal with the problems that face us. That is a short-sighted way of stating the problem. Of course, we should be using some of today's income to deal with tomorrow's problems. We have to take it one step at a time. If we were able to use today's income to deal with today's problems we would be making very considerable progress as against the situation we have now of using today's income to pay for yesterday's problems.

Senator Smith took away the foundation of the case he seemed to be making when he said that for 1984 the current deficit is not anywhere near where economic commentators recommend it should be. That would suggest that Senator Smith believes we should have adopted a far more restrictive and deflationary budget policy this year. I can only surmise his reason for saying that. It is a point that I would like to debate with him. Senator Smith and a number of his colleagues have made this point on a number of occasions but have never, to my recollection, come forward with any explanation as to why they take that view. Neither have they ever come forward with any explanation as to how they would achieve that kind of result. If I put it forward as an objective they call it an excessive obsession with bookkeeping. When they put it forward as an objective they immediately turn around and run away from it when they are asked how they would achieve it.

I spoke about the general concern with the level of the budget deficit during my introduction to this debate. I do not intend to go on at greater length about it other than to add, as a post-script to my remarks about Senator Smith's intervention, that the real difficulty we are facing is not one which arises from a choice between bookkeeping and imagination. It is one which arises from the necessity to manage our affairs in such a way that we give ourselves leeway to exercise imagination. That is essentially what the process of improving and rebalancing public finances is all about.

Senator Howard referred to the scheme which I introduced to provide for a refund of value-added tax on retail goods bought by visitors and exported in their personal baggage. Senator Howard voiced a number of questions and concerns which retailers have in relation to that scheme. Refunds under this scheme are made by traders and not by the Revenue Commissioners as a matter of conscious decision. This scheme applies a system which is provided for under an EEC directive and because the operation of the refunds by the Revenue Commissioners would have brought about a very substantial increase in the workload of the Revenue staff. I have heard it said that visitors cannot find customs officers to certify invoices in respect of export of goods. That is a point which I will take up and look into, with a view to improving the situation if that difficulty is widespread. The essential point of the scheme is that it is a new option which can fairly be presented as being an extra facility that we offer to tourists and retailers. As such, I am concerned to make it work in the way that it is intended.

Senator Fallon took up the case of insurance companies and the stamp duty on insurance policies. He made a number of criticisms of the system which have been reflected in discussions that I have had with the insurance industry. I provided this year for a change in the method of assessing the duty payable by the companies as a result of discussions which I have had with the companies. The system, as it is now constituted, covers the main difficulties that a number of insurance companies had and provides a more equitable way of raising the revenue in question.

A number of Members referred to the apparent anomaly that arises in relation to the the payment of value added tax by local authorities. If they buy materials that are subsequently used by their labour force they pay 23 per cent VAT. If they have the work carried out for them by a contractor, the contractor charges 5 per cent VAT. It is not appreciated that the situation is not quite as it emerges from a comparison of the figures of 23 per cent and 5 per cent. When a local authority buys materials that are subsequently used by its labour force it pays 23 per cent VAT on the materials only. Where the same local authority has work done for it by an outside contractor, it pays 5 per cent VAT not only on the materials content but also on the labour content of the price quoted and charged by the contractor. The difference in the VAT burden in any case would then obviously depend on the balance between labour and materials in the total cost of the contract.

That is not to say that there is not an anomaly or a problem. There is a difficulty there which is evident, even taking account of the factors I have just mentioned. It arises from the fact that there is a very big gap between the 5 per cent rate of VAT and the 23 per cent rate. We have similar difficulties in other parts of the system arising, for example, from the much bigger gap there is between the 5 per cent and the 35 per cent rates or indeed between 23 per cent and 35 per cent rates.

This shows that we need to look at very substantial restructuring of the VAT system. It is my intention that we should restructure the system. The ideal would be to carry out a fundamental overhaul of the system and to change overnight from the present fairly complicated system to a far simpler one. That in an ideal world would be my preference. I know it does not require a great effort of imagination on anybody's part to realise that that would give rise to some transitional difficulties. The process of reorganising the VAT system would have to be a more gradual one spread over a period of time, rather than the ideal system of changing it overnight.

A number of Members mentioned the difficulties and problems that arise from the operation of the black economy in this country. One speaker went so far as to say that it was very clear that officials in the Revenue Commissioners and in the Department of Finance were obviously unaware of the extent of the operation of the black economy. It was probably a remark that was more the result of a certain frustration than of any really accurate analysis. We would have to say, despite our study of the problem, we are unaware of the extent of the black economy. If we were aware of the extent of it, it would not be black any more because we would have been able to tie down the operation.

The difficulty is, of course, that as long as tax rates are high there will be a great incentive for evading or avoiding tax. The only sure and proper way to deal with the black economy is to reorganise the tax system so that the incentive to become "black" is reduced. As I said in my remarks at the opening of this debate, the degree of progress that we can make in relation to our tax system, apart from technical changes of the structure which are useful in themselves, depends to a very large extent on what we do in relation to expenditure.

Senator Fallon suggested that we should look at less painful ways of reducing the current budget deficit although he agreed that it was important to do so. I am not sure what he had in mind when he said "less painful ways". His remarks did not include any suggestions as to what they might be. I assure the House that I would be very interested to hear them. I may have an overly suspicious mind in this regard, but the difficulty is that what are normally presented as being less painful ways of dealing with the current deficit simply turn into ways of not dealing with it at all. The search for less painful ways and the application of allegedly less painful ways is what has led us to the problem that we have today.

Senator Lanigan dealt with the Exchequer figures for the first quarter. I thought that after the public statements and several discussions of the matter in the Dáil, we would not find, during the course of this debate, people claiming to detect in the entries of the first quarter's figures various omens in relation to the overall Exchequer position for the year. Senator Lanigan, like some of his colleagues in the other House, has failed to take account of a number of factors in relation to tax receipts for example, which indicate very clearly that the construction he puts on the figures is not justified by the facts. In the first quarter results there is no evidence to say that there would be any wide deviation from the pattern of receipts and expenditure which I forecast at budget time. I do not expect that we will be very far removed from the budget targets. I repeat that there is no evidence whatsoever in the first quarter's figures to indicate that any major departure is on the cards at the moment.

Senator Lanigan made a few other remarks about expenditure which I should like to comment on. He made the point that the only benefit that can come to the community from Government spending generally is from the capital expenditure programme. That is an extraordinary statement and one that cannot be left unchallenged on the record. About three-quarters of all Government spending, apart from debt service, goes on our health services, social welfare, education, security, housing subsidies and areas of that kind. It is obvious that we need to be concerned about getting better value for money from expenditure on all those areas, but to suggest, as Senator Lanigan did, that those services provide no net benefit to the community is absolutely preposterous. On the other hand, there are many recorded cases of wasteful capital spending, and to make that kind of remark does not advance the debate on public expenditure in a substantial way. The only conclusion that I can draw from a consideration of those remarks is that we have to look as closely at the justification for capital expenditure as we do at the justification for current expenditure. That is a process which I started last year.

If I remember correctly last year Senator Lanigan seemed to find that I was being a bit too restrictive in saying that one of my main concerns was that we should get more value for money from capital expenditure and that quality rather than quantity should be one of our main concerns. He read into the figures for capital expenditure for the first quarter of the year a substantial cut-back in the level of capital spending.

It is a fairly common mistake to draw conclusions about the levels of activity from information about the flows of Exchequer funds. One cannot, at this point in the year, infer from the flow of funds or the rate of draw down in the first quarter of the year what the level of activity will be throughout the year. In many cases these funds are spent through local authorities. They have a programme of payments to their contractors or on the work generally that does not necesarily require that one-twelfth of the total allocation for the year be spent in each month or that one-quarter of the total allocation be spent in the first three months of the year.

The level of public expenditure in a number of areas is now considerably higher in real terms than it was as recently as 1980. The public capital programme is by far the largest component in total capital expenditure.

Senator Hillery thought that the profit-sharing scheme in the Bill had little to offer in terms of improving industrial relations. I hope that he is wrong. The reason we changed the provisions in relation to profit-sharing in the Bill is because the original provision produced in 1982 did not seem to have a very large effect. My hope was that by modifying the scheme in the way that is proposed here, we could get it over the kind of threshold that is needed to get it into operation in a way that will have a substantial effect. I hope not only employers but the trade union movement will look at the possible benefits of this scheme to workers and to the process of industrial democracy. They should look more seriously at the advantages that it could give in a number of companies across the country.

Senator Hillery seems to feel that the issue of share options would be a better approach. I do not think that will always be appropriate. I am not so sure that the offer of options on shares to workers, who would normally come within the ambit of this scheme, will make them feel any more closely involved with the firm than the kind of scheme that we now have in operation. Senator Hillery was one of those to whom Senator O'Leary referred when he recalled the fact that a number of Members of the House had criticised the risk capital scheme on the ground that it is too restrictive. This is something we can discuss in more detail on Committee Stage.

I fail to see how anybody can sustain a case that this scheme is restrictive. I do not know if Senator Hillery is aware of the full width of the definition of manufacturing industries, a definition which is not, incidentally, as unclear as Senator O'Leary thinks. There is a very wide range of activities covered by it. Equally, I am not sure if Senator Hillery has looked at the range covered by the service sectors that are now included within the scope of that sector. I think we have a fairly wide range there. The essential point, however, is that I wanted to ensure that the benefit of this scheme was directed to industries in which there is high risk and where there is a correspondingly high hope that we would be able to stimulate development, stimulate employment and get a multiplier effect from the expansion of activities in those industries. That is the target of the scheme, and if we do not target it fairly precisely we run the risk of simply diluting its effect.

The other risk I would see, and this is a primary consideration, in expanding the application of the scheme even further than it is now, is that if we were to expand it in some of the ways that have been suggested, we would be bringing into the scope of the scheme increasingly safe investments, safe homes for funds, and that would mean that we would be perpetuating the situation which we have here at the moment when most people who have money to invest want to put it into a safe home and are not particularly inclined to take risks, whereas the areas where we must look for development are ones where by definition there is a risk. This is a risk capital scheme and I do not intend to change it in a way that will channel any of the funds that might be available into safe haven investments or ones that will not have the kind of multiplier effect which I would like it to have.

Professor Hillery

Would the Minister not think that the investment in tourism would have a multiplier effect and should qualify as a service?

Mr. Dukes

That is one of the services which I have not included. One of the things the Senator will realise if he reads the material produced by the tourism industry itself is that one of the last things we need, for example in the hotel sector, is more capacity. We have more than enough hotels, and part of the case which was referred to by Senator Daly is that we have hotels that will not be fully occupied this year. We do not need more investment in that area. We do not need more capacity in that area. What we need is a situation in which we have successful businesses in the development and risk areas that are employing more people who have more money to spend as tourists. We want to target this so that we get the best multiplier effect, although I think that is a debate more proper for Committee Stage, and we can perhaps have it there.

Senator McDonald delivered what sounded like a most extraordinary statement, and again I hope I am quoting his words correctly. He said that in his opinion the only people who are unaware that there is a recession on now are the people who collect the taxes. That statement seems to be inspired more by a sense of frustration than by a close analysis of the problem. I often think that the people whose job it is to carry out the instructions given to them by the Houses of the Oireachtas to collect taxes, probably are even more keenly aware of the degree to which the recession is hitting firms than anybody else. I do not intend to go into that in any greater depth, but I am afraid I will have to say that statements like that distract attention, as they have distracted mine, from the main issues that we need to deal with.

Senator McDonald took up the issue of the PAYE allowance for family members at work in firms. We discussed this last year, and at that time I told Senator McDonald I would continue to look at it to see if we could find a means of giving that allowance to people who could be regarded as bona fide family members employed bona fide in family firms. Having looked through this in some detail during the course of the year, I have found so far that it has not been possible to define a way in which we could cover the bona fide people without also giving rise to fairly substantial abuse. This provision, or a similar provision, was in operation a number of years ago and it was clear at that stage that it was widely abused, and I do not intend to repeat that possibility of abuse again. We are at the point where we cannot afford abuse of the tax system and we cannot therefore afford measures in a Finance Bill that would open the way for abuse.

Again Senator McDonald raised the question of the bank levy. I do not accept that the operation of the bank levy as we have it now has been a substantial factor in damaging our banking system's ability to sustain the level of business we want it to sustain. I do not see that levy as having a major effect on the reserves of banks or on their ability to match up with the kinds of criteria laid down by the Central Bank and at the same time to carry on the kind of business they need to carry on. I do not think that is a major problem with those institutions today.

Finally I might follow Senator McDonald a little bit of the way down the road in a matter that is not directly relevant on this Bill. He suggested that the Department of Finance have what he calls a stranglehold on regional fund moneys. This is a matter I discussed with Senator McDonald on a number of occasions, but since it has been raised in this debate I would like briefly to make a reference to it. The situation as it now exists under the European Regional Development Fund is that under the quota system funds are made available to the member state in order to expand that member state's total capacity to finance various capital works. They are not directly attributable to any one project, and the fact that the funding under the Regional Fund comes into the Exchequer does not mean that those funds are being denied to any project. The fact that we have access to those funds increases the Exchequer's capacity to fund the public capital programme and means that projects that otherwise would not be undertaken can be undertaken, and our ability to do so is expanded by the amounts we get from the fund. There is no question of there being a stranglehold or anything like it in that connection.

Senator O'Leary made a number of remarks about stock relief which on the whole were accurate. I am not so sure that the conclusions he draws in terms of the effect he thinks it will have are necessarily justified, but I note his remarks and will consider them for the future. I do not think he would put any kind of operational date on the concerns he expressed. He asked what the rationale was of section 89. why should we extend the powers of the VAT inspectorate? I would like to remind the House that one of the amendments I brought forward on Committee Stage in the Dáil further specified the scope of application of section 89. The intention is to give VAT inspectors in the performance of their duties in relation to VAT, broadly the same kind of powers that income tax inspectors have in relation to income tax. If Senators read the section again they may find that it is stated at the very beginning that these new powers are being given to VAT inspectors for the purposes of the VAT Act and the regulations made under it.

There are a great many more matters that were raised during the course of the debate but it would probably take more time than the House is prepared to give if I were to discuss all of them. Some of the matters I have not dealt with specifically here are perhaps ones that we will come back to on Committee Stage and others would be more appropriate to debates on other Bills, but I do not intend to venture into those areas which, as I said, are probably more dangerous mine-fields than the fields of tax law.

I thank Senators for their contributions and suggestions that have been made in relation to this Bill and budgetary policy generally.

Question put.

The Seanad divided: Tá, 26; Níl, 15.

Tá

• Belton, Luke.
• Browne, John.
• Bulbulia, Katharine.
• Burke, Ulick.
• Connor, John.
• Daly, Jack.
• Deenihan, Jimmy.
• Dooge, James C.I.
• Durcan, Patrick.
• Ferris, Michael.
• FitzGerald, Alexis J.G.
• Higgins, Jim.
• Hourigan, Richard V.
• Howard, Michael.
• Howlin, Brendan.
• Kelleher, Peter.
• Lennon, Joseph.
• McAuliffe-Ennis, Helena.
• McDonald, Charlie.
• McConagle, Stephen.
• McGuinness, Catherine I.B.
• McMahon, Larry.
• Magner, Pat.
• O'Brien, Andy.
• O'Leary, Seán
• Robinson, Mary T.W.

Níl

• de Brún, Séamus.
• Ellis, John.
• Fitzsimons, Jack.
• Hillery, Brian.
• Honan, Tras.
• Hussey, Thomas.
• Kiely, Rory.
• Killilea, Mark.
• Lanigan, Mick.
• Lynch, Michael.
• Mullooly, Brian.
• O'Toole, Martin J.
• Ryan, Eoin.
• Ryan, William.
• Smith, Michael.

Tellers: Tá: Senators Belton and Howlin; Níl: Senators W. Ryan and de Brún.

Question declared carried.

An Cathaoirleach

When is it proposed to take Committee Stage?

Professor Dooge

We would be prepared to take the next Stage at 6.30 p.m. but I understand the Opposition would prefer to leave over Committee Stage until tomorrow morning.

Mr. Lanigan

It is not a matter of preferring. I think it would be better to leave it over until tomorrow morning.

Professor Dooge

I am quite happy to agree with that. On something as important as the Finance Bill I would not attempt to exert any pressure and accordingly I suggest that Committee Stage be ordered for 10.30 a.m. tomorrow.

Committee Stage ordered for Thursday, 17 May 1984.