Finance Bill, 1985 [Certified Money Bill]: Second Stage.

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

The main purpose of this Bill is to give statutory effect to the budget measures but it also incorporates some other significant tax changes. This year, radical changes have been made in the income tax and VAT structures: these changes are already in operation. Our aim is to introduce more rational systems which result in a fairer distribution of tax and at the same time benefit the economy. We now have three-rate systems both for income tax and VAT and I believe there is general agreement that this is a substantial step forward. It is too early to assess the impact of these budget changes but the initial reaction has been most encouraging. We could have taken a much more cautious approach to introducing selective changes, but we would not then have come to grips with the main problems underlying our tax structure.

Tax changes, no matter how appropriate or effective they may be, inevitably bring some criticisms. There are those who are disappointed because the levels of taxation are not being reduced significantly. I have said repeatedly in recent months that we cannot reduce taxation until our budget situation is much improved. Otherwise, if we want to reduce taxation now, we must either severely cut public expenditure or take a more relaxed approach to borrowing.

Any cuts in public expenditure, no matter how modest, meet with vigorous opposition, not least from persons and interest groups who find no difficulty in advocating reduced public expenditure as a matter of principle. As long as this inconsistent attitude prevails, it is extremely difficult to secure a consensus.

There appears to be a consensus that we must curtail borrowing. The rapid increase in debt in recent years and the proportion of total taxation that is now required to service this debt are stark reminders of the burden which debt imposes on the economy. There are those who like to argue that higher debt is appropriate, provided it is used for productive purposes which give a good return. This is sound in theory but, in practice, we have learned the lesson in recent years that much of the so-called productive investment simply adds to our debt-funding difficulties. The practical conclusion which we must draw from this reflection is that if we wish to put added emphasis on productive investment we must devote less resources to less-productive investment.

What I am saying, in short, is that we cannot anticipate substantial reductions in taxation in the short term. These reductions would be most desirable both for the uplift in living standards that they would bring and for their beneficial economic effects. Unfortunately, however, they are beyond our reach for the moment unless we can reduce public expenditure dramatically. But there is some room for manoeuvre and the Government have made their position clear in the national plan. There will be no increase in the overall level of taxation and there is a commitment to adjust tax bands and allowances each year so that the overall income tax burden on taxpayers will not increase. I know that these targets will be seen by many hard pressed taxpayers as being rather modest, but they have to be measured in the context of the very tight budgetary constraints. I am confident that, if we stay on course, we can look to much brighter prospects in the not too distant future.

Despite all the difficulties, the economy has been performing well. Last year we had the highest growth rate in the EC. Inflation has come down to single figures and is falling. Our inflation rate, down to 6.2 per cent in February, is now lower than that of the UK, our main trading partner, and very close to the average among our EC partners. Our export growth has been consistently impressive and this has been largely responsible for the continuing improvement in our external accounts. We can and must build on these positive factors. The climate for expansion is more favourable than it has been for a number of years and prospects internationally look encouraging. We have every reason to be optimistic provided we are prudent. We must recognise that we have a serious budget problem which has to be resolved and which severely limits our options. We must recognise the critical need at this time to keep down wage costs so as to maintain and improve our competitive position.

Unemployment is our greatest problem. The recent improvement in the economy has not resulted in lower unemployment and this is disappointing. We are in a difficult position, however, because of the substantial increases in the labour force and our inability up to now to match these increases with jobs has overshadowed the solid progress that has been made in providing new jobs and protecting existing jobs against formidable odds at times. The worst is over. The rise in purchasing power and the general upturn in the economy will improve employment prospects and, while progress will be slow, it will be consistent.

In both the national plan and the budget the underlying policy is to improve the climate for creation of employment. This policy requires a combination of factors to succeed, including attractive incentives for employment, the maintenance of a sound economic background, a disciplined approach to the budget and competitive wage structures. It is a fallacy to assume that the Government can directly create jobs on anything like the scale that we now require. The scope for direct job creation schemes is limited and the Government are exploiting this to the maximum extent possible. The principal role of Government in this area is to create the best possible environment so that business will respond and take advantage of an improving situation. This alone will generate the levels of new jobs that we need. What the Government are doing directly is to supplement this approach with direct job creation programmes under the social employment scheme.

The targets set for the economy for the next three years are incorporated in the national plan. The plan has been criticised on two opposite counts, with the two criticisms often being made by the same people. On the one hand, it is claimed that the plan is too modest in its targets: on the other hand, it is claimed that it is based on assumptions that are too optimistic. These contradictory criticisms underline the realism of the plan. What we have set out to do is to aim for the maximum possible improvements in employment and the public finances in the period up to 1987. These objectives go hand in hand. Those who argue that our aims are too modest are out of touch with reality. The days when highly ambitious targets could be based on unrestricted borrowing are over. We have prepared a realistic plan, based on reasonably optimistic expectations. I have no reason to be other than confident that we will stay on course and achieve the targets that we have set.

Before I speak on the details of the Finance Bill, I would like to refer to the Commission on Taxation whose fourth report was published yesterday. This report deals with special aspects of taxation, including local taxation and mining and oil taxation. Pending full examination of the recommendations, I am not in a position to comment now on individual aspects of this report. The Commission on Taxation will, I understand, shortly complete the final report, which will be concerned with tax administration.

There has been much ill-informed comment on the Government's attitude to the commission's recommendations. The charge, made repeatedly, that these recommendations have been totally disregarded is untrue. On the contrary, the Government have made it clear that they are entirely in sympathy with the commission's preference for a simpler and more efficient tax system on a wider base and the changes introduced in this year's budget are a practical demonstration of this. I have said that we cannot at this time support the commission's proposal for a single rate of direct taxation, as the rate needed to sustain the present revenue yield would be too high and would be unfair to less well-off taxpayers. From this, some commentators have wrongly concluded that the commission's package has been entirely rejected. The commission themselves envisage that the proposals could be implemented only on a phased basis over an extended period. I agree entirely with that view.

I would now like to turn to the Finance Bill and outline the main provisions. I will concentrate mainly on the more significant items. The early sections legislate for the increased income tax exemption limits, for the restructured rate bands and for the revised personal allowances which I announced in my budget statement. Taken together, these changes will reduce tax liability right through the income scale for both single and married taxpayers. The elimination of the previous top rate of 65 per cent should reduce the disincentive effects of high marginal rates of tax. These adjustments are consistent with the policy outlined in the national plan,Building on Reality, in which we undertook that the overall income tax burden on taxpayers will not increase over the period of the plan. The net cost of the adjustments actually exceeds the estimated net cost of indexation of the previous tax bands in line with inflation.

Section 4, in addition to providing for the single parent allowance increase announced in the budget, also removes an anomaly which previously deprived a single parent of the benefits of this allowance if a child had an income in his or her own right of over £180 per annum. The fact that in some instances this resulted in harsh treatment was brought to the attention of the Revenue Commissioners by the Ombudsman. Hitherto, the single parent allowance has been available only to parents who qualified for the £100 child tax allowance. The section removes this direct connection and, while setting out similar basic eligibility requirements, provides for a much more generous limit on the child's own income than that applied to eligibility for the child tax allowance.

In section 6, the rules are being clarified to ensure that tax is payable under PAYE in respect of all salaries and wages except where it would be impracticable to do so. This clarification is necessary in response to increasing claims from professional people that, where they operate a private practice and also hold a public appointment, they have a right to be taxed on a schedule D basis on all their income.

Two sections will specifically benefit older people. Section 7 reduces the age qualification for entitlement to rent relief on private tenancies and increases the upper limit on such relief. Section 8 allows double levels of relief on deposit interest for taxpayers aged 65 or over and will encourage them to put their savings into financial institutions, thereby helping to reduce the risk to old people from attacks on their homes and persons.

Section 10 provides for the exemption from income tax of the first £2,000 of income from the leasing of agricultural land where the period of the lease is five years or more and the lessor is 55 years of age or over or is incapacitated. The £2,000 ceiling will apply separately to each spouse where both spouses engage in leasing. This new relief offers a valuable incentive to lease agricultural land which will, in turn, improve land utilisation. I would point out also that the new relief in the appropriate cases is available in addition to the exemption limits for which provision is made for increases in the Bill.

The venture capital scheme implemented under the provisions of last year's Finance Act is now beginning to make an impact. One of the constraints still to be overcome before the scheme comes fully into operation is the restriction on advertising imposed on designated funds by the requirements of existing unit trust legislation. The Minister for Industry, Trade, Commerce and Tourism has circulated draft legislation which will remove this restriction. Section 13 of the Bill makes a concession to allow companies which face start-up delays, because of a substantial research and development commitment connected with their business, to commence trading within three years and still qualify for the benefits of the scheme.

Further changes provide that close relatives, who are now excluded, may avail of the benefits of the scheme and that there will be no statutory ceiling on fees which may be charged by fund managers to investors. The promoters of a fund will be expected, however, to publish their charges in the prospectus. In addition, the scheme will be broadened by allowing companies with "51 per cent" subsidiaries, or with certain foreign subsidiaries, to qualify for benefit under the scheme.

It is still too early to make an informed assessment of the progress of the venture scheme. Claims for relief became allowable only on 1 January of this year. Two designated funds have already been launched successfully, despite the existing constraints of the unit trust legislation and this is indicative of the scheme's potential. During the 1984-85 tax year ten companies submitted claim documentation covering investments of more than £1.5 million and an additional 20 companies sought outline approval for estimated investments of £2.15 million. The Revenue Commissioners have also received over 100 inquiries from various interested parties.

It has been proposed that tax relief should become available once moneys are placed in a designated fund. In my view, this would simply have the effect of delaying investment in productive activity, since there would then be no pressure on the funds to select suitable projects. The scheme is confined to manufacturing and certain internationally-traded services because this is an area of high risk where the benefits to the economy can be very substantial. If we were to yield to demands that the scheme be open to other business activities, then investors would prefer areas of lower risk and industry would no longer benefit.

Section 14 imposes a restriction on the tax exemption of income from stallion fees. In future, this exemption will apply only to income earned from stallions at stud within the State and from shares in foreign-based stallions acquired and held for the purpose of obtaining access to such stallions for Irish-based mares.

At present, tax relief is allowed in certain circumstances where a person carrying on a trade or profession makes a donation to an Irish university for research in or the teaching of approved subjects. In response to requests, this concession is being extended to other third level institutions which provide training for jobs in trade and industry. A tax relief is also being allowed in respect of gifts made to the President's award scheme.

The composite tax rate arrangements for the building societies are incorporated in section 19. For this tax year the composite rate will be 28 per cent and the ceiling for accounts to which the composite rate applies will be fixed at £25,000 instead of £15,000. This section also makes permanent the new instalment dates for payment of tax by the societies.

As announced in the national plan and in the Budget Statement, provision is being made in section 21 to extend the tax incentive which is available to lessors of residential accommodation to encourage the refurbishment of buildings now or previously in multiple residential occupation. Up to now, incentives have applied only in respect of the construction of a new building or the conversion of a building into two or more dwellings. A further new incentive in section 22 permits a wider interpretation of conversion to include structural repair work generally. In addition, relief will apply where a building, which is not a dwelling, is converted into a single dwelling. Expenditure on these new categories of work in the two years up to 31 March 1987 will be allowed for tax purposes against future rental income receivable by the lessor of residential units to which the expenditure relates subject to the requirements as regards size and standards which already apply in relation to apartments. This is a generous extension of the present incentives and it is hoped that there will be an immediate impact on activity in certain sectors of the building industry as lessors take advantage of the new incentives to undertake major repair work on properties which perhaps had been postponed because of the non-availability of relief for such work in the past. Senators will appreciate that relief in respect of new rented accommodation under section 23 of the Finance Act, 1981 — as amended by section 29 of the Finance Act, 1983 — and in respect of the conversion of a building into two or more dwellings under section 24 of the Finance Act, 1981 — as amended by section 30 of the Finance Act, 1983 — remains in force also until 31 March 1987 and is a very considerable benefit to the building industry provided at a net cost to the Exchequer despite present budgetary pressures.

Section 23 provides for the payment of corporation tax by all companies in a single instalment six months from the end of their accounting periods. At present, all companies pay a first instalment of tax six months after the end of an accounting period but the due date for payment of the second instalment varies as between companies from one day to almost nine months after the due date for the first instalment. It is important in the interests of equity to have a uniform payment date. Provision is made to ease the transition to the new system by limiting the advancement of the due date for the second instalment to three months in any one year.

As announced in the budget, section 25 extends to 31 December 1985 the transitional arrangements under which advance corporation tax (ACT) in respect of distributions made by companies is payable at 50 per cent of the full rate. There is, as Senators will appreciate, an important issue at stake in relation to ACT. Where, irrespective of the circumstances, a tax credit attaches to a distribution made by a company, that tax credit is in part recognition of corporation tax paid. Thus, when a company makes a distribution but, for whatever reason, have no corporation tax liability, the tax credit attaching to that distribution would represent an unjustifiable subsidy by the Exchequer to the shareholders of the company in question unless ACT is payable. It is for this reason that ACT must always be paid in respect of tax credits attaching to distributions made by a company. My purpose, however, in continuing the transitional concessionary rate of ACT for one more year is to reduce the difficulties which the introduction of ACT creates for some companies still enjoying the benefits of capital allowances in respect of investment which was decided upon on the basis of projections of returns from that investment which did not take account of liability for ACT. The effect will be that Irish companies will have had the benefit of the reduced rate and of the Exchequer subsidy which it involves for a period of almost three years.

Part II of the Bill, which concerns customs and excise, deals for the most part with changes already announced in the budget. Some additional measures of a minor nature are included; these deal with management of the table waters duty and betting duty, the time limit on taking proceedings for excise duty cases in the District Court and the penalty for having unlicensed gaming machines on a registered premises.

I would also like to draw attention to section 33 which provides that horsepower will be replaced as the road tax chargeable unit by engine cubic capacity, expressed in cubic centimetres. This will bring our law into conformity with EC requirements. It will not change the amount of tax payable in respect of any motor vehicle.

Part III of the Bill gives effect to the rationalisation of the VAT system introduced by the budget. The system now comprises, under section 43 of the Bill, just three main rates, namely, zero, 10 and 23 per cent. This new system will have a number of important positive effects. The abolition of the 35 per cent rate provides a big stimulus across a wide range of economic activity. A number of individual sectors — especially the tourism and newspaper industries — will benefit from special reductions in taxation. The changes will bring about a considerable reduction in the cash flow burden of the VAT at import system, both by reducing the overall impact of that system and by spreading the burden over a wider range of importers. Finally, the reduction in the complexity of the rate structure should have a big impact on the administrative and compliance costs of the tax for traders and facilitate better administration of the system.

Because of the need to maintain Exchequer revenue from VAT, these advantages cannot be gained without some costs. However, it should be noted that the effect of the increases in the VAT rates on most footwear, clothing and fuel on domestic productive activity in the areas concerned will be limited because of the relatively high proportions of such goods which are imported. The increased rate on construction activity must be seen against the background of the continuing support for this important sector in the Public Capital Programme, the doubling to £2,000 of the housing grant for first time house-buyers and the deferment for two months of the increased VAT rate for new private housing, as provided for in section 54.

Section 55 imposes the £25 million levy on the banks as announced in the budget. The base period is being extended from three to 12 months to give a more representative base and to counteract any tendency to manipulate deposit holdings so as to reduce an individual bank's liability in respect of the levy. Deposits held in foreign currencies will be excluded from the base in order to make the holding of such deposits in domestic branches more attractive.

The budget proposal to exempt from capital acquisitions tax inheritances taken between spouses is confirmed in section 59. There is evidence that the imposition of a tax on the surviving spouse in such circumstances may create hardship. Therationale of an inheritance tax is that it should be a tax on property moving between generations and thus it is not appropriate that it should apply on inheritance when a spouse is the beneficiary.

Section 60 provides for the exemption of the proceeds of insurance policies from capital acquisitions tax where these policies have been executed for the purpose of meeting the tax liability. This is intended as a protection for people who in facing an inheritance tax liability may be obliged to dispose of assets, which are not liquid, to meet this liability. The exemption is confined to amounts which are actually required for payment of capital acquisitions tax and any surplus will be subject to tax in the normal way. I do not envisage that this will involve any significant tax loss: on the contrary, it should have the beneficial effect of a speedier collection of capital acquisitions tax in some instances.

Sections 61 to 63 provide for reliefs where a double capital tax charge arises on the same event. Because of an unusual combination of circumstances, it is possible that an unreasonable double charge to capital acquisitions tax or a change to capital gains tax and capital acquisitions tax may arise and it is only fair that there should be relief in such situations. Section 65 provides relief from discretionary trust tax in cases where a property, which is the subject of a discretionary trust, ultimately comes into the possession of the State. There is no merit in imposing a charge on a property that is to come into State ownership.

In section 68 statutory provision is made in respect of the requirement announced in the national plan that contributions be made by Bord Telecom to the Exchequer over the next three years. The section also provides that full compensation will be given to Bord Telecom over a period in respect of these payments through purchase of shares by the Minister for Finance to support capital works.

Section 69 provides that tax free Government securities may be issued to subsidiaries or branches of foreign companies which are carrying on a trade here. Companies, the business of which consists of banking, insurance, retailing and dealing in securities are, however, excluded. The intention behind this section is to reduce outflows of profits and to retain at an acceptable cost a source of funding for the Exchequer that would otherwise be lost. The securities may be denominated in Irish or in foreign currency. I have no estimate as to what impact a new investment facility on special terms may have on this profit outflow. There have been indications, however, of significant interest in a facility of this nature, and it is only sensible that we should make special arrangements to tap whatever resources might be available. These arrangements will complement existing Government policy, which is to encourage reinvestment in Ireland of the profits of Irish subsidiaries of multinationals by creating an attractive investment environment here and to encourage linkages with Irish suppliers. I cannot at this point give the House the precise terms of securities to be issued under this section. The purpose of the section is simply to provide taxation relief on interest from these securities, and the precise details of the securities will be determined at a later date.

A security in respect of which tax exemption will be granted will not be transferable to another company but must be held by the company to which it is issued. This is a safeguard designed to prevent abuse of a provision which has been framed in very general terms. As Senators will readily understand, it is important to ensure that companies which are not qualified to hold the securities and which are expressly not intended to be eligible shall not be in a position to obtain access to the benefits by means of contrived arrangements, the purpose of which is to frustrate the spirit of this provision.

The Bill provides for substantial changes in our taxation system. There has been general agreement on the need for rationalisation and simplification of the system, which has grown increasingly complex. The Commission on Taxation have put forward the case for change strongly in all of their reports to date. The measures announced in this year's budget and incorporated in this Bill add up to the most radical changes in taxation for a long time. They are a recognition of the importance of more rational tax structures in moving towards a system that will be simple and efficient, a system that will be fair and will be seen to be fair and a system that will have beneficial effects on the economy. In making further changes in the years ahead, the emphasis will continue to be on simplification and on movement towards a fairer system. I recognise that we still have a long way to go before we can claim to have a fully equitable system of taxation. This is not a matter of tax structures alone. It is also a matter of tax levels and tax rates. It requires an extension of the tax net and it requires a much stronger effort against tax evasion. Those are the considerations that must shape future tax policy.

Before I conclude, I would like to make an announcement about a tax avoidance practice. It has come to my attention that the limited partnership arrangement is being used on an increasing scale to circumvent tax liability. What is happening is that such partnerships are being manipulated to create losses which are then set off against the other income of the limited partner. These arrangements, which are artificially created, are a tax abuse. I propose to introduce legislation to counter this abuse, and I want to serve notice now that this legislation will have retrospective effect from today.

I commend the Finance Bill to the House.

This opportunity to debate the Finance Bill is the yearly opportunity the Seanad have to look critically at overall Government economic strategy. While many of the sections of the Bill relating to taxes have already been implemented nonetheless I think the Seanad should use this opportunity to inform the Government as to the position in the country as we see it.

Coursing through the Minister's statement was a marked optimism. I do not know if he is known particularly for optimistic statements. Nevertheless in this budget a number of changes were made, which are detailed in the Finance Bill, which are welcome. We might argue that it is undoing measures which the Minister introduced in earlier budgets, but nonetheless to the degree that changes have been made in income tax and particularly in removing three of the VAT rates, cognisance has been taken of the great impact that taxation is having on industry and that personal taxation is crippling personal initiative.

The overall economic position in the country is extremely serious. In the past two years almost 2,000 companies have closed. People who are working and business, feeling the brunt of taxation in an economy that is generally in trouble, are looking to the Government for more decisive and courageous action. Over the years policy changes and budget adjustments which appeared to give concessions to the public but which, when read through and understood over the course of the year, did not produce the benefits which were earlier presented, have led to a certain amount of cynicism and perhaps also to a weakening of the political institutions.

The current budget deficit for 1985 will be £200 million more than 1984. Our national debt which stood at £12.7 billion two years ago will have risen to £20 billion. Two years ago our foreign debt was £5.29 billion and it now stands at £8 billion. There has been a massive increase in unemployment, with one in every six in the labour force unemployed. While we do not have ready and accurate statistics with regard to emigration there is no doubt that there has been a substantial increase in the numbers seeking employment abroad. I am not against anyone seeking employment abroad, I mention that to indicate that the overall figures for unemployment, high as they are, do not take account of the number of people who are emigrating or the over 20,000 people in part time employment in some of the social employment schemes operated by the Department of Labour.

Despite the Minister's optimistic statement, the nature of our economic problems and the scale of difficulties for individual families unemployed and the lack of prospect for young people coming on should force the Government into new and more radical approaches. We do not seem to have sufficient funds to generate more economic activity, and yet we have to find resources overnight for prison accommodation and extra security. We are not arguing against that but the Minister will accept that much of this expenditure is directly attributable to the unemployment problem. We can go on spending huge amounts on security, but as long as the energy and talents of young people lie dormant and they are attracted into other areas we will not rid ourselves of the problem.

I mentioned the staggering increase in our national debt. The cost of this in 1981 was £795 million; in 1982 it was £1,143 million; in 1983 it was £1,330 million; in 1984 it was £1,506 million and this year it is estimated to be £1,841 million and probably in 1986 it will pass the £2 billion mark. This is placing a great burden on the country, and with a diminishing workforce from whom taxation can be sought people have been tested to the limit. I should like the Minister to indicate whether there is any new process or imaginative way in which some of the scale of that debt can be re-scheduled or whether there are aspects that could be looked into from the point of view of the sale of some national assets to Irish owned companies to ease the burden. The Minister on a few occasions on television has compared the administration of the country with the family or the business. There are a huge number of businesses and individuals in very dire financial trouble. As a public representative he has negotiated with the ACC and the banks with regard to difficult situations where money is put up front to try to relieve the overall burden and reduce it to tenable limits.

There are dangers in suggesting something like this because it can undermine national morale further or can affect the overall credibility of the country. We have had no difficulty in getting loans, but the amount of money that has to be found to cope with the interest payments, as a percentage of our total product, is staggering compared with America or the UK. For a small working population the burden is intolerable and seems to be getting worse. We do not have sufficient resources to re-invest in productive activity to provide employment for a growing young population.

I would like the Minister when replying to refer to the question of the extent of our continued borrowing in US dollars. Every time the dollar rises in relation to the £ every cent adds £3.5 million to the cost of Ireland's foreign interest payments. He may argue that this will only arise when the debt payments are due, but in the past year or so some economists have given the figure as close to £1 billion in additional payments on foreign services arising from our dependence on borrowing in US dollars. Can the Minister tell us if these trends are likely to change or why the Government persist in pursuing this policy if it is adding substantially to an already desperate foreign debt? Last year interest rates went up by 2 per cent. This arose because the Government had pinned foreign borrowing to £640 million. The rest was taken up domestically, and this put too much pressure on funds at home. The Minister should have some flexibility in this area because the additional 2 per cent on interest rates for borrowers and for business generally makes it more difficult to take on workers and makes us less competitive.

Most Senators want to hear what the Minister has to say about employment. With one out of every five employed in manufacturing a few years ago now unemployed and with nearly 50,000 people in the building industry having become unemployed in the last five years the budgetary strategy of the Government should be aimed at redressing the situation. I realise that new technology and scientific advance in a variety of ways has made obsolete traditional job opportunities and that matching technological advance in some of the more advanced countries is a very tough job. We must try to do it, because we are unique in the sense that we have so many young people. We talk about 200,000 people unemployed. We have five times that number under 15. We sometimes feel the Government do not put enough emphasis on employment. Over the weekend Press comment relating to a new factory for Limerick indicated that the argument seemed to hinge around an additional £1 million of incentive to be provided by the Government. I understand from reliable sources in the IDA that the wage bill from that company would reach £5 million in one year. It is short-sighted to miss out on opportunities of that kind if these are accurate statements.

Some of the changes that have been made in relation to income tax and VAT are welcome, and we hope will provide some incentive to work and a better business climate for the provision of more jobs. In recent years we have seen the development of the black economy. We have no statistics for that. The Central Statistics Office were in trouble in the past 12 months particularly in relation to the milk quota. We need to revamp that area so that we will have more up-to-date data available.

In relation to the black economy, some people argue that there could be as many as 100,000 individuals involved in one way or another. I read somewhere recently that in the past four or five years the Revenue Commissioners identified 23,000 or 25,000 businesses or individuals who previously were unknown to them and were operating in the black economy. We are approached every weekend by people who are working in legitimate business and paying all their rates and levies and who are finding it increasingly difficult to compete with fly-by-night operators, casual traders, people who do not pay PRSI etc. It is regrettable that we are unable to comb out this area. We should try to ensure that people who pay their fair and legitimate rates are helped and not compelled to go to the wall because of unfair competition of that nature.

As I said earlier, the changes in income tax are welcome. We will be pushing the Minister to go further. However, the cost of any major concessions in this area is almost impossible when one takes into account the diminishing workforce. Despite these concessions the overall tax bill to the public will be up to £164 million this year. It is perhaps the people at the upper end of the scale who have any reasonable relief though their rates are far in excess of what people with comparable incomes would be paying in most other European countries.

In relation to the VAT changes, the estimated figure of additional intake for this year from VAT, despite the removal of some rates, is £122 million. The areas most damaged in this regard are the building industry and the footwear industry. We have already had a further major closure in the footwear industry this year and footwear imports from other parts of the world are growing steadily. Any further imposition or increase in VAT in this area is aggravating that problem. I believe the Minister is making a mistake in the area of building. Almost 80 per cent of this industry's material is based on indigenous industry. The building trade has had a rough ride in recent times. It seems incomprehensible that in the light of some progressive measures introduced in the budget the Minister found it necessary to add this additional burden on to an already depressed industry.

I recognise that some of the changes in relation to the grants announced at that time and since have been increased and the deferment of its introduction to 1 May were conciliatory moves, but they do very little to offset the overall impact of this measure. Most people would argue that because of the employment content and the fact that this industry is based on raw materials produced at home it is an area that requires special treatment. Any additional incentive given by way of encouragement to increase activity in that area would be very necessary and welcome. Comparitively speaking, the total capital programme in that area has been reducing and with the imposition of VAT on top of that the slow transfer of investment in other areas which are gilt edged and protected in security, into building or investment of that kind is going to be further slowed up because of this unnecessary decision. I think the Minister will change this decision before too long. In his earlier pronouncements in office he looked like a man who resisted change with a rather dogmatic, bland and uncaring stance. However, somehow or other in the plains of Kildare that has been gradually changing.

I want to tell the Minister that I recognise even that small adjustment and if the Government are in office for another year I believe the Minister will remove what has been imposed on the building industry in this year or, alternatively, have to introduce further incentives to try to keep some semblance of activity in that very depressed area. I have been approached by builders from all areas and particularly those engaged in small business who are stretched to the limit to try to keep going and maintain employment. I approach them from time to time with regard to taking on additional employees and I am told that they are considering letting go some of the people they have. They try to retain skilled men who have built up their businesses with them over the years. I regret very much that the decline of this industry is being further aggravated by the Minister in this buget. I would like the Minister to indicate in his reply that he, on the road to Damascus, will find it in himself to promise some further hope.

I am staying in Kildare, not going to Damascus.

I think the Minister understands. It is not very relevant to this Bill but usually we take the opportunity in this debate to widen the ambit of the Finance Bill since we do not normally have a chance to discuss the budget and I want to refer to the amount of unprocessed foods which we export and the inroads that have been made into our own domestic market by foreign food imports. It is nothing short of a scandal that in this country with a relatively disease free environment the food imports bill is reaching £800 million. There are some developments in relation to food imports which I would like to point out to the Minister for his consideration in relation to changes that may have to be made regarding international control of the food area. As the Minister knows, two multiple stores in this country now control 33 per cent of the grocery trade. They are internationally owned and their organisations obviously insist on the presentation of foreign food and other items on the shelves of these shops undermining some of our own indigenous industry. We need to train many more graduates in food technology, marketing and the presentation of more processed food items. One has only to go to the Green Fair in Berlin or, indeed, to many other trade shows, to compare the range of food items in other European countries with what we produce.

I am not trying to give selective treatment or protection to existing Irish industry. At the moment with the international control through multistores that are internationally owned on the food market it is going to be increasingly difficult to hold on to our domestic market, not to mention finding exports. Is there a way that some limitation can be put on these developments where, in Dublin city, multistores control 81 per cent of the trade and 58 per cent throughout the country as a whole? Commensurate with the rise in that graph, and control by internationally owned grocery multistores, has been the rise in food imports. Not only do we have to revamp and reorganise but we must do more in relation to the areas of production, processing and marketing. We must look closely at some of the developments that are taking place in the food area in so far as food imports are concerned.

We need to emphasise at every opportunity the importance of buying Irish goods. If people could be encouraged to spend even 10 per cent or less of what they spend on Irish rather than on imported goods this would create 5,000 or 6,000 jobs overnight. We are not being national minded. We are not conscious of the fact that our jobs or our neighbours' jobs are at stake when we purchase foreign goods instead of comparable Irish products.

Another area that has been highlighted recently by an excellent report compiled by a Joint Oireachtas Committee was that of afforestation. I would ask the Minister, where he seems to be reluctant to spend more on natural resources, to look again at this area——

Excuse me, Senator. There is a division in the Dáil. We will suspend the sitting.

Sitting suspended at 12.40 p.m. and resumed at 12.50 p.m.

Before the suspension of business, I was making the point that this is not the time to cut back on our investment on the development of our natural resources. We are cutting back on acquisition and plantation in our afforestation programme at a time when we import timber products to the value of £300 million. Europe as a whole imports 16 billion units of account in this area. There is that potential for further development and expansion in the plantation, processing and marketing of timber products. Scandinavian countries are producing timber at about one-fifth of the cubic rate of the Irish capacity. The national soil survey shows that there are almost three million hectares of land which are ideally suitable for afforestation and on average are capable of producing 16 cubic metres per hectare of timber.

I would like to indicate to the Minister for Finance that it is important that we have more investment in this area, and this does not involve additional taxation or borrowing. It is an area where the actual return will more than compensate for any further investment. There are a considerable number of jobs involved, and the regional impact of additional afforestation can be quite significant.

I would like to say a few words in relation to our health services. Estimates are given from time to time as to the amount of unpaid contributions by the private sector. An estimate of about £31 million is allegedly due from the self-employed in relation to health contribution levies, etc. Much damage is sometimes done with the assessment procedure by the Revenue Commissioners which indicates to the public at large that very substantial sums in tax generally are unpaid. We find when these figures are broken down and examined that they are considerably less than those first published. We should have a much more accurate way of knowing what exactly is due.

In relation to the health services, we have hospital wards closing down. We are unable to open new units that have been provided. Generally speaking, the position is getting more chaotic. It is generally the poorer people in our society who are going to suffer if we do not maintain our health services at a reasonable level. Concessions were granted by the Minister for Health in one area in relation to dental and ophthalmic services. He indicated that these services would be extended to pregnant wives of insured workers. Most of the gynaecologists, at least in my region, tell me that it is not very wise for pregnant women to be availing of these services at that time. This kind of tinkering around with services and extension of facilities do not really match on the ground when one considers them.

Reference is made in the Bill also to the venture capital scheme which was introduced in last year's budget. The Minister states that it is difficult to quantify the effects but that it is beginning now to get off the ground. By and large, the scheme itself is quite good. It appears that we are tying it up in too much bureaucracy and too much red tape and not reaching out, as it were, to the potential in this vast area. Most other countries have been trying to provide additional venture capital for new projects to stimulate employment. I would ask the Minister to be as generous and as lenient as possible in the implementation of these schemes because, after all, young people and others starting out in business, or expanding businesses at a time with so much depression around, need to be encouraged to the greatest possible extent.

I welcome the reference in the Bill to the allowance of the first £2,000 of income from land leasing. We fought for this during the course of the Land Leasing Bill and the Minister agreed at that time to look at it. That is an important and a progressive change in an area where we need to get more mobility and get more young people working on our land.

I also welcome the continuation of the stamp duty concession for young farmers with the 100 hours course. We should try to maintain this as far as possible and I recognise that including it in each year's Bill is, perhaps, better than any long extension because people would tend to wait until the last moment to make these transfers.

I do not know if the "bush telegraph" is always an accurate way to know what exactly takes place but in relation to land tax I understand that the Minister may, perhaps, be having second thoughts in relation to this whole question. There is a lot of resistance to it although I am not saying that it has not some advantages. We have been trying for a long time to try to condition farmers to proper accounting procedures, to become involved in business management and developing a greater understanding of how good accounting can affect the proper management of farms. We are obviously going to go away from this now for a significant number of farmers. We were just at the stage when the income tax code was beginning to be understood and to work because in the seventies there was massive investment in the farm modernisation scheme and the capital write-off that farmers would enjoy under the income tax code should be nearly exhausted, particularly for better farmers, and perhaps in that sense we would have been better continuing the existing system rather than moving into an area where there is so much doubt, so much opposition and so many difficulties in trying to have a proper land tax system. We do not seem to have sufficient technical and other information to allow us have a proper base, if one was even to assume that the tax itself was justified. We are going to see legal consultants and other people in that area pocketing huge sums of money in the courts as we argue about what is an adjusted acre and how it is going to compare from one region to another.

Earlier I mentioned the soil survey which categories the soils of Ireland into 27 categories. They are in every county. They are in every townland. One can say that the best land in the country is in every county and the worst land in the country is in every county. It is in different proportions but it highlights the difficulty of trying to have any sort of a reasonable base for the implementation of a proper land tax. These difficulties will lead to a lot of legal wrangles, a lot of delays and, at the same time, undermine confidence in agriculture at a time when quotas in milk, cereals and beef and when problems in the sheep industry are already making the development of that industry more difficult.

In relation to that matter, I would like the Minister to indicate how, under the land tax system, incomes will be assessed for the purposes of health contributions. Arguments are made from time to time about outstanding amounts in this area. How are you going to assess a farmer who is, in land tax, not under 80 adjustable acres? How is he going to be assessed for health contributions, levies and various other youth employment and income levies? We have much difficulty already in this area and the introduction of land tax is going to make the situation even more difficult.

In relation to the horticultural area, we would exhort the Minister to give further support to the glasshouse industry which has been reduced in significance in recent years. The number of acres under glass has reduced by more than two-thirds in the past five or six years. When we argue about food imports there is no point in trying to redress imbalances here unless we are placing on the ground a proper infrastructure for investment, development and improvement in the basic production and marketing of these products. Applications have been consistently made to the Government for grants for the provision of thermal screens to reduce energy costs in tomato production and to try to compete with imports from other countries but without any real success so far. I would ask the Minister to indicate if he or the Department of Agriculture are making any adjustment in this area.

The Finance Bill provides for further impositions on an already beleagured population as far as motor cars, road tax, petrol increases and so on are concerned. I had a visit from a 22 year old constituent at the weekend who has been asked for £1,000 for car insurance. This, type of charge on top of further increases, is making it much more difficult for people to commute to work. You have the chaotic situation in the country where one out of every five drivers is now driving without insurance. I am not trying to suggest that I support anybody who drives without insurance, but it is important to recognise that when the rates for insurance are as high as they are, coupled with the additional taxation which is added in this budget, they are almost impossible to carry. We have been arguing about this point to the Department of Industry, Trade, Commerce and Tourism for a considerable time but yet no real progress has been made.

As I said at the beginning, I think public confidence in the Government and, indeed, in political institutions as a whole is at a low ebb. We have the graphic picture of escalating debt charges, unemployment and the trap in which more and more people, from poorer groups up, are running into in relation to the management of their homes. Social and environmental problems are developing, and yet we are getting no concrete examples from the Government as to how they intend to break down some of the bureaucracy which has been developing over the past 60 years. If you employ a person at the moment — I am a very small employer with one person employed — the amount of documentation that has to be completed in the year is something like almost 40 different applications for one employee in the year between all the different taxation levies, redundancy and everything else that has to be considered.

I recognise the change in the VAT and areas like that are important improvements, but I think we not alone need to further break down that plethora of bureaucracy that has crept in to so many aspects of Government development but we need to decentralise not just personnel, we need to move decision-making processes into the regions and make it more applicable, understandable and closer to the people as a whole. The decentralisation programme which was agreed on a few years ago has been disbanded, and I feel the Government should consider it, both from the employment in the building area content and the question of releasing some of the talent that would be available to the regions and provincial centres from an already cluttered Dublin. Dublin has grown out of proportion. By comparison with most other European countries it is two and a half times larger than most European and world capitals, with the consequent traffic, chaotic housebuilding costs and all the additional security and other problems which follow it.

I appeal to the Minister to look seriously at the question of proper decentralisation where decisions as far as possible are made in the regions which affect the lives of people. We have duplication and triplication in relation to small areas such as housing grants where local authorities carry out one aspect of the investigation in local government and the Department of the Environment in Dublin carry out others. We could twin some of these operations, which would not only have the accessibility to the public but would also cut down on some of the additional costs in the provision of personnel at central levels to examine in minute detail every little scheme that is operated at local level.

This Finance Bill embodies some important characteristics but the underlying economic problems still remain. It is only a certain amount of tinkering and adjusting of a system which needs fairly radical change if we are to face up to the overall national economic and other social problems that affect our country.

The Minister, in his comprehensive and very clear Second Reading speech, said that the Bill provides for substantial changes in our taxation system and that there has been general agreement on the need for rationalisation and simplification of a system which had grown increasingly complex. I would wholeheartedly concur with the Minister's sentiments, and I should like to compliment him on tackling this problem and trying to make it easier for the ordinary taxpayer to understand the system and make it appear understandable and also bring in greater equity of the system.

I certainly welcome the provision in the budget for the increased income tax exemption limits. The restructured rate bands and the way that the Minister has revised the personal allowances, which he announced in his budget, are welcomed right across the country. Of course, the Government's undertaking in their economic plan,Building on Reality, that there would be no increase in the overall real level of taxation, is something that surely must give hope to many people who find the burden of taxation, whether it is from the point of view of the person who is contributing through PRSI or through ordinary income tax or through VAT or one of the many other charges. These people will re-echo the same sentiments.

The alteration in the income tax rates and the reduction of them to three bands is a move in the right direction. The top rate of income tax is 60 per cent, which is applicable to all incomes in excess of £7,300 for a single person and £14,600 for a married person, while this represents a 5 per cent decrease on the 65 per cent which was obtainable last year, nevertheless, it is still very high and I hope the Minister will endeavour to reduce that rate still lower. The big problem there is for the families, and the amount of money that an ordinary man must earn in order to send one of his children to college or to school to make the £1,000 or £1,200 fees, apart from the maintenance costs, is a daunting prospect. I would hope that the Minister would bear in mind the burden of the ordinary family situations, especially when he continues to undertake his crusade of reducing taxation and giving greater hope and greater scope to the people who are working in this country and carrying such a heavy load of taxation.

The increase in the personal relief situation is something that we all very much appreciate, and the Minister and his Government are to be complimented.

Section 4 strikes a particular note in my mind. It is an improvement in the allowances in respect of permanently incapacitated children. For families who have children who are handicapped in any way — some might say they have a cross to bear — it is an additional burden on them. Any provision which lightens the load on them is something with which no one would be in disagreement.

In section 32 we have the excise duty on cars. Again it showed an increase this year. While I do not wish to deal at length with this, I am sure my colleague, Senator Daly, will educate the Minister, if he needs any educating, in regard to the high level of taxation. The one point that I want to make is that with the difficulties that people experience in finding employment and the fact that so many people, young and old, are prepared to travel long distances to hold down a job and to earn their living, this would appear to be forgotten by the Department of Finance because there seems to be a very consistent spiral in the amount of duty and the amount of tax extracted from motorists, whether it is duty on cars or excise duty on petrol or fuels. While it is easy to criticise the Government and we readily can see that the money has to be raised in some area in order to meet the ever-increasing cost of administering the State, at the same time I endorse the Minister's decision to reduce progressively the duty on spare parts. This, I think, is something that will encourage motorists to retain their vehicles for longer. In its own way it will help to keep down the imports of new cars. In that line the Minister is going in the right direction and I hope that he will be able to continue to do so.

Sections 31 to 54 of the Bill, Part III, deal with the VAT changes. Again, the Minister has tackled this problem and has achieved much this year in reducing the VAT rates to 3, if you count zero rating, 10 per cent and 23 per cent. Twenty three per cent is a big reduction from the 35 per cent that we paid last year. I can see that reforms are not easy but nevertheless I would hold that reforms are very necessary. Tax officials and inspectors should try to understand the problems of the ordinary taxpayers, especially the problems of the family business person, the family retailer or small family manufacturers.

VAT should be applied at an appropriate rate at wholesale level on wholesale invoices. This would lift an enormous burden on the small family concern. There are people whose level of business does not really necessitate the employment of a special person to keep accounts but nevertheless the accounts must be kept and it means that the ordinary shopkeeper, the small business person or his wife have to labour long into the midnight hours in order to keep up with the fill in of tax forms and the appropriate VAT books, something for which, I am sure, they were never trained to do. This imposes an intolerable burden on many families. I would ask the Minister to consider as his next step in reforming the VAT system applying VAT at the wholesale or manufacturing level and thereby removing a great deal of hardship from the small traditional family business person.

It would have the positive effect of the Minister getting his VAT payments in more rapidly if people paid when they went to the cash and carry or when they secured their supplies. Maybe this would constitute a problem for people as well. In many areas the small family grocer is finding it very difficult to continue. A contributory factor must be the problem of VAT. It is quite clear that no effort to enforce fair trading practices is being made on behalf of the Government. We have the situation where the multinationals or the Irish giant chain stores are screwing Irish manufacturers and Irish suppliers for cheaper consumer goods, not only at preferential prices but they lay down their own credit periods as well. The ordinary Irish family merchant cannot even purchase consumer goods, whether it is sugar, flour, butter or whatever, from the producer or manufacturer at the same price that those items can be sold at in the giant supermarket chains.

Below cost selling and the special offers are slowly but surely sending established Irish firms to the wall and into bankruptcy. The place of their products is being taken on the shelves by no brand name imports. That is a disgrace. The Government have a duty to protect the traditional Irish businessman. Back in the forties and in the fifties the ordinary merchant in a country town carried half the parishes and half the service area that they served in their books from one harvest to another. I know that times have changed but, nevertheless, it will be of no great benefit to the Irish consumer when the small retail outlet is forced into extinction because the multinationals and the huge chain stores will not have any great sympathy for the ordinary housewife going in with her shopping basket.

It has come to my attention that even some VAT inspectors now question the audited accounts of those small shopkeepers who are forced to compete with those chain stores. They do not readily accept the low profit margins that these people have been forced down to. From that point of view, I would make a special plea to the Minister that the imposition of VAT at wholesale or manufacturing level would eliminate a vast amount of paper work that the Revenue Commissioners have inflicted on the ordinary Irish family concerns.

I am glad the Minister has recognised the great need for reform in our tax structure. I am glad and I accept that it is his intention to continue on in that line. I welcome the decision that the income tax and VAT structures be simplified. I hope that this process of reform will continue over the lifetime of this Government. I accept the undertaking given by the Minister that there will be no increase in the overall real level of taxation. At least this gives considerable hope to many people who are tired of the burden at present.

There is still much to be achieved in regard to taxation which is too high. This applies especially to motor fuels as I have already mentioned. People have to motor long distances to work in order to stay in a job or to follow the work wherever it is. Marked tractor diesel, in a very significant way has added to and increased the cost of production on Irish farms at a time when the farm gate commodity prices are falling, when guaranteed prices for beef and grain are reduced somewhat this year. This area should be looked at, and I hope the Minister can give some relief there. The Minister's policies appear to be having very positive effects. The live register figures for the end of March show a significant improvement over the trend in the previous months. Interest rates have also been reduced, with further good news for thousands of building society mortgage holders in the papers today. The latest OECD report shows inflation rates for Ireland down to 6.2 per cent, which is lower than in the UK. The Minister may justifiably take credit for the success of his policies.

The Minister should extend the farm rescue package for a further two year period. It is not unreasonable to ask that at least the moneys which were originally voted for this scheme should be expended on the scheme. Since the scheme was launched there has been a considerable shrinkage in profit margins on Irish farms. It is more and more difficult for farmers, especially those who are in financial difficulties, to realise not their production targets but the financial targets which they have agreed with their lending institutions, with levies and quotas and price reductions on every commodity introduced by the EC Commission or, in the case of sugar, by the Sugar Company. There has also been a sizeable drop in the price of sheep compared with 1984 and cattle prices are not as firm as last year. These together make it impossible for farmers under pressure to attain their repayment target. Even if the worst comes to the worst, the price of land is down to a third of what it was obtaining some three or four years ago. The picture for those people who over-borrowed is not by any stretch of the imagination very good or promising. Therefore, the Minister and the Government should extend the farm rescue package for a further period to ensure that the considerable benefit that that scheme conferred on many people who through no immediate fault of their own found themselves in dire predicament can come right through the system. All concerned with the lending house in the Department of Agriculture can see that the scheme so far has proved of tremendous effect to a number of the people who have benefited from it.

Section 23 is a new initiative on the part of the Minister and is to be welcomed. It will make a great contribution not only to the building industry but to the ordinary housing stock. The Government are to be complimented on the many initiatives they have made in this area. Their scheme which affords a £5,000 grant to tenants of local authority houses who opt to provide their own private housing, plus the greatly enhanced first-time purchaser or a new house building grant, plus the mortgage interest scheme make it very worthwhile for young people who are tenants of local authority houses to tackle the task of providing their own private housing. This is very imaginative on the part of the Government and the Minister, bearing in mind that of all the OECD countries we have the highest percentage of home ownership. That appeals to the average Irish person who, no matter what his work in life, likes to own his own hearth, and a Government who endeavour to facilitate that will provide a great source of solace to many people.

Another matter to which I refer may not be appropriate to section 23. The Minister has provided considerable finance to carry out essential or urgent repairs to the Seanad Chamber and he might consider this an opportune time to consider providing alternative accommodation for the Seanad. I say that on two points. One is that there is need, having regard to the success of the committee system in the Oireachtas, for more appropriate committee rooms for the system in the Oireachtas; and the second point is that it would be ideal if the Seanad sat in a new green site so that in the event of their becoming an all-Ireland parliamentary tier there would be a separate and neutral place which could house them. The Seanad is and always has been a non-political institution and would be an ideal nucleus for——

An Leas-Chathaoirleach

Senator McDonald, much as I dislike interrupting you, would you get back to the Finance Bill, please?

I am still dealing with section 23, and I agree with the Minister for Finance that it will be greatly appreciated by a considerable number of people.

It will confer considerable benefit on people who are not able to find ready accommodation at present.

Senator Smith mentioned the proposed land tax. I hope the Government will introduce the Bill which they promised as early as possible. The people who first mooted a land tax now appear to have had second thoughts. Many people who welcomed it when it was mooted some months ago now appear to have different ideas. In the absence of a definite Bill it all falls into the realm of speculation. If the Government intend to propose changes in this area they should publish the Bill so that we can see exactly what is being proposed and consider its effect. I would like the Minister to consider two points when introducing such a taxation idea. There should be a waiver clause so that people who have not an income to meet the demand would have an escape route, and the entire system should recognise the basic exemption limits for a single person or a married couple. This is important, considering the Minister's very generous increased allowances this year for married people over 70 or 75 years of age. He has increased the general exemption limit to £7,000. If that principle was applied to elderly farmers, the vast majority of whom occupy holdings of between 30 to 45 acres and in the main do not command incomes in excess of £7,000, people would accept the Government's proposals. It is time we had the Bill.

I should like to compliment the Minister and the Government on their determined effort to tackle the problem of unemployment and youth unemployment. The Government have applied the youth employment levy imaginatively. It has given thousands of young people hope. It has in a small but dynamic way reintroduced many thousands of people who were unemployed last year into the private sector. It has given people an opportunity of providing for themselves as self-employed and of accepting a challenge to go it alone. People who were unemployed last year and who availed of the incentive schemes have surprised themselves. It is good to see the administration testing out new schemes, encouraging people to provide for themselves and giving them the minimum security to fall back on. People who are either self-employed or who are in employment are inclined to categorise those who are unemployed as happy to be unemployed. This is very sad and very wrong. The vast majority of people when they are working do their best and tackle the job in hand. Many people who lose employment opportunities through no fault of their own prefer to be occupied and get satisfaction and contentment from work. The schemes introduced by the Minister for Labour, Deputy Quinn, and the Minister of State at the Department of Labour, Deputy Birmingham, are very effective, and I commend also the work on the earlier schemes by the Minister for the Environment, Deputy Kavanagh, and the Minister of State, Deputy Fergus O'Brien, when they were in the Department of Labour. I hope that these schemes will go from success to success. My experience in my county is that these schemes are successful and have given people opportunities they otherwise would not have been able to experience.

The budget this year gives hope of revamping the tourist industry. The reduced rates of VAT on newsprint met a long time need and recognised a problem that had been gaining momentum over a long number of years. The newspaper industry might well say, "Better late than never". If the Minister in his reforms can meet each of the problems and individual areas where the imposition of levies or VAT is having an adverse effect and impinging on the fair trading ability of the individual industries, he should react as rapidly as possible to ensure that equity and equal opportunities exist.

The Finance Bill is essentially a Committee Stage Bill and I look forward to asking the Minister specific questions on the various sections. Many matters in some of the sections have not been aired over the years and escape without any discussion at all. I look forward to a very detailed debate on Committee Stage.

I compliment the Minister on tackling the problem of reforming our taxation system and demonstrating to the public that he has the capacity and the willingness to make our taxation system more equitable to the public and also to ensure that it will be seen as such.

The Finance Bill is the most important Bill that comes before this House or the Dáil because it distributes finances to health, social welfare, local government and so on and for that reason it must be treated as vital legislation. I should like to comment on the areas of unemployment and taxation. Confidence in the business community is lacking in the young people of whom 50,000 are in third level institutions, many because they cannot get jobs. Rather than be on the dole they are, correctly, in third level institutions improving their lot.

Other countries have had recessions and have come out of them but the recession is still with us. The claims by the Taoiseach and Ministers over the past 18 months that we have come through the worst of the recession are not correct and I have not found them proven. Such statements are not credible. We are still in the middle of a very serious recession: unemployment figures are rising, emigration is increasing and businesses of one kind or another are going to the wall. Economists have proved that not alone are we not out of the recession, or nearing an end to it, but things have worsened. A Coalition State board appointee urged that the IMF be called in because the Government had given up, as it were, on public finance. There is no reason to believe that economic matters are improving as we have been given to understand, and economists generally are saying that the opposite is the case. At present 18 per cent of our labour force are unemployed. All over the country major industries are closing down; we have financial collapses, emigration is continuing on a large scale and there is nothing in this Finance Bill which will create employment. The two most worrying features of life for many people are the lack of employment and taxation.

When we talk about unemployment the best barometer for the economy is the construction industry. Unfortunately, the position regarding the construction industry is at an all time low at present. We had a debate in this House some time ago regarding this matter and many interesting points emerged. Despite the fact that confidence was expressed by both the Minister of State and the Minister, nobody believes that the enthusiasm and confidence by them on those occasions were justified.

The building industry is at an all time low as is the economy generally. There is gloom and doom throughout the country. Builders large and small are going out of business weekly. A secret ambition of Coalition Governments seems to be deliberately to rock the confidence of the building industry. We have proved over the years that when Fianna Fáil come back to office that industry thrives. In the budget the biggest kick in the teeth for an ailing industry was the increase in VAT on readymix from 5 per cent to 10 per cent. That surely came at the worst possible time for the industry. All of the Government impositions, such as planning charges, levies, service charges, ESB connections, etc., have added to the problems of the building industry. I know of one development of roughly £200,000 where the charges sought were in the region of £50,000. That is enough to put anybody off development of any kind. It is killing the ambition of any entrepreneur who might wish to carry out a project.

Athlone is an example of a typical town in Ireland and the lack of confidence in the building industry there is appalling. In the Athlone area we have approximately nine or ten general builders, practically all of whom report nil activity. Three of them have gone into liquidation. Four or five who deal exclusively with house building, and smaller concerns doing repairs, extensions, etc. all report nil activity. In 1983 a builder in Athlone had eight employees and 28 sales; this year he has three employees and two sales. Another firm in 1982 to 1983 sold 120 or 130 houses; 1985 sees them with ten inquiries. A firm of architects in 1982 employed 15 people and now employ only five people. The same is true of other people engaged in the industry generally. Therefore, to imply even marginal improvement in that area is incorrect. The building industry, one of our biggest employers, is going to the wall at a very fast rate.

The Government's taxation policies are a real disincentive to the creation of jobs. Something must be done to create an incentive. The employer's rate of PRSI is far too high. It seems wrong that an employer must pay the same rate of PRSI whether he employes two people or 200 people. In fairness, surely the person with 200 employees should get preferential treatment. Some reduction in PRSI for the employer of a large staff would be welcome and would prove beneficial to the Government in terms of finance back.

The income tax provisions in the budget have made no significant change in the tax burden on any group except perhaps those in the very top bracket. Many people told me that after 6 April their take-home pay — the bottom line as far as they are concerned — was even worse. The Minister today made the point that he had said repeatedly in recent months that we could not reduce taxation until our budget situation improved. This must be seen as in total contrast with his statement of 11 April which, accompanying the publication of the Finance Bill, made the point that the provisions incorporated in this Bill were a big step forward towards a demonstrably more efficient system of fair taxation. I know from experience that the changes in the income tax code, despite what has been suggested by the Minister, are doing very little, having only a marginal effect. Many of the changes here will go unnoticed.

The Commission on Taxation in all of their reports to date have put forward a case for change. Today we have the fourth report of the commission. I would ask the Minister, will this report also be filed away for use at some future date? An excellent group of people prepare these reports and they must feel frustrated at this point. Previous reports may as well not have been written because there has been no input from these reports into the tax system. The report out today made the point that the land tax was misconceived. Perhaps the Minister would comment on that. What are the Government's views regarding the recommended local property tax? If one is to judge by the comments of the Tánaiste this morning many people would say that this is coming back. The Minister, as a result of what he said this morning, seems to me to indicate that it is a consideration for the future. I am sure the Minister will refer to it in his reply.

The Minister said that tax relief is to be allowed in certain circumstances where a person carrying on a trade or profession makes a donation to an Irish university for research. I would welcome that. It is important that people who can afford to involve themselves in research, whether it be for cancer, heart conditions, arthritis or any medical condition, should do so and be recognised for doing so. I congratulate the Minister on that. It is a welcome move that there is tax relief for this and any extension of that idea would be very welcome.

Doom and gloom have been the order of the day over the past 12 months. Many firms have closed down in that period. We have had debates in this and in the other House on the closure of two insurance companies, the PMPA and the Insurance Corporation of Ireland. Mindful of the fact that those two insurance companies are now owned by the Government, and mindful of the fact that they are the two largest loss-makers in the general insurance industry, what provision, if any, has been made for the losses? Is it the taxpayer who will take up the losses? We have been promised that there would be no increase in the insurance levy and this must be repeated at every opportunity. In the knowledge that these are almost certainly going to create further losses in the future, where is there money provided for these losses? The taxpayer should not be asked to carry the burden.

The Minister referred to section 68 of the Bill which makes statutory provision in respect of the requirement announced in the national plan that contributions be made by Bord Telecom to the Exchequer over the next three years. The section also provides that full compensation will be given to Bord Telecom over a period in respect of these payments through purchase of shares by the Minister for Finance to support capital works. I think this is an unfair situation. The financial demands on Telecom Éireann, as they have been described by the general secretary of the Irish Post Office Engineering Union recently, are a rip-off. The secretary of the union has given a warning to the Government that it could lead to legal action, or the union could decide on other action which might be in the nature of a strike. It is wrong that that demand should be there over the head of a new company. Why destroy this industry? If this policy of the Government is allowed to continue, the company could become a lame duck, totally unable to show any profit and the fault would lie fairly and squarely with the Government.

We could spend a long time on the Finance Bill and on the various sections some of which are welcome, others which are not, but at the end of the day there is nothing in the Finance Bill to boost the morale of the people. There is no basis for ministerial assertions of confidence in the economy. The opposite is the case; the situation is one of depression, one of despair. These are obvious aspects of our way of life at present. There is no public confidence in the present monetarist policies of the Government, which they seem very anxious to pursue and which are not at all helpful to anybody, to young people or business people. After two and a half years of Coalition Government we have an economy that is very much in tatters. Our taxation policies are stifling public and personal initiative. They are certainly killing any entrepreneurial enterprise. No new jobs have been created. Quite the opposite is the case. We have become totally uncompetitive. Generally, the morale and confidence of the people have been severely damaged. I would hope that the Government would, over the next year or two, endeavour to rectify this so that we can get on with the important business of creating jobs, establishing a fair taxation system and creating the confidence and high morale which are missing at present in the people.

The Bill which gives statutory effect to the budget recognises the realities confronting us. It recognises those realities in precisely the same way that the Leader of the Opposition, Deputy Charles Haughey, recognised when he made what I consider to be probably his finest speech on national television, when he addressed the nation and outlined in great detail the major economic and social problems facing us in the eighties. He said then, and I think he is still right now, that (a) we must "cop ourselves on" and stop pretending that Government can in fact achieve far greater changes in society than society will allow. We must cut the cloth according to our measure. There are no magic formulae for jobs or for services unless people are prepared to pay for both. Will Deputy Haughey recognise that?

Many people in this country felt that we were going to see a different sort of politics, politics that would recognise that the era of promises, free lunches, things for nothing would be truly dead and gone, in other words, that the Republic was coming of age. I have no doubt that if you could change the Government tomorrow, the problems would remain precisely the same because the backdrop to the problems that we face is a recession which has deepened considerably since 1980 and shows little signs of abating. It is a backdrop of massive unemployment, especially among young people, not just in this country — which is a small, open, mixed economy — but across the most powerful economies in Europe. Britain is in almost internal decline as regards industrial production and jobs; Germany has massive unemployment. France, America and countries all over the world face the same problems as Ireland. Because of our size we should be able to cope perhaps a little better and more efficiently than we have done and for that we can condemn all Governments. More could have been done with a little more imagination on the part of all.

The problem is that we keep trotting out views that no longer have any basis in fact. Senator Fallon mentioned the construction industry. There is a belief abroad the Fianna Fáil are the friends and benefactors of the construction industry, and that if they were in office then suddenly, overnight, there would be a boom in building.

That has happened.

That is true. It has happened in the past. That was before we began to put IDA advance factories in every parish in Ireland. They are there now. Is there a suggestion that we build another empty factory next door to the one for which we are seeking a tenant? The office blocks, as we know, which went up in the sixties and seventies, now lie unoccupied, again because of the recession. Is the solution, therefore, to build more office blocks in the hope that we will rent those in the future? Factories, office blocks, trading up in terms of the domestic house market — these things are no longer on and we all recognise it but we, or at least some of the Opposition, keep on pretending that tomorrow we can start building factories and office blocks all over the place.

How about house building?

It is simply not true. And what is more, very intelligent people like Senator Fallon know it is not true. So it is time not to cod ourselves because we are beyond codding but let us not try to cod people out there that there is a panacea for all our ills. This is not addressing the problems that we all face, all parties, not just the Government. All of us as Irish men and Irish women have a problem. We cannot solve it by pretending that there is an easy solution if only we could change the people in the driving seat. The fact is that in 1985 75 per cent of all building activity is financed by the State. That is underpinning the so-called free enterprise, private enterprise.

Senator Fallon spoke about the entrepreneurs. Where the hell are they? They surely are not here because wherever they risk their money — in America, in foreign banks or in offshore companies — they do not invest it here.

They did.

They do not. Surely they did not burn all those pound notes. These patriotic nationals now have it invested employing people in foreign countries. Now we can blame the tax regime. Indeed, Senator Fallon referred to it and I think he was absolutely "spot on" in one of his remarks. The PRSI is a payroll tax and it showed very little imagination by this Government that they did not tackle this problem as Senator Fallon suggested, because it should be on a reducing basis to provide an incentive to an employer to keep people on. There is now an incentive to get rid of them and lots of companies, both big and small as we know, have to make a decision, a financial decision whether they are going to make a capital investment in a computer and get rid of two people in an office or whether, in fact, they will keep them on and not make that capital investment. The Government say: "Make that capital investment and save yourself substantial sums of money on both tax and PRSI". So, we must change that and I agree totally with Senator Fallon.

I think we should recognise the old chestnut about construction. We must stop talking about this because it is no panacea. That day is finished; it is gone and all you have to do today is walk into any building site and you find it is now one of the most automated industries in the country. You once had hundreds of chaps flying up and down ladders carrying bricks and blocks and other materials. That is gone. It is all done by conveyor belts, trucks and all sorts of things. The employment potential in construction is no longer there. We have recognised that these technological changes have occurred right across industry but Senator Fallon pretends matters have remained untouched in respect of building. It is not true. Therefore, even though Fianna Fáil may be the friend of the builders. I fear that even if they gave permission to build another lot of factories and office blocks, at a tremendous cost to the taxpayer, they would remain empty and that is the answer to nothing.

The Finance Bill, as I said, is presented against the backdrop of this very, very depressing and deepening recession. Now any Government, of whatever view, obviously want to be popular and they want to do things well so that people will like them and keep them in office, if that is possible. And no Government, be it Coalition or Fianna Fáil or whatever, ever introduce anything that upsets a large number of the electorate unless this is totally unavoidable. That is true of us all.

This Finance Bill tackles some of the problems, upsets many people, tries to help many people and between it all we still will not achieve what is in this particular section of the Minister's speech, when he says:

Any cuts in public expenditure, no matter how modest, meet with vigorous opposition, not least from persons and interest groups who find no difficulty in advocating reduced public expenditure as a matter of principle. As long as this inconsistent attitude prevails, it is extremely difficult to secure a consensus.

I think that about sums it up and Fianna Fáil will not arrive at any consensus on the problems they face. Then, to be fair, neither did the Labour Party or Fine Gael when they were in Opposition, because they pretended also that much more could have been done by the Government. That was all untrue as it now transpires, because the problems Fianna Fáil faced then, we are facing now and the solutions were no easier then than they are now. So, we are playing the same old game and I suppose we will never achieve a consensus.

We are not asking for national government: I do not believe in the concept myself, but what we do stress, and I think the acid test will come whenever there is a change of Government, probably the election after the next, some time in the early nineties, is that we should be problem-solvers not problem-makers because all we do at the moment is "hype up" people to pretend that we can do things that are beyond our control and that we cannot afford. The demands for better services, the demands for free this and free that, are prompted by equally vociferous demands to reduce the tax. There is a call for the expansion of employment in the public sector and at the same time there is an equally vociferous demand for a reduction in the public sector pay bill. Those things are contradictory. None of them can be affected without massive cost to the taxpayer and, as we know, the taxpayer is no longer prepared to pay the price — quite rightly, in my opinion. It is against that background that this legislation comes before us.

One of the tasks, obviously, is to try to create a financial climate which would help to get the employment moving again, try to get industrial activity moving again and the budget attempted that in numerous ways. One of the ways that it did not try to do it, and it is an omission that personally I am disappointed about relates to exports. We are an export-orientated nation; we have many people selling for us all over the world. It was instructive for me recently to meet somebody who was working for a very large company in this country who had spent the previous month in Nigeria and he had come back from Nigeria and was on his way to Venezuela selling agricultural products. Quite frankly, when he first spoke to me I thought it was a very romantic and exciting job, travelling all over the world. After an hour of conversation I discovered that there was not a lot of glamour in it because after you had met your Nigerian counterpart and — hopefully — sold your Irish produce, you then went back to your hotel room to look at television that you could not understand. You were there for two or three weeks. There is no glamour in that after the first trip; the rest of it is a burden.

I felt strongly then, and I said so to Minister Cluskey when he held that portfolio, that special arrangements should be madevis-a-vis tax for that sector, the salesmen of Ireland abroad. Special provisions should be made for them. If we want people to spend half their lives out of this country, away from their wives, away from their children we ought to pay. But we do not because my informant subsequently got no tax incentives to be out of this country in all sorts of places.

I have some experience of travel insofar as I spent some years in the Merchant Navy and I know how lonely it can be in the most exotic places in the world. I believe that we have not sufficiently recognised the key role of these people in our economy. No Government, including this one, have recognised that. I believe that it is something that ought to have been done. Obviously, I do not have the influence to get some of my ideas embodied in this Bill but I will keep on pushing and perhaps some day they may be accepted.

Incentives to employers as Senator Fallon said is another area to which the Government did not address themselves. I believe they should have. Obviously, there are problems there. Surely there must be some incentive to employers to keep people on rather than to get rid of them because they are costing too much in terms of PRSI and other taxes that they have to pay.

I want to mention the moneys expended by the State in all sorts of areas, especially industrial areas in grants, etc. The idea that the Minister, Deputy Bruton, brought up some time ago was the one-stop-shop where a prospective employer would go into an office and there he would meet agents of the IDA, CTT, Manpower, AnCO, so that the whole gamut of services available in this country to any employer, whether domestic or foreign, would be available under one roof. I suppose that tremendous sums of money are wasted by duplication right across our services sector, through AnCO and Manpower and so on. Perhaps we are getting to grips with that because now the chairman of both those organisations is the one person, which is probably the beginning of the pulling together of what, quite frankly, I think is the empire. The aim seems to be to see how many jobs you can get and how far you can spread your wings in terms of numbers in your own organisation. It seems that the status of the chief executives of these bodies grows in accordance with the number of people in his own organisation, not the number he puts to work in factories, shops and offices.

Unless we can rationalise that system I doubt if the taxpayer will get value for money and I think that Minister Bruton should certainly follow up that idea of making sure that whatever empire they are defending, or borders they are protecting, people should be able to go into a place where all of these State assistances that can be made available to an employer can be discovered and one can walk out knowing there is no agency available that you have missed. It is ridiculous for a small country like this to have all these bodies doling out money from the same source, the same old Seán Citizen taxpayer and that one must go to, perhaps, six or seven different agencies to find out what one can get. It is time we called a halt to that.

Senator Fallon also mentioned the State sector and he mentioned in particular the Insurance Corporation of Ireland and Irish Shipping. Somebody said it is better to be born lucky than rich. This has been an extremely unlucky Government in that sense. Both of those bodies have fallen on the Government's head, not by invitation — I hesitate to say by an act of God because I presume that God would be Fianna Fáil-orientated, as those things happen. It happened to us rather than to them. But, nonetheless, when they did happen they had to be faced and the facing up to the problem with Irish Shipping represented a very sad situation. However, at the end of the day the State had to make a very difficult decision and safeguard the people's money by allowing that company to go into liquidation. I would hope, in relation to Irish Shipping, that this Government would actively support the idea of starting again to put together the core of a new Irish merchant shipping fleet. It is something that all of us right across this House would wish and I sincerely hope that the idea now being mooted of a shipping cooperative run by both line management and workers in Irish Shipping would be adopted.

In relation to the Insurance Corporation, again that was an unfortunate incident and a very costly one for us. One would hope that because of the committees system which can now examine institutions like that, we will not see a repeat performance by which any company in the State sector would foolishly invest money which they do not own for benefits that will never accrue.

Finally, all of the problems which we have been talking about here on this Finance Bill are very real; they are very serious and all of us share the wish that we will resolve them as quickly as possible, especially in relation to youth unemployment. Governments change; the problems seldom do, unless we can at some stage be realistic and address them in a positive, open and honest way and I would hope that the Opposition — they are quite right in criticising various aspects of the Bill because there is much to criticise in it — would also see their duty as giving a lead in terms of optimism to the Irish people. As this is the task of Government, it is also the task of the Opposition, to give hope when there is no hope or where people believe that there is no hope, to buoy up the hopes of our young people rather than strike them down, because people read what you say in this House and if there is an advantage, electoral or otherwise in trying to convince people that there is no hope then in the long term all of us politicians will do a gross disservice to the people we try to serve.

First, I want to refer to jobs and the taxation system. We are all agreed that the most pressing economic and social problem facing the country is that of unemployment. Given the paramount importance of increasing employment it is unacceptable that so few incentives are actually provided to achieve this objective. The incentives that are offered encourage firms to invest in plant and machinery rather than in creating jobs. Under the present tax regime there is the obvious temptation for employers to invest in equipment; in other words, to substitute capital for labour, thereby adding to the dole queues. This situation has led to proposals from both the National Planning Board and the Commission on Taxation that our tax system should be at least neutral between employment costs and capital equipment costs. This Government have ignored the recommendations of both bodies. There is now a bias of two and a half to one in the tax system in favour of equipment against personnel costs. The Minister has not addressed this problem in the Finance Bill, despite the fact that unemployment is at a record level.

One element of the present tax system that is a particular scourge on labour intensive industries is PRSI. This is a tax on labour, a tax on existing jobs. How does the Minister justify the level of PRSI at present when the State is willing to pay out millions to create employment and further millions in expenditure on dole? PRSI is inequitable and has ceased to function as a form of social insurance. I am not suggesting the abolition of PRSI entirely as we now know it. I want to put to it to the Minister that there is a compelling case to reduce the employer's contribution to PRSI in those labour intensive industries which do not have export sales relief or the 10 per cent corporation tax that applies to manufacturing industry. Such a reduction would benefit highly labour intensive industries and would make a significant contribution to improving the fairness and efficiency of the taxation system. Furthermore, it would encourage employers to invest in job creation rather than in plant and machinery.

I now want to turn briefly to the whole question of taxation reform. One of the major planks on which the Coalition Government were elected was that of taxation reform. After two and a half years in office the Government's record in this respect is bad. The income tax changes and the structural changes in VAT contained in this Finance Bill are welcome but they are entirely inadequate in present circumstances. Tinkering with a tax band here or a section of business there is no answer to reform. Indeed, the VAT increase in respect of new private housebuilding is having dire consequences for that section of the construction industry. The tax changes in the Finance Bill, welcome as some of them are, are merelyad hoc changes and reflect once more a lack of any planned approach to the reform of the tax system. A typical response we hear from the Minister is that a transformation of the basic tax structure cannot be afforded because of the financial constraints on the Exchequer. This line of argument of course, assumes that the present tax system is not doing any harm. This is far from the case. The present tax system is harmful socially because it is divisive and it is worth remembering that in a democracy any Government is dependent on the goodwill of the taxpayer. The present tax structure is absorbing time, effort and money and at the same time has almost succeeded in killing enterprise and effort. As I have already said, the minor changes made by the Minister in this Finance Bill are not going to solve the inefficient and inequitable taxation structure. What is needed is a transformation of the basic tax structure and this the Government have failed to do.

I have stressed thead hoc approach to taxation changes adopted by the Government. This is clearly illustrated by the badly conceived income-related property tax. The Minister professes to be committed to a fair and efficient system but this property tax which he personally introduced flies in the face of equity and efficiency. This tax does not apply equally to all and it is computed on a definition of income which is obviously defective. The property tax is cumbersome and expensive and much administrative time and effort goes into collecting trivial amounts. The only rationale for this inequitable and inefficient tax is that it constitutes a sop to the Labour Party.

I said a moment ago that I would return to the question of VAT in the construction industry. I have already criticised the Minister for the lack of planning in his approach to tax changes. A further glaring example of thisad hoc approach is the increase in VAT from 5 to 10 per cent in respect of new private house building. The construction industry has been on its knees for some years now and, therefore, I, in common with many other people, find this further penalty of a 5 per cent increase in VAT inexplicable. In the past four years the output of the construction industry has actually fallen by over 30 per cent and has incurred a haemorrhage of job losses. In a little under four years some 24,000 building workers have lost their jobs. The national plan has held out very little hope of any significant improvement in the situation. It is apparent from the details of the plan that some 45,000 building workers will still be unemployed at the end of the three year period ending 1987. Private sector housing has declined by over 25 per cent in the past four years. According to Government spokesmen the fundamental cause of the problem has been the decline in private investment which fell by 50 per cent in the period 1981-84. There has been a dramatic fall in private investment. What these same Government spokesmen conveniently omit to point out is that Government measures have actively contributed towards the situation. These Government measures have included the following: the introduction of planning charges, the reduction in mortgage interest relief for house buyers, abolition of the residents' related tax incentive scheme and the introduction of the residential property tax.

Against this grim scenario the doubling to £2,000 of the housing grant for first time buyers and the deferment to 1 May of the increased VAT rate for new private housing contained in the Finance Bill are completely inadequate. The Minister has referred to the continuing support by the Government for the construction industry in the Public Capital Programme. The reality, however, is that over the past four years the Public Capital Programme has fallen in real terms, and that is what counts, by 25 per cent. I wish to acknowledge the wisdom of the Government in regard to retaining the mortgage interest relief albeit at a somewhat reduced level and I commend the introduction of the special £5,000 grant for local authority tenants wishing to purchase a house. What I cannot understand is that within a few short months the Government have undermined their very own projections in the national plan by increasing VAT from 5 to 10 per cent. As far as the Public Capital Programme is concerned the plan has reduced the impact of this expenditure by at least £45 million. Millions of pounds therefore which would otherwise be spent on new construction activities will be clawed back by the State in the form of tax.

The demand for new private housing will inevitably be reduced by the increase in VAT because housing is that much more expensive. Serious though this reduced demand will be the potentially more serious problem is on the supply side. It is evident that there will be further reductions in the supply of new houses in line with the trend of recent years. How then does the Government reconcile their strategy in the national plan to encourage people to purchase homes and thereby reduce Government expenditure on local authority housing with the policy which will lead to greater demand on local authority housing than was envisaged before the budget? If the supply of new private housing continues to fall and if, as a result of the increases in VAT, potential purchasers are unable to raise the resources to buy them, then it is inevitable that local authority house building will have to increase in response to growing housing waiting lists. I just wonder has the Minister or his advisers fully grasped the implication of this 5 per cent VAT increase on new private house building. As matters stand, future prospects in the construction industry are bleak. In present conditions under present Government policies it is difficult to see any growth in output or employment in the foreseeable future.

I now want to turn to section 13 of the Bill which refers to the venture capital scheme. The change provided in the Bill in relation to the start-up period of commencement of trading in the case of enterprises engaged in research and development activities is a welcome one. To date, however, the response to this scheme has been particularly disappointing primarily because the Minister has been over cautious in the regulations governing the scheme.

I wish to focus on one line of change that I hope the Minister will take on board. My concern is that everything possible should be done to encourage the small saver to invest in equity and, secondly, to facilitate the small company in acquiring equity to replace borrowing. These changes should be designed to ensure that the scheme is as attractive as possible, particularly to employees who are within the scope of the PAYE system and who may have a very limited amount of savings to invest. There are a number of specific suggestions I would like to put to the Minister for the improvement of the scheme. I hope a note will be taken of them in the Minister's absence. Investors in unquoted securities should be eligible for tax relief on their investments on providing documentary evidence that they have invested in a bona fide designated fund which is recognised under the Act. In order to obtain designation a designated fund should be required to accept investments in amounts starting with a minimum of £200, which is allowed for under the Act, and in multiples of £200 thereafter.

The granting of tax relief on investment in a designated fund is very important because otherwise small investors would have to wait until a designated fund invests in a qualifying company. The small investor may not be able to finance the waiting period and therefore might well be unable or unwilling to make the investment. To encourage investment by the small saver the procedures for the granting of the tax free allowance should be such that the allowance is given to the PAYE taxpayer by the issue of an amended certificate of tax free allowances as soon as possible after documentary evidence of the designated fund has been produced for the inspector of taxes. There is nothing radical about this suggestion. It is the system which operates in respect of other allowances such as mortgage relief. Furthermore, it is the same type of relief which applies in respect of life assurance policies where many small savers throughout the country invest, say £20 per month, which is then invested in a managed property fund. In the case of life assurance policies, the tax free allowances are issued immediately after the policy is taken out, thus adding to the attraction of that type of policy.

I realise the Minister has underlined today, in his opening speech, that if the tax relief became available once moneys were placed in a designated fund this would result in a delay of investment in productive activity since there would be no pressure on funds to select suitable projects. I recognise the possibility of abuse and in order to guard against it I suggest that designated funds should be required to invest moneys placed with them in qualifying companies within a specified, limited period of time and should be required to place any uninvested funds in interest-free deposits with the Central Bank. As a further safeguard, the Revenue Commissioners, with the agreement of the Department of Industry, Trade, Commerce and Tourism, might be given power to withdraw a licence for designation if they consider that a designated fund is not being operated in a bona fide manner. I suggest the safeguards I have outlined would be adequate to meet the anxiety of the Minister in respect of abuse.

Conscious again of the small investor, the period during which investments must be retained by the investor is perhaps too long for some investors. I suggest that investors should be allowed to cash their shareholdings from the designated fund after a minimum period of two years with, of course, any appropriate loss of tax relief. A designated fund should be permitted to buy back shares when requested by investors and to sell those shares to new investors. The managers of a designated fund should be required to provide evidence, at the end of each income tax year, of investments made and redeemed during that year.

I welcome this venture capital scheme, as I did last year. I feel that if it were appropriately amended it would provide a valuable opportunity to encourage small savers to invest in equity. Designated funds should be permitted to invest in equity to replace borrowing, provided all other conditions of the scheme are met. The reason for this is obvious, many Irish companies rely far too heavily on borrowing and are seriously under-capitalised. A stronger equity base which would be provided by attracting the small saver to invest in equity would enable many companies, which would be otherwise over-borrowed, to survive and to expand.

The final section I wish to refer to in this Second Stage contribution section 68, relates to Telecom Éireann. Telecom Éireann are the only Irish-owned company in the information technology industry in this country. All others are foreign-owned. There is an obligation on the Government to ensure that this company progress in accordance with their commercial mandate as set out in the Postal and Telecommunications Services Act, 1983. I have a particular interest in this case because I am a member of the Joint Committee on Commercial State-Sponsored Bodies and Telecom Éireann are one of the companies listed for examination by the committee. Only last week in a debate here in the Seanad, which expanded the terms of reference of that joint committee, I made a plea to all political parties that when in office they should appoint as directors to these State bodies only those with proven, relevant experience. Telecom Éireann have been particularly fortunate in having a brilliant businessman of international repute as their chairman. I refer of course to Michael Smurfit. It is a matter of the deepest regret that the chief executive, Tom Byrnes, a man of proven, outstanding managerial ability, has resigned from Telecom Éireann rather than implement the entirely unjustifiable requests of the Minister for Finance.

In a nutshell, the Minister has requested the company to make contributions to the Exchequer over the next three years, not provided for in the Act setting up the company and which the company just cannot afford because they will not have the financial resources to do so. The Minister has changed the rules under which the company were established and he has changed them to meet short term pressures. I refer, of course, to the fact that the contributions from this company will help to ease the current budget deficit. That is the logic, such as it is, behind this grossly premature request to Telecom Éireann to pay these sums over the next three years. I fail to see how the board of directors of the company — I am speaking now from years of experience on the Joint Committee on Commercial State-Sponsored Bodies — can agree to make these contributions and at the same time fulfil the responsibilities that have been placed on them as directors. Telecom Éireann need time to reach profitability but the Minister's proposals will prove a grave obstruction and will damage the longer term interests of the company. Some days ago the constitutionality of the Minister's action in respect of these contributions are actually raised in public. I hope particular note is made of this query and I will be looking forward to the Minister's reply to Second Stage. I regret that the Minister for Finance himself is not here for my contribution. My question is this: is the Minister satisfied that section 68(1) of the Finance Bill before us is in fact constitutional? I will reserve further comments for Committee Stage and I look forward to the Minister's reply to Second Stage.

I am not a Minister but I would like to reply to Senator Hillery regarding Telecom Éireann. Telecom Éireann have been asked to make a contribution over the next three years to the Department of Finance in return for the money that has been spent on Telecom Éireann. To my mind, Telecom Éireann can well afford to make that money available because they are collecting it from the people; they are collecting it through the very high charges they impose. I am sure they must be the highest in Europe when you consider that a three minute telephone call today costs £1.30. Ten years ago when we installed a telex machine the rental was £160 per year. We were told at that time that when a telex exchange would be available in Cork that would be reduced. However the telex exchange was installed in Cork and our telex bill is now £1,400 or £375 a quarter. That is because Telecom did not keep up to date with technology. Today there is a machine on the market, it has been on the market for three years in America, a machine known as Telefax. That machine is capable of transmitting an A4 in 28 seconds. To send that message by telefax today would cost 14p. On the telephone that would cost £1.30. Telecom Éireann collect that kind of money off people in telephone charges. We are only a small motor business and our telephone bill is running at the moment at something around £8,000 a year. The Minister cannot collect tax twice; he cannot collect tax off the business people if Telecom Éireann are already collecting it before him. It is only right, with the charges they have and the money they are receiving, that they should pay some of it back to the State for the amount of money that was invested in Telecom Éireann.

Senator Fallon also referred to this section. He was surprised at the section. One of the statements he made was that this country could not afford it because the economy was in tatters. I do not know how any man of Senator Fallon's calibre can talk about the economy being in tatters when he knows that our inflation is now lower than that of the UK. One of the things that I am very interested in, being in the motor business, is insurance. Senator Fallon is an insurance broker by profession. I would have thought he would speak about the cost of motor insurance. When a young person buys a car today he or she is faced with a premium of £1,000, even though the secondhand car being bought might only be £500. However, to go back to the Finance Bill, there is very little in it by way of joy or relief for the depressed motor industry and for the overburdened motorist. The depressed state of the motor industry can most vividly be illustrated by reference to the fact that new cars sales in Northern Ireland in both 1983 and 1984, despite the economic and political difficulties in that part of the country, with less than half our population, exceeded new car sales in the Republic. Effectively, the level of car sales in Northern Ireland last year was three times the level of car sales per head of population in the Republic. It was also in excess of the number of cars that were sold here. The number of cars sold here last year was 56,000 and in the North of Ireland it was in excess of that.

Successive Governments in piling tax after tax on motor cars have placed the purchase of a new motor car beyond the capacity of the majority of our citizens. It is surely reasonable for most families to be able to aspire to the purchase of a new car. A tax which effectively doubles the price of a car, as it leaves the distributor's premises, provides little incentive or opportunity for our people to realise that ambition. If in the Republic we enjoyed the same level of new car sales per head of the population as in Northern Ireland we would be selling about 150,000 a year. However, a more realistic level of sales would lie between 90,000 and 100,000 new cars. With that level of sales the Government could reduce the excise duty on cars from 23 per cent to 15 per cent and wind up with the same total revenue as they enjoy at present, but more people could realise their goal of purchasing a new car. The increased sales would help to stimulate greater employment in the motor trade. I would urge the Minister to take a long look at the effect which the tax burden has had on new car sales. We have here the classic example of killing the goose which lays the golden egg. I would also make the point that we should not get too far out of line with the rest of Europe in the taxation of motor cars as the European Commission has established a timetable for the harmonisation of duties which sees 1992 as the year when we will have common rates of excise duty. We should, therefore, soon commence a programme for the gradual reduction of excise duty of cars to a point which would, for example, bring us closer in line with the 10 per cent car tax on wholesale values which applies with our near neighbours in Great Britain.

I was very pleased to hear the Taoiseach say at the recent Irish Management Institute conference in Killarney that something would have to be done about the absurd limit of £3,500 which applies to the capital allowance in respect of the purchase of a business car. I will quote from what the Taoiseach said as reported inManagement Volume 32, No 5, May 1985. When a Kildare motor trader, a constitutent of the Minister for Finance, attended the conference he asked the Taoiseach about the capital allowances on cars. He received a significant answer from the Taoiseach when he asked him about the low capital allowances on cars . The Taoiseach said, and I quote:

I would not deny your description that the allowances are at an unrealistic level. The problem is that they have not been adjusted over the years and cumulatively it is now expensive to put them right. But we have to begin to look at this problem. There is no equity or justice in it as it stands. While I cannot say when this will take place, I recognise that a major problem exists that must be tackled.

It is nonsense that when the cheapest car for a company representative is at least £8,000 a company should be restricted to a total depreciation allowance of £3,500 in respect of that car. What is even a greater nonsense is that the effect of the restrictive capital allowance is to put many companies in the position of having to pay a corporation tax on a large part of their motoring expenses. If a company buy a car with a retail price of £10,500 for a company representative or executive and the cost involved in running that car for the business to cover petrol, repairs, tax and insurance amounts in the year to £3,000 the company will have to write back into their profits two-thirds of the motoring expenses, that is £2,000 and pay corporation tax on these expenses. One might as well argue that a similar proportion of all business expenses, such as electricity, postage, advertising, rent, rates and the like should be written back and corporation tax paid on them.

If the public servants who recommended this restriction were themselves obliged to pay income tax on a large proportion of the generous motoring expenses which they claim I dare say we would have greater pressure for the situation to be remedied. This restriction in respect of allowable motoring expenses can produce the ridiculous situation in which companies who are operating at a loss can find that the loss becomes a surplus when disallowed motoring expenses are added back requiring the companies to pay corporation tax despite their trading losses.

One of the other factors which has contributed to the sharp decline in the demand for new cars is the operation of the penal levels of benefit-in-kind taxation and the private use of a company car. Many company executives and representatives whose new car would have been replaced in the normal course of events every two or three years are refusing to have their cars replaced because there would be a large increase in the amount of income tax which they would have to pay as a result. Nobody objects to benefit-in-kind taxation in principle but there is a very good case to be made for setting it at more reasonable levels in view of the high burden of personal taxation which already applies in Ireland and in view of the necessity to provide some incentives for our talented young people in the professions to remain here rather than seek more rewarding livelihoods abroad. On the repairs side of the business, the motor trade lost business while sticking to the Government's decision to rationalise the rates of VAT to three.

Last year I paid tribute to the Minister for recognising the merit of the case submitted to him by the Society of the Irish Motor Industry for reducing VAT on vehicle repairs and servicing to 5 per cent, giving the legitimate VAT registered garage employing labour a clear advantage over those operating in the "nixer" or black economy. The Minister warned at the time that he could not give any guarantee that the 5 per cent rate would remain if the Government decided to accept the recommendations of the Commission on Taxation for a rationalisation of VAT rates. The motor trade is very indignant that it was given so little time to enjoy the benefits of the 5 per cent rate. The trade was beginning to win back customers from the black economy but the doubling of the VAT rate represented a serious setback to their efforts.

Deputy Ivan Yates who is chairman of the Oireachtas Joint Committee on Small Businesses made a very effective case in the Dáil on the Finance Bill regarding an examination of the rate of VAT which applies to services which have a labour content. He stated that a sad fact of life is that VAT registered businesses who obey the VAT laws are put in a most uncompetitive position. It is very regrettable that the commendable efforts to rationalise the VAT rates should penalise the very sectors which we should be endeavouring to assist and promote, namely, those which are labour intensive.

One of the reasons that the motor industry was so upset about the decision to increase the 5 per cent rate on garage repairs and servicing to 10 per cent was that the industry had agreed to pay for the reduction to 5 per cent by an increase in the excise duty on cars. Car dealers had also agreed to cut their margin in order to avoid an increase in the retail price of cars at the time. Consequently, the industry feels that it has paid far too much for the very short duration of the 5 per cent VAT on repairs. On the more positive side, I am aware that the Minister endeavoured to meet this point by agreeing to a further reduction from 25 per cent to 10 per cent in the excise duty on spare parts, another of the taxation impositions on motorists which is unique to this country. I accept that the reduction in the excise duty on spare parts if implemented in full immediately would offset to a large extent the additional duty which the Minister will obtain from increasing the 5 per cent on repairs to 10 per cent. As the Minister was not prepared to give rebates of duty in respect of stocks of spare parts in the hands of distributors and dealers the duty reduction is being phased in between 1 June and 1 February 1985. Consequently, the Minister will not be giving the motor industry full measure. I want the Minister to compensate for this by agreeing to phase out this duty completely rather than reduce it to 10 per cent as he envisaged.

The Minister knows that this excise duty on spare parts, which is unique to Ireland among the countries of the EC, has no long term place in the EC scheme of excise duties. Sooner or later the duty will have to be eliminated. I propose thtat the Minister should do this now. The cost phased over the next eight months would be relatively insignificant. It would have the spin-off effect of helping to eliminate the differences in the prices of spare parts and would also help to eliminate trading and smuggling from Northern Ireland. It would also help to reduce the amount of time involved for the customs' authorities in administering the collection of the duty. I am sure there would be considerable cost savings in this area.

One of the big problems about motor parts coming from the North of Ireland is not alone the parts which are smuggled in but the parts which are brought in by people who now can import from any country in the EC up to £100 worth of goods and any one item not costing more than £55. If they buy the parts in the North of Ireland and save the excise duty — and there is a lower rate of VAT of 15 per cent in the North of Ireland — even people legally bringing in car parts and tyres can still benefit. I strongly recommend to the Minister that he should phase out this excise duty altogether.

What he will lose in the 10 per cent he will gain in the fact that we have not asked him to implement this immediately but to do so over 12 months. I know that the Minister is prepared to implement the 15 per cent immediately but an unfortunate motor trader around Ireland could have £100,000 worth of spare parts. I know of one company alone who hold £1 million worth of spare parts. That company would find themselves in the position that they would lose a lot of money as a result of their stock being changed.

Finally, I would like to refer to the decision to increase the excise duty on petrol by 10 pence a gallon. I dealt with this issue during the course of the Seanad debate and the Joint Committee's report on small businesses dealing with distribution and services. During that debate I was able to illustrate how petrol sales in the Border counties had declined so dramatically over the last few years as more and more motorists in the Republic made the journey across the Border to fill up their tanks at the expense of filling stations on this side of the Border and at the expense of the Minister for Finance who has lost considerable sums in excise duty and VAT. We used to think that the demand for petrol was inelastic. It may be relatively inelastic in the Thirty-two Counties as a whole, but the startling fact is that the demand for petrol in the Twenty-six Counties has declined by virtually 15 per cent in the last three years. The major explanation is obvious — slippage across the Border. This is the same slippage which prompted the Minister to cut the excise duties on television sets in half and to reduce the high rate of VAT on electrical goods from 35 per cent to 23 per cent. I ask the Minister to recognise that the same problem prevails in relation to petrol and that we cannot afford the tremendous straying away of business from the Border counties.

Excise duty on petrol went up from 85.7 pence early in 1982 to 108.1 pence in 1984. That was an increase of 26 per cent. The total yield from excise duty in the same period rose by only 16 per cent. In real terms we dropped in percentage in our yield from petrol sales. I do not think any industry can afford a situation where increases in duties have such a dramatic dampening down effect on demand. I urge the Minister to review the whole approach to the taxation of motor fuel. Apart from other considerations it must be remembered that a large amount of petrol is used for legitimate purposes. Sharp increases in the taxation of petrol must be reflected in higher overall operating costs for business.

I would like to refer to the MOT testing in Ireland. It may be argued that it is not the Minister's responsibility, but we now have free importation of cars from the UK, Northern Ireland and Europe. There is free importation from any country since 1 January. They have compulsory testing in England. Cars are tested every three years but cars over five years old that do not pass the test are scrapped and put off the road. A lot of these "bangers" are available for sale at scrap prices in Northern Ireland and the UK. If we do not do something about compelling people who are importing cars over a certain age to have a MOT certificate we will be increasing the number of "bangers" on our roads. There are enough "bangers" on our roads without importing them. It is criminal to have these cars on the roads. We are helping them to do that if we do not do something about MOT testing.

Reference was made by Senator Lanigan to cracks in the ceiling. The point was taken up by Senator McDonald. It would be true to say that there are more cracks in this House than in the ceiling.

Senator Daly is bringing to the notice of the Minister of State the cracks in the ceiling. It might be more appropriate if he brought to the notice of the Minister the cracks in the Finance Bill. It is proposed to have the ceiling repaired during the summer recess.

I should like to refer to what Senator Daly had to say with regard to the motor trade. In today's papers we see that cars can be bought £1,000 cheaper abroad, even by paying for the cost of importation, than they can be bought here. I wonder if the multinationals who control the motor trade charge our motor importers a higher rate than they should for cars imported into this country. It should be looked into.

On a point of order, Senator Ellis is referring to the report on the radio this morning by the consumers' association. That was incorrect. They quoted a difference of between £500 and £1,000 for cars that are bought in Belgium. Anybody in this country can get £1,000 off the list price. They are charging £5 for a booklet and I would ask Senator Ellis not to encourage people to buy it.

An Leas-Chathaoirleach

I appreciate the point made by Senator Daly but we are discussing the Finance Bill.

The fact is that the Finance Bill deals with revenue. As far as I am concerned, £1,000 is going either to the revenue here or going to the motor importers which should be going to the person buying the car. Senator Daly made a case for the motor distributors. If he follows that to its logical conclusion he will see that what is suggested in today's papers is 99 per cent correct. Companies in this country are importing new cars which are being bought on the Continent and are selling at £1,000 — and in some cases £2,000 or £3,000 — less than they can be bought from the main distributors.

Getting back to the motor trade, tax on fuel is crippling. I live close to the Border and I agree with what Senator Daly has to say with regard to the loss of revenue to the State. People are going to Northern Ireland to buy fuel and do their shopping. It is sad that this is the position. We should highlight that in this House. It is irrelevant that we are now debating the 1985 Finance Bill at the end of May. Many of the provisions of this Bill have been implemented since budget day. I am beginning to wonder if there is something that could be done to see that legislation such as this is brought into this House much more quickly than at present. The Finance Bill seems to take anything up to three or four months before it is brought into this House or the other House to be discussed. With all the reforms proposed with regard to procedures, I would hope that the Finance Bill would come up for immediate discussion after the budget debate has concluded rather than having a delay of three or four months.

We should study all the implications of the Finance Bill from the point of view of the country and the people. The Finance Bill is a total failure as far as this country is concerned. It provides the necessary finance to implement the Government's economic policies. What it is doing is presiding over an increase in unemployment and a reduction in the living standards of people. The net result is that it is helping to bring about the worst evil that this country faces, which is unemployment. It is making a direct contribution to further emigration from this country in the future. It does not do anything for the people.

Various Governments down the years have spent massive sums of money producing well-educated young people in this country. Now the people we have educated are going to benefit the economy of the USA or Britain. It is regrettable that Government policy at the moment is such that it is not giving the necessary incentive to employers to employ people here or to come and invest in this country. The situation is that we now find ourselves as one of the places in the world with which people do not want to do business because of the failure of the Government to bring about definite policies with regard to taxation and the development of our economy. We see the changes that are proposed with regard to taxation. They are the worst cosmetic exercises ever seen.

We have seen certain changes in the rates of tax bands and changes in the rates payable by PAYE workers. The PAYE workers are going to find that they will be much worse off financially at the end of this year than they were under the old tax bands. Many of them will find that there will be a further erosion in the living standards which they had come to expect and which they are entitled to have. We have prided ourselves for many years with regard to the improvements in living standards. Now we are seeing those living standards eroded by the taxation policy. When one looks at the alterations in section 2 of this Bill one will see that we are doing nothing to help the PAYE worker.

This Government came to power telling us how they were going to improve the economy of the country by improving the finances. We have seen no improvement in the finances of the country. We have seen a major decline as far as the national debt is concerned. For many years we have had it bandied around that Fianna Fáil as a Government had borrowed too much money but now we have reached the situation where the borrowing of Fianna Fáil Governments for productive purposes was very small in comparison with the borrowings of the present Government. In their two-and-a-half years in office we have seen an increase of over 60 per cent in the national debt. Yet we were told that this Government was coming to power to balance the finances of the country and to put our economy on the right road. We have policies at present which will ensure that we are on the right road to selfdestruction brought by Government policy with regard to borrowing, taxation and employment. At present we are not borrowing money to produce capital to give us better infrastructure or to be invested in the country for the future. We are borrowing to pay the day-to-day costs of social welfare and of running the State. In my opinion if one borrows to pay social welfare one is doing nothing but committing economic suicide. If there is any hope for the economy it is with people in productive work. A Government which say that certain levels of social welfare and certain levels of unemployment are acceptable is not productive. It puzzles me that one of the partners in that Government can now suffer the changes and the increased unemployment that has taken place.

I would ask the Labour Party to go back and examine their conscience, not in a stage-managed affair like we had recently with regard to the Labour Party conference, and to go back and see if they are representing the people who elected them. I ask those Labour Party TDs who support this Government and theirBuilding on Reality document which is their flagship at present to examine it and see what it will do to the PAYE sector.

Government borrowing is at an all-time high. If you look at Government borrowing to date this year you will see that so far this year they have borrowed £800 million. That is very close to the total borrowing of the last Fianna Fáil Government for the last full year in office. This Government has borrowed that in the first five months of this year. How can they justify this level of borrowing when they told us that they were coming to office to put the finances of the country in order? At present the national debt is £19 billion. How can we sustain that national debt? We will soon find that nobody will lend us money for any purpose. The national debt, which has risen by 60 per cent in the last two-and-a-half years, is becoming a millstone which is preventing the Government and any future Government from reflating the economy. It is preventing employers from employing people and will mean a decline in our living standards and a decline in the standard of service provided by the State and other institutions in the future.

The Finance Bill will not do anything to increase employment. It will do nothing for the thousands of young people unemployed at present. It will do nothing for the middle-aged people who have been made redundant and now despair of ever being able to work again. What hope for the future is this Government giving those people? What hope are they giving to the people who in the next month will sit examinations in second and third level institutions? What hope can we offer those people with regard to making a future for themselves? All we can offer is a 747 plane to New York or a plane to London or some other European country. It is sad, but nothing is being done. The Government have a responsibility to those young people to provide them with employment, and the Finance Bill is one of the main ways of providing the necessary finance. The type of Mickey Mouse schemes we have at present are not what we require. We have Mickey Mouse schemes under AnCO, youth employment and various subsidy schemes. The new two-and-a-half day week scheme which is being implemented is one of the greatest farces the country has ever seen. It will not serve the purpose of providing people with full-time, permanent employment which should be the aim of the Government. The Government should realise their commitment and social responsibility to this nation. If they are not prepared to do this they should throw in the towel and hand it back to Fianna Fáil, who will at least tackle the problem of unemployment, the national debt and the day-to-day borrowing of the country which is at a record level never seen in the history of the State.

We saw the Government's commitment to employment this week with regard to the Hyster project for Limerick. A Government prepared to allow an investment such as this to leave this country for £1 million should examine their conscience. They should put the full facts before the people and not the sort of media-managed propaganda we saw this week to try to cover up their incompetence as a Government when it came to providing the necessary backing to the IDA for a scheme which would benefit the country. As with many other things, the Government have botched the situation. Now 800 people have been deprived of a chance of gainful employment with that company.

The recent PR exercise of the Minister for Labour of touring the country telling people about all the money he had to spent on various schemes was a bad and wasted exercise. He is not in a position to create the jobs proposed by him. In fact, the number of jobs proposed could be absorbed in this city alone without ever looking at the other unemployment black spots of the country. It might have been more fitting if the money provided to the various Departments, which has been spent on PR by various Ministers to project their own image to the media and to the nation, had been spent on the creation of jobs for young people. It was sad to read in a national newspaper recently of the amount of money spent by Government Ministers from their various Departments on PR.

Deputy Seán Doherty spent a fair few pounds in his day.

Indeed, Senator Ferris is very worried that I should name his colleague, the Minister for Health and Social Welfare, who spent more than anyone else. In order to con the social welfare recipients he decided to spend the money from the health budget. I wonder how people who are awaiting hospital beds or operations will appreciate his PR when they come to deal with their own problems which have been delayed due to the Minister's spending of this money on PR.

An Leas-Chathaoirleach

I appreciate that a passing reference can be made to a Minister. Perhaps the Senator could get back on to the Finance Bill.

The money which was spent was provided through the Finance Act, which provides the money for the Minister's own Department. It is only fair that we should be in a position to comment on the way the money is being spent at present.

An Leas-Chathaoirleach

That would be a matter for the Appropriation Bill.

The Appropriation Bill, as far as the Government are concerned, will be debated on 20 June at the polls.

When we look at many of the other provisions in the Finance Bill it shows that the Government have no understanding of the needs of the people. Section 33 of the Bill deals with road tax. The Government increased the tax level on private motor cars. It is a tax level which is already too high. No longer is the family car a luxury, it is a necessary mode of conveyance, something that people need for getting to work and going about their business. Increasing taxation there will lead to a further loss of revenue because the number of untaxed cars will increase because people will not be able to pay the increase in road tax. We see other changes as well. There is also an increase in the rate of excise duty on petrol. With petrol at £3 odd a gallon, the Minister was foolish to implement such changes. I would also begin to count the wisdom of some of the Minister's other moves.

His decision to increase the rate of VAT on the building industry from 5 per cent to 10 per cent is going to act as a body blow to the housebuilding industry. It is going to put a home of their own well past the reach of many young couples. While the Minister might have tried to cushion the blow by changing and increasing the housing grants, he has not done anything to improve the situation of those trying to provide a home of their own. If he had increased the allowances with regard to mortgage claims and with regard to what is available as far as income tax claims for mortgage, he might have done something which would be of more benefit to the people who wish to provide their own homes. He has made a number of changes in VAT. Some reductions are welcome. There have been reductions in electrical and other goods from 35 to 23 per cent. But he closed the stable door long after the horse has gone, for many people are not in a position, due to their financial position, to buy those luxury goods. The amount of publicity which was given to cheaper goods of that line in Northern Ireland for the past two years, the number coming across the Border, will have done away with the consumer demand in that area for quite a long time to come.

The Minister also changed the betting tax. If he did he should have a further look at that, because his hopes of implementing the betting tax at present, while it may be at a much more lower level, are going to be frustrated in the future. When we look at a number of the other proposals, he may have missed some very lucrative ways of gaining tax. The VAT system at present is not fair and equitable in a number of sectors. In the entertainment sector VAT is not on an equal basis. This has been highlighted on a number of occasions in the past 12 or 18 months. The rate of VAT charged to artistes coming into the entertainment field from outside the country is nil. Yet that being charged to those within the State is 23 per cent. We have seen in recent weeks a lot of publicity with regard to a forthcoming rock concert at Slane Castle. How much will the State gain in revenue from that event? I would ask the Minister for Finance to let us know why he did not plug this loophole in the Finance Act which allows outside entertainers to come in and walk away without paying any VAT. I can see Senator Ferris beginning to wonder, but that is the position. While we may have VAT at the point of entry on other goods, this is something which should not be allowed, where people are allowed to come in here and take away large sums of money without paying the appropriate rate of VAT.

The changes proposed in the Finance Bill are not of any use to the finances of the country. They are going to do nothing to improve our financial standing. They are not going to do anything for the hard pressed PAYE workers. They are not going to do anything for the businessman, they are not going to encourage him to invest in this country. In fact, they are going to encourage him to take as much money out of the country as he possibly can as soon as he can. It is not meant as a Bill to encourage investment.

There are a number of minor changes with regard to venture capital. The Minister should have a further look at the changes which he proposes. He mentioned in his budget speech changes in the tax system in so far as land leasing was concerned. Those changes are welcome.

But how many people are going to benefit from them? The number will be very small.

Since that we have had an on-going discussion with regard to taxation on agriculture and with regard to the proposed land tax. We see from this morning's publication of the Fourth Report of the Committee on Taxation that they believe that this is a tax which cannot be implemented and which is not workable. I would hope that the Government would now see how wrong they are in their proposed taxation scheme. The taxation of farmers is not an equitable tax as proposed. If there is going to be farmer taxation, it should be brought in on an equitable scheme where people will pay their fair share. No farmer is objecting to paying his fair share of tax. But taxation based on a land tax is not of any use and will be totally detrimental to the development of agriculture.

I noticed also that in the Finance Bill and in the budget speech the Minister did not provide too much money or any great incentive for agriculture and I suppose anybody who looks at it will see that as far as agriculture is concerned this Government seem to have done the same thing as they have done on many occasions before with other sections of the community and other sections of the economy. They have thrown them to the wolves. The farmers are not going to be able, in my opinion, to contribute anything to the finances of this country after the recent price negotiations which were a total failure as far as the Government are concerned. The only thing the Minister succeeded in doing was trying to make up for the error of his own Department, but that will not be a lot of good to the grain farmers or to the beef producers or the sheep producers this year. They will lose money and lose very heavily, due to the fact that the Government are not prepared to do something for them.

I could go on and on with regard to this Bill and the way it is proposed to implement the tax changes, but I would, as I said at the start, sound a very loud note of warning to the PAYE section outside. Do not be conned by this Finance Bill, because by the time you get round to the second half of this year many of you will find that the Minister for Finance has subtly reduced your living standards and reduced your take home pay from 1985-86 without doing anything to improve the services being provided or without doing anything to help your fellow men who are now in receipt of unemployment benefit and who will not, in my opinion in the foreseeable future, have any hope of going in to gain full employment.

After that very spirited performance of my colleague, Senator Ellis, unfortunately, because of your ruling I cannot respond or have the pleasure of responding to some of his comments because, as you say, they are probably more appropriate to the Appropriation Bill. He has made a very good contribution for the electorate, but I cannot say that as a financial genius his contributions would make any sense to me.

I never professed to be a financial genius.

They are something along the lines of his party leader's contributions at the moment, where you promise everything and you deliver nothing because if you promise everything and cannot follow through on how they are to be paid for, well then you can deliver nothing. I suppose if we are realistic and look at the previous experiences we have had of Government run by Senator Ellis's Party for the greater part of the history of the State, we have had either promises or bad debts, and we have a lot of bad debts. Senator Ellis made a very interesting comment. He was extremely worried about the Labour Party members of the Government. I want to assure him that not alone are we here and present but we are very vigilant as regards the responsibility we have to ensure that the poorer sections of this community do not suffer from either this Government or from a Fianna Fáil Government. The promise made by his Government in the last general election and, indeed, by our partners in Government, was that the current deficit would be in the region of £700 to £800 million.

I want to assure Senator Ellis that if that type of current budget deficit was allowed there would be double the unemployment figures to this day. Admittedly, in your last period of office the unemployment figures went up by 40,000, you had a majority of 20 people in the other House and you did nothing about it, nothing except you borrowed, and I will tell you what you borrowed because it is appropriate in the Finance Bill when we are talking about foreign interest payments. In 1981 the foreign interest payments were £250 million and in 1985 they are £800 million, and do you know why? Because interest payments on this Government's debts now represent 19 per cent of all Government expenditure and interest payments absorb 32 per cent of tax revenue, and we do that simply because the foreign loans now merely pay the interest on the debts that were already incurred by Senator Ellis's party.

On a point of order——

An Leas-Chathaoirleach

Sorry, Senator Ferris. Senator Ellis, I do hope it is a point of order before you commence.

I believe that the points now being raised by Senator Ferris are not relevant. I was ruled out of order when raising similar points by your predecessor in the Chair and told I was deviating from the Finance Bill but I am glad that Senator Ferris now remembers the fact that the borrowings of his Government since 1982 are such as to mean that we are paying more in interest outside the State.

An Leas-Chathaoirleach

I think that Senator Ferris's figures are relevant.

I should like to thank the Chair. I am sorry about that, Senator Ellis. I will be very brief as I want to deal with the Finance Bill but I would like to deal, budgetarily speaking, with the comments Senator Ellis made. I accept his figures as being legitimate and I quoted the exact figures, unlike him who quoted ones off the top of his head. Listen now for a moment, Senator Ellis, and I will tell you that most of these borrowings which I talk about which you are now paying the interest on were incurred by the previous Government from 1977-81——

Rubbish.

——and that is a fact. I will tell the Senator who said it was rubbish that he can get the figures from the Central Statistics Office, from the Minister for Finance's office where all the borrowings incurred in that period now have to be paid for. And as I say, the tragedy for the PAYE worker, who is the greatest taxpayer, is now paying almost 70 pence in every pound to pay for the mistakes of previous administrations. However, we are in Government now and we accept the responsibility. Not alone do we accept the responsibility but the amazing thing about this situation is that in spite of one of the most difficult internal and external budgetary situations which are governed not alone by internal movements but external movements in bank interest rates, the rate of the dollar, the value of international currency, the Government ensured that the people who concern us most — in fairness to Senator Ellis he has dealt with them — the unemployed, people on small incomes, the people who have no work and the people who do not have prospects of jobs, are remembered. There are many young people in the public gallery and they know what I say is true, that those people expect Governments to perform in the area of job creation. They expect us to stop the political bickering, but if one starts it, it is appropriate that the record would be straight.

Now the Government are faced with trying to turn around an economy which was on a downward slope, and whereas this Finance Bill refers to a budget which, admittedly, had various votes on budget night to decide on increased levels of excise duty and otherwise, its effects can only be put into operation legally by bringing in legislation like the Finance Bill which takes some time to prepare because all legislation supersedes previous legislation and for that reason the unacceptable delay to Senator Ellis of three months between the budget and the publication of the Bill is a quirk of the legislature that we are all part of. I might share his concern in that, and possibly the votes on budget night should be the end of the story, because people eagerly look forward to budget day for either the good news or holding their own, so to speak, and sometimes the bad news.

I think, generally speaking, this year apart from people who perpetually knock everything and are not constructive about anything, at least some attempt was made in this budget to bring some order into the extraordinary different levels of taxation and VAT levels in this country. Surely if we are trying to bring order into that kind of chaotic financial situation, and all Governments of all creeds have contributed towards it and the reduction in the levels of VAT rates to three, that is the zero rate, the 10 per cent and the 23 per cent is at least a gesture towards what the Commission on Taxation came up with before. Now the commission in their wisdom sat down and said we should have one level of VAT and that that would be very simple and everybody would know what it is about. That is all right if you consider that all items should then be taxed by VAT but there are many essential items which are not subjected to VAT at all and it would be unacceptable to me as a representative of the Labour Party to feel that items of absolute necessity to poorer people should now for the sake of simplification be subject to a flat rate of VAT. That is unacceptable and the Minister is correct in saying that, although it would be desirable, it would be almost impossible to implement because there would be chaos in the lower ranks of people who are totally dependent at times on the Government for their subsistence and their salvation, whether by way of social welfare, by way of pensions, unemployment, disability, disabled persons' maintenance allowance, free travel and all the other things that our older and sick people are entitled to because of their service to the State over a long number of years while they were fit and capable of employment. Indeed, I might remind Senators they also made a contribution during their working life to the finances of the State.

In fairness to this Government — and they do not have a lot of things said in their defence — many people are reluctant to be positive about anything they say nowadays — we are going into a malaise where it becomes the norm to knock everybody and anybody. Politicians knock the media and the media knock the politicians and politicians and Church leaders apparently seem to have differences and then when you listen to both of them they have no differences. It is a malaise that we are going into and the only reason I mention it is that we should realise that as a Government and as a nation, as part of the European Community, and one of the lesser members of the Community, lesser in wealth and in job creation programmes, that, in spite of that, as part of a Community of 13½ million unemployed, our percentage of unemployed is not quite as high. To us it is unacceptably high but if you look at it in a European context at least it is positive. It could be worse. We hope sincerely that it will never be worse and that it will improve.

It is positive to say that one out of every five young children fail to get a job. It is also positive to say that four out of the five get jobs. You could say 20 per cent of young people do not get jobs, which is a positive figure, but it is a negative way of looking at the problem. We now have teachers beginning to tell their students that when they finish the leaving certificate their only hope is emigration. That is totally negative because every year many children get work. Very few children get the work of their choice. I did not get the work of my choice when I started in school. My first job gave me £19.11 per week. It was not my first choice but it was a job and at that time jobs were scarce and many people were emigrating. I decided to stay at home. I decided to work and improve myself and change my job until I got what I thought I wanted. One should be positive about it.

Another positive element in this Bill is the improvements for social welfare recipients. The most positive thing of all is that we are the only country within the Community to maintain and increase the living standards of people in this social welfare bracket in spite of the fact that many of the Governments in the European Community are now run by socialists. The word "socialism" might have connotations for many people but, obviously, in the European context it has not been the panacea for all their ills. They still have problems because a country can only survive if it can generate enough wealth of its own, generate enough products of its own and export them competitively on the foreign market, which in a mixed economy like our own is probably the only brief that this Government or any Government so far have had. We have never had the political support for any other system of Government.

Senator Ellis talks about the responsibility on Government to create direct employment and while ideologically I might accept that as a reasonable assertion to make, young people probably would accept it. But the reality is that no Government can employ people directly except that those who are working in the community are prepared to pay the cost of a public service for that reason. We now enter the area of either direct employment or fruitful employment or productive employment, which brings me to another point.

According to the Government's figures expenditure on the public service which this Government have tried to contain has still increased. Senator Ellis mentioned specifically the health services. The expenditure in the health services has gone from £858 million in 1981 to £1,195 million in 1985. People will say today that there are cut-backs in the health services. I can tell the House that, in spite of all the allocations of money within the health services, there are difficulties. There are budgetary difficulties but no real effort has been made to ensure that the kind of expenditure I am talking about arrives at patient level. In between the distribution of Government money and the receipt by the patients at bed level of the services they are entitled to — many contribute by way of PRSI and otherwise — in between that, through the health board system, through the voluntary hospital system, through the GMS system and through the whole system of dispensing and medical cards and everything else there is a vast amount of money taken by an inner section before ordinary people at bed level get the benefit for it. That is where, I think, we should be looking for the economies that can be achieved in capital expenditure.

Why I mentioned that is because the previous contributor had been negative and positive. You can always suggest to people — and maybe rightly so — that they are over-taxed, particularly the working sections of our community, the PAYE sections in whatever profession they are in, whether they are civil servants, politicians, teachers, guards, doctors, down along the line to the ordinary man in the street working for councils, for CIE, for health boards, train drivers, road sweepers, whatever it is. They all work for a living and they are in the PAYE sector. Those people will not accept an increasing level of taxation from them to increase the public service and that is why I say we do not have the electoral support for that kind of philosophy because people feel they are paying enough for what they are getting.

In between the vast amount of money that we manage to take in taxation and the vast amount of money that we expend in public expenditure in necessary areas of education and defence, the Garda Síochána and health and the running of all the institutions of the State, in between those the only available source is foreign borrowing. We all agree now that we have borrowed as much as this country, now or in the future, can ever afford to repay. Most of our borrowings now are going to pay the interest on previous debts. Nobody would run a house in that way. No housewife would run her home like that. No Government can run the country like that. This is the electoral test that will stand up on 20 June or in the next general election. It is what the public perceive you are doing and if they feel that you are giving reasonable value for the tax they pay, they will be happy.

Nobody that I have spoken to wants to have any level of taxation increased and also have the public services increased. Senator Ellis suggested that we should reduce all levels of taxation, VAT and everything else. Superstars, rock stars, everybody, exempt them all from tax but please increase the services to the public. The realistic thing about that is that you cannot have your loaf and eat it. The day of the free lunch is gone for all of us. None of us can comprehend the result if we continue the kind of policies that have been followed in the past and have put this country on the brink of being at the discretion of the foreign bankers. That is where this unfortunate Government inherited the problem of trying to set the country's finances in some kind of order.

I am pleased about the financial proposals here under the social welfare code. I am pleased in that we have managed to outdo and surpass many of the improvements in the member states which have greater resources than we but have not half the commitment that this Government have to the poorer people. This Government have a commitment because there are Labour people in the Government, and I am proud that we influenced legislation in many areas to ensure that ordinary people were protected against the ravages of inflation and otherwise. Here it is appropriate to say that inflation has dropped considerably, something which a Government should aim for in order to ensure investment to create employment, to generate jobs and to encourage businesses from abroad to set up factories here.

A passing comment was made about a factory in Limerick, and it might be inappropriate here, but any Government should be watchful of any expenditure they make in any project. A previous Minister from Limerick, Deputy O'Malley, made the courageous decision to refuse the De Lorean factory on the same grounds and everybody applauded him when the project went broke elsewhere. If this new factory were not prepared to put another £1 million up front I would suspect that there was a doubt in their minds about the viability of the project. This Finance Bill would be detrimental in that taxation levels would increase if money is spent unwisely on projects that might not have a future. The 800 jobs were to be spread over ten years, and if they had materialised the income tax take from them would have improved the inflow into the coffers of the Government and increased expenditure in the public service by that amount. In other words, the more people we have employed the more wealth we can generate in the community.

The new social employment scheme is wonderful. We have had complaints about people getting money for doing nothing, signing on and doing nixers, and about all sorts of abuses of the schemes under the social welfare code initiated through the Finance Act. This new scheme will eliminate all of that. My experience after representing people for 16 or 20 years is that most people want to work, and if this new scheme generates the ambition to go back into the work ethic it will be useful and worth while. Any public money that is allocated to it from the various agencies through the Finance Bill will enable valuable community work to be done by communities and local committees on a voluntary basis. Local authorities have major proposals in conjunction with the trade union movement for submission to the Government under this scheme. If we can give 20,000 people an opportunity to do some work for the money they receive and make themselves available elsewhere to work without being penalised or called criminals, that is the useful gesture towards the problems of unemployment. There are limitations on the amount of direct employment a Government can give. We need thousands of nurses. We need hundreds of teachers. We need many more people in the public service that I would like to see there, but we will not have the money to pay them unless there is a genuine effort by people outside the PAYE sector to make a fair contribution to the Exchequer.

The fourth report of the Commission on Taxation is referred to in the Minister's speech as a document that the Government are now considering. The leader of my party this morning, the Tánaiste, Deputy Spring, has commented favourably on some aspects of it particularly in regard to the handing back to local authorities of elements of control, financial stability and financial independence from the State. The most important aspect about that is that a diminution of the demands of local authorities on the Exchequer will result in a lowering of the taxation levels. People would be handed back through their pay packet for the first time something real, a contribution from the taxes that they pay to the State which is redistributed to local authorities but is not seen by the PAYE sector in that light. This is why there is such an outcry about water charges, which are only a fraction of what everybody was previously paying in rates.

There is a reference in the commission's report to land tax, and people have a great deal to say for or against it. In summary, everybody is against taxation. I favour a system of taxation that takes into account people's ability to pay whether they are farmers, self employed, business people or people working. However, this Government have decided that a land tax will replace income tax. Throughout the last election campaign I with the present Tánaiste received many deputations throughout the country from farming organisations, and each one of them without exception, the IFA, the ICMSA and Macra na Feirme, asked for this type of taxation, a farm taxation which they say would not be a disincentive to production, would not penalise people for working hard, would take into account the earning capabilities of the land. They would know in advance every year what they were going to pay and they would not be paying £20 or £30 million to accountants to prove whether they were liable for taxation. They made their case and this Government responded positively in that way. The trade union movement realised that possibly farm taxation was now too easy and they opposed it. The farming organisations have felt it appropriate for them now also to oppose it, but during my canvass I found 75 or 80 per cent of the farmers I spoke to were in favour of this system. This commission's report says that it is unacceptable, and the Government's response to that will be interesting. I understand that a farm tax Bill is about to be published and the Bill will be with us fairly soon. The Minister this morning referred to it, and so does the Bill. It is appropriate that people make a contribution based on their ability, and then this Government can spend the money that they get from that source of income on ensuring that the people that we worry about, the less well off in our community, will be looked after as we want them to be. We can do that only if we all pull together to ensure that we are not knocking this and that all over the place for the sake of political kudos or political short term advantage in the ballot box or otherwise. We must be constructive in what we try to say and do and we must remind people of their responsibilities as taxpayers directly and indirectly.

I suppose the PAYE sector is the one sector which does not have the facility to evade taxes. The Minister referred to the evasion of taxes in his speech. A certain section of people evade taxes because they feel it is the appropriate thing to do and the Minister says that he is to bring in further legislation to close off another loophole that has been discovered by certain elements of the private sector. It is a pity that the private sector, who need the Government to do everything for them, to create the environment and incentive for jobs, as responsible citizens are not always concerned to ensure that the Government are funded by them according to their ability to pay. The private sector may be doing well or badly and nobody wants to collect money from people who are not making money, but it is appropriate that every person in this community contributes to the running of this country. Thus we can have the kind of country we all aspire to, that we would all fight and die for if necessary to ensure that our integrity and our independence are secure.

We all aspire to democracy. Everybody recognises the right of the electorate to change Government, but everybody must also realise that we all want to ensure that we can hold our national independence without being dictated to by foreign bankers or the EC, although in our referendum to join the EC we gave the most extraordinary powers, particularly in the area of agriculture to the EC. We have benefited from Brussels, although it is not the bonanza nowadays that it was in the days of our accession. Times are tougher because money is scarce at European level. Unemployment is rampant in Britain and it is extremely bad here and at an unacceptable level, but we have a duty to ensure that our young people are educated and trained properly, and we hope that the private sector will respond, in this mixed economy, to ensure that job opportunities will be created and that the incentives these people need to go into productive employment will be assisted by Government policies.

This is the electoral way forward, and no electoral results I have ever seen indicate that the people of Ireland wish us to go any other way. If there are more socialist ways they want us to take, I hope they will support those of us who stand for that philosophy. They will have the opportunity on 20 June, at local level, to do that, and within the next couple of years they will have the opportunity to do likewise at national level. Then we will know what the people's views are, whether they want to go down the same old road or to change direction as a country and as part of the European Community.

The Bill is probably out of date except that from a legislative point of view it is necessary. Most people have already benefited or otherwise from the provisions of the Bill because they were included in the budget. People have got increased grants from the Department of the Environment, beginning on 1 May. Most people have improved tax free allowances since April. Most people have already benefited to a large extent from the rationalisation of the VAT levels. In July, please God, all social welfare recipients will benefit. It is probably retrospective legislation, but it is a necessary part of the procedure of this House. I commend the Bill to the House.

Listening to the contributions from each side of the House one inevitably hears two very contrasting stories. On one side we have the rosiest picture possible in the circumstances being painted and on the other side we naturally have our attention drawn to the many problems and shortcomings that still remain. In many respects that is a fair reflection of the state in which the country finds itself today. Anybody with a reasonably balanced view of things can point to some positive indications over recent times, but there are still many negative and less cheerful items on the agenda. We are in some sort of transition stage where the tide cannot make up its mind whether it wants to turn. It is by no means clear that we are going to come through to better days, we all would like to see that happening but it is by no means a foregone conclusion. We could very easily find outselves faced with further pretty tough years.

That attitude is reflected in the reaction to the budget and, therefore, to the proposals on the taxation side which are enshrined in the Finance Bill before us.

Most people, on both sides of the House, have welcomed the measures to simplify both the VAT system and the income tax system. We would all like to see a more straightforward system where most of us could fill in our own tax forms and have a fair idea of where we stand from one year to the next, without needing experts to unravel all the small print for us. Therefore, we should welcome those moves. We should also recognise that it took a quite long time to get the need for some of these changes accepted.

It has been an uphill battle to win acceptance for the view that some of our tax rates here had to be changed and reduced if we were not to end up with loss of tax revenue because of the flow of cross-Border traffic and all the sales that were being lost to the shopkeepers in Northern Ireland. It is right that some of our VAT rates and other taxes were brought down, because we will find — as obviously the Minister expects and we all would like — that lower tax rates will bring in more money to the Exchequer because they will keep the shoppers at home. There were a few modest steps in the right direction, but that does not satisfy the desire, the clamour for further tax reforms.

Everybody wants more tax reforms, but we must be realistic there. Most people have in mind tax reforms that will reduce their own tax bills at the expense, therefore, of somebody else paying more. Not surprisingly, people who live in the city tend to ask when the farmers are going to pay more tax and so on. Various other groups can look around hopefully and fasten on some target or other. We must look very coyly at this question of tax reform. The sort of tax reform that will satisfy most people can come about only when we get to the stage where we can reduce overall public spending as a share of our gross national product, and there we must ask ourselves what state of play is likely on that front. Encouraging signs are a fairly steady fall in inflation over the last couple of years which will contribute towards improving investment and growth for the future — contribute towards but by no means bring it about. We need a few other things before we can expect to see positive expansion, but at least to see inflation coming down is one contribution and it is important not to lose sight of that.

There is a tendency when we see one problem diminishing in importance to say that that is that, we do not have to worry about it any more, we will turn around and look at something else. Therefore, we must remind ourselves that, while we have gone in the right direction on the inflation front, the problem has by no means gone away. While we are coming into line with many of our trading partners in the EC, for safety we need to make sure that the inflation rate continues to go down rather than have it creeping up again. That is one step in the right direction.

The other area where we have seen a very necessary improvement — we would be in dire trouble as a country if we did not have an improvement on it — is our balance of payments. It is very encouraging to see exports growing rapidly enough at least to bring about a fall in the size of our balance of payments deficit. Anyone looking at the figures quickly and comparing the situation today with that of a few years ago, immediately after the second oil crisis and so on, would say: "Ah yes, that problem is under control". But is it? While the figures are down, in the latest forecast from the Central Bank and so on, the figure is still very large by any international standards or by any historical comparison of normal times for this country. We are by no means completely out of the wood on that front either. That means that words that have been flung around for the last few years must stay with us for another while: "The importance of being competitive enough to continue to step up our exports". There can be no letting up on that front for some time to come.

It is important to draw attention to that, because if we are ever going to be able to bring an end to foreign borrowing we can do it only when we get rid of our balance of payments deficit. For as long as this country runs a balance of payments deficit we must get the foreign money to finance it. That is the reality that has been with us and will be with us for at least another few years to come on any realistic projections for what lies ahead. Modest steps have been taken in the right direction but those problems are not by any means cleared off the account. Even those modest improvements have been got at the expense of a great deal of hardship and much difficulty here at home.

The two big problems spots are unemployment and the state of the Government's finances. With all due respect, no matter how Senator Ferris or Senator Ellis may present the figures as to who borrowed most, who used the money best and so on, borrowing has been going on for a number of years and is still going on at a very high level. Nobody pretends for a moment on any side of the House that it is going to stop quickly. We are talking this year of borrowing £2 billion to finance the Government's programme. If we talk about improving that position next year, even on the most optimistic version of the planBuilding on Reality, we will be doing very well if we hold it at that figure of £2 billion, and I suspect the same will hold true for the year after that. No matter how you do the sums or make the calculations, borrowing will run at this level of £2 billion a year for a few more years to come. That means our national debt will go on rising, and that means that we will find ourselves probably — I emphasise that word — having to pay a good deal more in interest on that higher level of borrowing. That is the grim reality for not only this year's Finance Bill but next year's and the years after.

I put the word "probably" into my comment to ask if there is any possibility of an improvement in that situation. Let me be realistic and say that the best chance of an improvement is likely to come from something we in Ireland can do nothing about, namely what happens to interest rates internationally. A sign of the times is that far more people nowadays than heretofore look at the financial pages and ask what is happening to the dollar and to the interest rate in America. More and more it is brought home to us that that is the sort of world we live in today. The famous line from the poem about no man being an island whole and entire to himself is being brought home more and more to us as a nation. No nation is an island whole and entire. That is true not just of the smaller nations like Ireland. Senator Ferris remarked about socialist governments in Europe finding themselves not able to act in a way that they would wish. That is because even nations which 20, 30 or 40 years ago would have been regarded as large and powerful now find themselves comparatively small in world terms and more and more dependent on what is happening. Even the Frances, Germanys, and Great Britains of this world find that they must take account of what is happening in the United States, Japan and elsewhere.

If we are looking for any light at the end of the budget tunnel, realistically most of us are expecting that our best chance will come from a weakening of the dollar, which will ease some of the tax burdens on servicing our debt, and also a reduction in interest rates, which would help, along with the lowering of inflation, to stimulate the kind of investment that we need to get more of our people back to work. That is the state of play. While there has been modest progress in the right direction, we need much more of it and we will not get it all on our own bat. We must recognise that if for any reason international events turn sour and things go the wrong way on that front, there is nothing that any party in this House can do about it. It will not matter who are in Government, they will face the same sort of grim problem if international trends move against us.

At this stage there is no point in being unduly pessimistic, just as there is no point in being unduly optimistic. We must assume that, barring some major upheaval, the international trends will gradually move in the right direction from our point of view. That means whoever is in Government must more or less stick it out for the next few years, continue at a kind of balancing act, walking the tightrope and not giving in to any short-term pressures or short-term panic. I do not think there is anything to be gained for the party who would do that, and certainly nothing is to be gained for the long-term future of the country in doing it. We must take it slow step by slow step and gradually cut down our Exchequer borrowing in line with any improvements in these interest rates and exchange rates, and in that way gradually get modest amounts of extra money available that could be used in part to bring about some tax reforms — that is some reductions in taxes for people who feel they are paying too much — and some extra spending that will help provide employment, especially for young people.

On that employment front we must recognise that we are faced probably with the most difficult problem of any of the existing ten member states of the EC because we have the fastest growing population of young people. Even if we succeed in holding our level of employment this year, next year and so on, unemployment will still be rising quite strongly by at least 15,000 a year in contrast to other member states, many of which have populations that are already starting to fall so they can look to an easing of their unemployment problems with that in mind; they simply have to find fewer jobs in the future, whereas we have to go on finding more and more jobs. That is the size of the problem that we face, and it is also, then, one of the pressures on Government spending. If we are going to have more people unemployed that is going to call for more spending, whether by way of social welfare benefits or some form of scheme to try to provide employment opportunities for them.

I do not think there is anything to be gained by going through the small print of the Finance Bill at this stage. The main changes have been to give simplification. The main hope for the future must come both from an improvement in international trends and from trying to gain more benefit from the additional output that is starting to flow at home. On that score, I cannot resist making a slight digression to note that increasingly from some of the comments about the outflow of profits from the various international companies operating here, one would almost think that they were doing something wrong in repatriating these profits. We have to remind ourselves that successive Irish Governments have encouraged these firms to come here, have asked them to set up plants on the ground that we would rather see Irish people working for these foreign firms at home than having to go abroad to work with a foreign firm. Let us remind ourselves that that is what we set out to do; that is what has been done. It is going to be a longer-term task to persuade many of these firms to retain their profits in Ireland and use them to finance future expansion.

We know that a number of these firms have already done so, but we have to remind ourselves that if we want more of that kind of reinvestment and expansion it is up to us to demonstrate that we are the sort of people who have the kind of discipline and who have enough confidence in our own future to provide the kind of stability and climate which will encourage these firms to want to stay rather than think in terms of taking out their profits as quickly as they can and looking to some other part of the globe as the next profitable opportunity for them.

One area of tax that has been touched on a few times today — it did not really figure in the Finance Bill but the Minister introduced it in his speech and it has been commented on by a number of others and I cannot resist a certain interest in it also — is the latest report of the Commission on Taxation about local tax and the suggestion of reintroducing some form of local property tax. I am personally very much associated with abolition of rates on housing. I remain totally unrepentant on that. There is an awful lot of confused talk and thinking on this subject.

First of all, if we are going to talk as the Commission do apparently — and at this stage we have only read newspaper reports; I have not had a chance to study the full text but on the assumption that the press reports are reasonably accurate — we are talking about a form of rates; let us not call it anything else. They are talking of some sort of tax based on the capital value of the property, these valuations to be revised regularly. We all know that one of the real objections to the old rates system was the difficulty of trying to keep valuations up to date. The question I asked at the time, and I would ask it of anyone proposing that tax now is, what benefit is it going to provide that you cannot achieve by some other means? If you are going to say that we want to take account of people's wealth you have to ask, wealth in what form? If you are talking about businesses they will be able to offset rates against their profits in a way that householders could never offset their rates against their income tax. We are saying we want to tax property people have acquired. How do they acquire it? They acquired it presumably from the spending of their income. If you spend your money on drink, it is gone; you paid your tax at the time. If you spend it on washing machines or motor cars and so on you presumably would not have to pay a tax on it later, but if you are going to spend it on a house the suggestion is that you should pay tax on it. Why? Especially now, you must ask yourself why are you going to pursue a policy, which I presume will continue, where you will encourage people to own houses by giving grants to first time housebuyers, giving mortgage subsidies or mortgage reliefs, presumably continuing to give tax relief on mortgage payments and so on, and run a system whereby you will dish out a set of subsidies on one side to encourage people to get houses and then when they get them you will dish out on the other side a stream of taxes they will have to pay. Would it not be much simpler to make up your mind, on balance, whether you want to have no taxes on housing, whether you want to give a subsidy to housing or whether you want to impose a tax on housing, and let us have the net result of it, but do not let us run contradictory systems.

I want to come to that. Part of the argument that is being made, and I have heard it made again today, was that you had to bring in some system of taxation like this in order to restore some sort of local autonomy or local independence. I totally reject that argument. I have not yet had anyone convince me as to how this helps local responsibility or local independence. No one has suggested local taxes of any kind that are going to pay the whole cost of local services. What they are talking about is some form of local tax that will pay some of the cost and you will continue to have grants from the central Government at varying levels. Whatever it is, you will get a grant of X per cent towards your roads, your housing, your sanitary services and so on. That means that you are proposing a system where each local authority will still face subsidised prices for any of its services; you will not have to pay the full cost of extra roads or extra housing or extra sanitary services; it will get a grant usually of varying proportions.

If you really want to give responsibility for local spending and fix it where it belongs at local level, you have to work out a system of saying: "There is so much money. You must spend that to provide at least minimum services." That would mean that however they chose to spend it, the full cost of any one service must come from their own budget. In other words, if you worked out that, on the basis of population, the local authority got a block grant from the central Government and was then left to allocate that block grant among its services, it would know that the cost of spending more money on its roads would be that it would spent less money on its sanitary services or whatever. It would be talking about the full cost of each of those alternatives, not a fraction of the cost to be matched by some Government grant or other. That seems to be a way of fixing responsibility for spending decisions at local level for those services which you want to see operated at local level.

In a small country the size of Ireland I do not see the logic of trying to run a system of collecting local tax alongside a system of collecting national tax. If you want to have any form of local revenue I believe they should be — again, I am on record on this over the years so I am not saying anything fresh — for specific services. In other words, if you are going to charge for water, let it be for providing a water service to different areas. Again, that is a way in which you can bring home the cost of providing the particular activity in that particular locality. I do not see the merit of saying that, just because you collect some small fraction of the money — how much are you going to collect, however you do it, on this property tax? If it is not going to be at the level of the old rate, if it is going to be two or three times the size of the existing residential property tax, the Minister is talking about collecting revenue that will cover at most 5 per cent of the cost of local authority services. That will not operate so as to be a way of producing autonomy or responsibility in spending decisions. If anyone wants to make a case to the contrary I would welcome it at any time.

There are other objections to that kind of local property tax. Apart from the apparent contradiction that on the one hand, you encourage people to acquire property and tax them once they acquire it, the other anomaly I was always conscious of was that the kind of rate tax or local property tax operates very detrimentally, — you can see it especially in any large urban area — in areas which are attracting commercial activity. If people ask why were houses driven out of the city centre in Dublin over the years one of the reasons was that as rate bills went up it became more and more difficult for householders to pay bills closer to the city centre. They could not compete with whatever firm wanted to convert an area into offices because the firm could deduct its rates from its profits so that the rates bill for the same property was halved in the case of business against the householder. At the same time people lament the fact that people are being pushed out to make way for offices — contradictory systems.

I would argue, as some circumstantial evidence supports my view, that people have moved back towards the city centre since rates were abolished. There has been a revitalisation of many of the areas that had been gradually falling into decay and in some instances were being gradually taken over by office blocks. People have started to come back in because they do not face the crippling annual bills and, more important, they did not face the uncertainty of the future rates bills that would be imposed on them. What was happening was that local tax was shooting up very rapidly from one year to the next so that no prudent householder could calculate what his financial circumstances might be five or ten years hence. If we are going to have proposals for reform in the local taxation system I would suggest that all the arguments be looked at very carefully and, in particular, if we are going to have this kind of argument about wanting to provide local autonomy could I make a few awkward suggestions?

Why do the Government not provide us with information as to how much of the present taxes are paid from each geographical area, how much income tax is paid from each county and how much spending goes back to each county? Then ask yourself, if you really wanted local autonomy and if you really wanted each area to stand on its own feet, do you think many of them could? If you were going to tell them to go ahead and raise their own revenue from their own property we all know what the answer would be. Many parts of this country would be far too poor in the sense of their property or the level of employment in them to be able to match the level of services that some of the better-off areas could afford. You would be driven back to having to find some system for transferring money from the richer areas to the poorer areas. Let us not pretend we can jump to some system of local autonomy unless we can think through some of the consequences that would follow.

I have very strong views on this, which I know are not shared by many other people. I have never seen the arguments put forward fully to deal with the issues involved. I see only one or two of the aspects dealt with, and I would hate to see some new tax rushed in in a half-baked way. We have lived long enough with the present situation. The rates on houses were abolished in 1978. We have had seven years. We were promised at varying times various proposals for reform of local finance. If we have waited so long let us make sure that we get a proper comprehensive debate on the matter before we have any hasty decisions.

Since there were side references to land taxes in that context, I was one of the advocates of a resource tax. I can remember farmers making very similar arguments to those made to Senator Ferris about the difficulties of having to cope with a full income tax system and the money paid out to accountants and so on and that it would be better to have a system which was clear and certain and would not penalise extra production. What I call a resource tax and what is now called a land tax was one way — not necessarily the only way or the best way — of satisfying the point that was being made. You would have a tax which would encourage people to use their land rather than have it lying there but which would not penalise every improvement in production that would take place. Let us have that, or else let us have farmers paying income tax on a full basis comparable with everybody else.

Since I have made a logical argument about housing — do not subsidise it on the one hand and tax it on the other hand — if the argument is that it is too complex or that it is not worth the administrative cost of trying to get farmers to pay various income taxes, perhaps then it is a case for cutting down on the amount of grants or subsidies they receive under various headings. You must make up your mind whether, on balance, you want them to pay tax or to receive subsidies or to have a nil account with the rest of us. That might be one way of avoiding some of the confused arguments which we get on these subjects.

That takes us a little bit away from the main theme of the Finance Bill as it is being presented. I would argue that at the end of the day it is not really a digression because the Minister is pointing out that the main changes in this year's budget, enshrined in the Finance Bill are to bring about some simplification of the tax system. It is believed that even if we cannot immediately reduce the overall burden of taxation we might be able to do things that will hopefully make it a bit more acceptable because it will be seen to be that bit fairer. I would suggest that these references to local tax and land tax should be seen in the same context. At the end of the day people are not going to argue about whether they are paying a tax to the central government or local government. What they want to see is what bills they have to meet, and a tax by any other name is still a tax. What most people want to see is how much they have to pay out in taxes and if the taxes one has to pay seem fair in relation to the taxes others have to pay.

We should welcome the steps that have been taken towards simplification and we should encourage a movement to get a further simplification and therefore further progress towards the point where we might be able to persuade most people most of the time to pay most of their taxes. In that way we would be helping to provide a climate in which more of our people would have the confidence themselves to invest or we could also look to others to come in and avail of a more positive climate for business activity. In that way we might be able to look ahead a few years.

The prospects for the immediate future, the next year or two, suggest that we cannot expect any dramatic improvement. If we can look beyond the next couple of years and persevere in the direction in which we are headed we could start talking in terms of getting over this difficult period and by the end of the decade, having a country that had both sufficient evidence of progress and sufficient confidence in its own future, we could look at and talk about tax reforms that would come about through genuine reductions in the overall tax burden because we would have higher levels of output, more people at work and, therefore, the ability to reduce what we know to be very high levels of current taxation.

One of the most remarkable features of this Finance Bill or budget is that the Minister has managed to eliminate some of the basic defects in our economy and at the same time achieve quite a degree of equity. The Minister can justifiably claim that the central feature of this budget has been an attempt, and a considerable attempt, at achieving quite a degree of fair play.

The budget is to be commended on many fronts. As has been said sometimes grudingly, other times generously, it has been successful in relation to what it set out to do particularly on the taxation front in changes relating to income tax and VAT. Nobody can seriously contend that it should be possible to switch instantly from one form of taxation which has been an inherent part of our economic framework and immediately supplant it with some other form of taxation. Senator Hillery called the changes minor changes. Senator Ellis has dismissed them as being cosmetic. I do not regard either of those criticisms as valid.

The Minister has embarked on the first steps of reform. The reduction in the number of tax bands to three bands, abandoning above all else the top band of 65 per cent, has been of particular significance. It is acknowledged by all and sundry that this will save the taxpayer an additional £58 million this year and something in the region of £90 million in the full year. One of the most significant responses of the Minister has been his VAT re-adjustment to counter illegal cross-Border trade, particularly in luxury goods, a speciality in this field being the cross-Border trade in colour television sets. The reduction in the maximum rate of VAT from 35 per cent to 23 per cent coupled with the 50 per cent reduction in excise duty on TV sets is considerably — as is already proved — reducing the revenue drain. If we even succeed in halving the number of 30,000 sets which it is alleged are brought into this country illegally from Northern Ireland each year, this alone will represent an additional revenue of £8 million to the State.

All the indications are that this new measure is working. I have no doubt but that the success of this measure coupled with the proven success of the measure taken last year in relation to the reduction of exise duty on spirits will further bolster this Minister for Finance's determination to continue unremittingly to combat and tackle the haemorrhage of resources to the North of the country.

A marked feature of this administration has been its determination to ensure that social welfare groups and the less well off in society do not fall foul of any economic corrective measure destined to rectify underlying weaknesses. This principle of cushioning such people is again retained in this budget just as it was a feature of our past two budgets. In this budget, social welfare increases of 6 per cent and 6½ per cent are allowed for. When set against a projected inflation rate of something in the region of 5½ per cent or possibly even lower, the £3.15 per week increase for contributory old age pensioners and £5.50 for married couples represents, as in the past, real increases in living standards for these people.

The extension of dental, optical and aural services and benefits to pregnant wives of insured workers is to be welcomed and is a further indication of the positive commitment of this Government and this Minister to ensuring equity, fair play and, above all else, the preservation of the welfare of the less well-off in society.

One of the cries we hear most often in relation to malaise in the economy is that the building industry needs a massive injection of capital. This was stated by Senator Smith on the other side of the House, and anybody who was listening to the Leader of the Opposition on television last night will have heard the same theme reiterated. I understand that the Leader of the Opposition said last night that he would immediately pump £200 million into the building trade. Everybody seems to work on the thesis that by pumping money into the building of industry the economy will take off. I put forward the opposite thesis, which is that if the economy can get back to working at full momentum, then the building industry will take off. The future of the building industry relies fundamentally on creating the necessary economic conditions to justify the investment in building.

I share the concern of those people who lament the number of people out of work in the building industry. But I certainly would take strong issue with the contention floated from the other side of the House by Senator Ellis when he said that this Minister has "done nothing" to help any person in this State to own a house of his own. In the budget the Minister increased new house grants from £1,000 — which was introduced in 1977 and remained at that level — to £1,750 and subsequently to £2,000. We furthermore have a £3,000 mortgage subsidy. In addition to that, in the planBuilding on Reality we have introduced — and it is now in operation — the giving of a grant of £5,000 for tenants of one year in local authority houses in order to enable them to provide a house of their own. So you are talking in toto of a cash in hand non-repayable grant of £10,000 to enable people to purchase their own house. If you take that in conjunction with SDA loans of £16,000, over a 30 year period at 12½ per cent with a reasonable rate of repayment of £128.75 per £1,000, or alternatively a Housing Finance Agency loan of £22,500, it sets in fair perspective the measure of commitment of the Minister, the Minister for the Environment and the Government towards housing. When the full impact of these measures is felt there will be, consequently, a major upsurge in the building industry.

Things are working in the economy. The reason why I believe this and that the positive line being taken and held by the Government is working is that all the evidence points in that direction. The nuts and bolts of the economy are beginning to come right. The basic components of the economy are beginning to come right. Inflation has been sliced in a period of three years from 19 per cent to 5 per cent. As has been said by Senator O'Donoghue, our balance of payments is remarkable and all the indications are that it is going to be maintained. I would also share his anxiety that getting inflation down or getting our balance of payments right does not mean that we should neglect any one area or any one fact. The line has to be held on all fronts. Furthermore we anticipate this year a growth rate in the economy somewhere in the region of 2.8 per cent. These are the elements that go to inject confidence. Confidence is vital, confidence without and confidence within. We note with some considerable satisfaction that from without the endorsement has come from the people who matter, from the EC, from the IMF and from the World Bank. Look at the reaction immediately after the budget from within, from the people who in their own way contribute to making up the economy. The reaction of the manager of Arnotts was that this budget was helpful to the retail trade. The managing director of Jacobs described the budget as being satisfactory. Brian Duncan, managing director of Irish Life Insurance, said that, at least, there was now light at the end of the tunnel. The head of the electrical industry committee stated that we were well on the way towards retrieving the 5,000 jobs which had been lost in that industry since 1979. The CII predicted positive effects accruing from the budget. The public sector unions have shown their capacity to appreciate and understand their role by agreeing to a wage increase of 4.5 per cent.

One of the phenomenal aspects of the economic policy undertaken by the Government is that it has managed to turn the ship of State finances around in a humane fashion. The allegations often come from our political adversaries in particular, that the Government are guilty of harsh, brash, rash monetarism. The Government are not guilty of harsh, brash, rash monetarism. What they are guilty of, if "guilty" is the word to be used in this context, is of taking prudent, wise and tough decisions that had to be taken in order to try to salvage a semblance of national pride and restoration of order to our finances. The Government have shown their capacity to modify and adapt by accepting that the main target to be undertaken is the reduction of the current budget deficit from 7.9 per cent to 5 per cent by 1987. Nobody could claim that this is an overly ambitious target. Of course foreign borrowing is very high. It is too high but the only way it can be eliminated is by holding the line and by eliminating it in stages. Of course it is tragic that one out of every £3 raised by way of taxation in the economy goes to service our foreign debt. But we have to pay our foreign debts. We have to face up to the sins of yesteryear and our inherited profligacy. One of the main sticking points in relation to people's acceptance of tough measures has been the likely impact such measures are going to have on unemployment.

If there is one area which is littered with false assumptions and false assertions it is the whole area of unemployment. Half of last year's school leavers are now employed. Half of the remainder find themselves in third level institutions. I listened with some interest to the contribution of Senator Fallon who said that we now have 50,000 people in third level institutions and that the reason they are there is that they cannot get jobs. Even in the event of there being ample jobs in the economy, we would at least have 50,000 people in third level institutions because that is what the institutions were built for in the first place. I would further add, in response to an allegation by Senator Ellis that the budget has increased unemployment, that if one looks at the figures the reverse is the case. Three months ago our unemployment figures stood at 234,000. For three successive months, admittedly by small amounts, we have succeeded in pegging back the level of unemployment. Today it stands at something in the region of 226,000. That answers that point. This budget, far from diminishing or damaging the prospects for employment, seems to be enhancing them.

The Government's record is good in many respects. It is particularly good in relation to book-keeping. Last year the current deficit was actually undershot by 5 per cent. That immediately calls to mind the record of our predecessors in office, who, in the preceding years, overshot the runway from 45 per cent in 1982 to 81 per cent in 1981.

I have listened for a considerable portion of the day to the Opposition response to our arguments and to the general trust of the budget. They seem, to put it mildly, to be pitifully inadequate. Their response seems to be an incoherent mixture of grudging approval and unreal criticism. We seem to be doing too little on social welfare, too little on unemployment, too little on tax cuts. The important thing is that the Government figures add up. The Opposition have too few figures and those they do supply they refuse to tot up, defining instead their own airy-fairy reality. After two years in opposition it is still patiently clear that the Opposition is further than even from formulating a credible alternative economic policy. They seem torn between the rhetoric of their fiscal rectitude ofThe Way Forward and the expansionist profligacy of their earlier years. Their political opportunism is being increasingly denuded and unveiled. Any Opposition who fail to define, even the parameters of their own policy, should be seen for what they are.

We have taken definite corrective measures and they are working. The light is at the end of the tunnel. It is important that we hold the line but, above all else, it is more than important that the people do not fall for the spurious indignation of the Opposition, because they have markedly failed to come to terms with their own economic past.

I believe we are on the way forward. I believe we have a great little country with ample indigenous resources. I believe we are now on the brink of developing these resources. If we did not have the legacy of the debt that we inherited we would now have a budget surplus of £750 million to distribute rather than paying it by way of repayments on a debt. Our plan is working.

Before I conclude I wish to take issue with one or two of the points made by Senator O'Donoghue. He has largely been complimentary to the economic line of this Government. Senator O'Donoghue makes the point that he is against water charges, small charges at local level. He is against having what he would describe as trivial taxation at local level. It would be tragic for this Government to go back on their determination to ensure that those charges are retained. I say this coming from County Mayo which has managed to have a collection rate of 70 per cent and the general prognosis is that the collection rate will be higher next year. I do so because I unapologetically maintain that when we are giving water to people at the minimal charge of 75 pence per thousand gallons there is nothing wrong with that. I do so as well cognisant of the fact that there is in operation for genuine hardship cases a waiver scheme whereby the county manager can, having reviewed the evidence put before him of the plight or circumstances of an individual family, decide to waive totally or in part these charges. I would further make the point that the main holler and howls of indignation and protest in relation to these particular charges seem to come from urban areas. Throughout the length and breadth of rural Ireland people have set up from their own resources group water schemes. They have built their own plant, their own pumping facilities and today they are paying ESB charges on same. I firmly believe that this certainly is one fact of the economic thrust of this Government that should not alone be retained but should be pursued vigorously.

Senator O'Donoghue makes the point that rather than have this form of local tax there should be some type of substitute for the block grant. We already have at local authority level a block grant system, inadequate and all as it may be, but surely if you do further increase the block grant the only place that the resource and the revenue can come from is from the Central Exchequer and it is manifestly obvious that the Central Exchequer cannot be further bolstered by way of additional borrowing for this purpose and therefore the lot falls again on the heads and the backs of the taxpayer. That type of talk about the lot coming from the Central Exchequer is dangerous. It is the type of talk we had back in 1977 and it is the type of talk and policy that has landed us in the stew from which this Government have manfully striven to extricate themselves and the rest of us over the past two and a half years.

I am very conscious that in rising to make my brief contribution on this Bill I have nothing momentous to say. I have no deep or erudite observations, and indeed what I am going to say will not cause the Minister to lose any sleep or have anxious moments. It is a complicated area and it is not one in which I would claim to have competence, but I would hope that a few observations I will make will cause the Minister to reflect and to consider some of the points.

I believe the Opposition have a very important role in this area of debating the Finance Bill. I believe it is not just our duty to "knock" the Bill. Nevertheless I believe the role of the Opposition should be one of criticism rather than adulation, concern rather than congratulation, and censorship rather than giving theimprimatur to the Bill. For that reason I believe we should be and we are being as constructive as possible in these contributions.

I understand that the Finance Bill is very important, and it follows that the Minister for Finance has a very important role. In criticising the Bill we are criticising the Minister for Finance, and I am well aware that the Minister is, in many ways, a very able man, but as indicated in this Bill and in previous Bills I believe he is not going to get the country moving. It is not enough for somebody in Government to say: "If this is not right tell us how it should be done" because when somebody takes on to do a job they should be able to do it and not ask others how it should be done. This is a crucial role and there are many qualities required to perform this role properly. Some of them have been referred to earlier to day such as flair, imagination and something special that it is not easy to isolate or put a finger on, something that we can see when we consider great stars like Barry McGuigan in boxing or Eamonn Coughlan in athletics, Dennis Taylor in snooker, and Mick O'Connell in Gaelic football, that something special they are able to bring out at the proper time, particularly under pressure. It is important to be able to do this. We all know that what the Minister has to do is enormous. It is a very big problem. We all can see that. I believe the Minister must do more than use a metal detector around the country and when the needle shows positive to dig for the treasure, because the treasure trove is limited. It will run out.

I could make a very long list of the problems which would be appropriate to discuss in this debate. I will just name a few of them. Unemployment, everybody has agreed, is the first one. There is the construction industry and the housing, crime, cutbacks in health, financial provisions, problems with roads and of course following on that finances for local authorities and agricultural policies. I could also refer to the balance of payments, fiscal rectitude, as has already been mentioned by Senator Higgins. The national debt two years ago stood at £12½ billion. At the end of this year it will be over £20 billion. The balance of payments is up £200 million on 1984. Now this is one area of bookkeeping and fiscal rectitude that the Government were particularly concerned about where obviously there is abject failure.

The unemployment problem has been discussed, and there is no need for me to go back over all the details. I dealt with this problem when discussing the motion last week, but I would like to mention the figures again. There are 234,000 registered unemployed and a further 14,000 are not registered because of their parents' circumstances. I believe 30,000 people have emigrated. Indeed, earlier today I heard a claim that 50,000 people have emigrated in the last six months. The Government have no statistics for this period. There are approximately 20,000 people doing various courses. This leaves us with about 300,000 unemployed. Senator J. Higgins, who spoke before me, is satisfied with the position as regards employment. It is obvious that these courses have only succeeded in bringing down the number on the unemployment register.

The amount of money paid out on social welfare is enormous. As I have stated before, it should be possible to channel this money into productive areas. That would be imaginative for a Minister for Finance. This must be done as it is only through work that you will get job satisfaction. People, by and large, have no great expectations as regards work so job satisfaction will be easily achieved. While all schemes are welcome and helpful in their own way, they aread hoc schemes, introduced at different times by different Ministers for various reasons. The scheme which was referred to earlier, the two and a half days' work scheme — is open only to people who have been on the unemployment register for 12 months. There are many people who are not on the register and would not want to be and the scheme should be open to them. On the “Late Late Show” last Saturday night we saw the Minister for Labour, Deputy Quinn confronted by a group of these people. It was obvious that none of these young people was satisfied. Schemes, in a general plan, are keeping numbers off the unemployment register.

I dealt comprehensively with the construction industry in my contribution two weeks ago. I will not go into those figures again. Since then the annual report of the Construction Industry Federation has been published and it has reinforced all of the figures which I used on that occasion: the doubling of the VAT rate to 10 per cent effectively reduced the public capital programme by £50 million, and it had already been cut back; it added £1,800 to the average cost of a private house at a time when the margins are at an all time low and demand is already sluggish due to the recession, when it is a buyer's market where houses are being erected at prices which obtained four years ago by contractors trying to stay in business.

The new house grant has been increased from £1,000 to £2,000 but, as I pointed out before, this grant was introduced in 1977 and to keep pace with the price index for building it would now need to be £2,500. Of course, 40 per cent of the people who buy or build new houses are not entitled to a new house grant. The construction output for 1984 is now expected to have declined by 7 per cent in volume. There was a serious slump in private house completions during the final quarter of 1984, down 28 per cent on the fourth quarter of 1983. For 1984 as a whole under 18,000 private houses were completed, which is down 2,000 on the previous year. Local authority completions, on the other hand, increased to 7,000 which were up 800 units on 1983. 1984 represented the third year of overall decline in output in the industry with output down 25 per cent in volume terms since 1981, although private investment construction has been falling since 1980. Unemployment in the industry in February 1985 reached an all time high of 49,300 which is currently costing the Exchequer a minimum of £130 million to £140 million per annum in social welfare payments.

Of course we welcome the £5,000 grant for local authority tenants. As Senator J. Higgins has pointed out, the total for some people may be £10,000 but this amount will be for a very limited number of people. It must be remembered that, at the same time, there are people who cannot get any house. As I pointed out on the last occasion, this grant will cause tremendous pressures on the Housing Finance Agency loan. This year the amount is £65 million, which is down £7 million on the actual payments for last year. I believe this amount has run out already in the Dublin area. I am sure the same will happen all over the country, because for most people the Housing Finance Agency loan, on account of the repayments, is more attractive than the local authority loan. During the first year there will be greater pressures as more people will qualify. The number will fall dramatically next year.

There are people in the construction industry longer than I am and they tell me that the situation was never as bad as it is now. Gypsum Industries have taken seven lorries off the road today, which is an indication of the problems that exist, and four of those lorries will be taken off permanently. There will be 12 redundancies at the end of this month. This is partly due to dumping. I brought this question up here before and the Minister was very doubtful about the dumping problem. Since then the matter was taken to the EC. A decision was given in favour of Gypsum. This is only the start of the problem. Cement Roadstone have the same problem. I shall quote a small paragraph from theIrish Independent of 10 May:

Home produced cement sales for last month were less than 100,000 tonnes — 2.5 per cent below the same level of April 1984. And for the first four months of this year, Irish cement sales were barely over 340,000 tonnes — almost 33,000 tonnes below the depressed level of the similar period in 1984.

The numbers of local authority houses are increasing — 7,000 for last year — but inBuilding on Reality there is a plan for 6,000 houses per year. There is to be a fall in that area, obviously Senator Magner apparently was happy with the situation even though the numbers of houses for the last three years are going down. There is certainly plenty of work in that area.

Crime has been brought up many times in debates in this House, I believe the scale of crime is a function of unemployment. I heard on the radio this morning that at present we have 2,000 people in our prisons, up 500 on this time last year. That shows the effect of unemployment. Because of this enormous problem the fabric of our society is breaking down. We have cutbacks in health financial provisions. We all know of the various health boards and the enormous problems they have. We have heard here in this House of wards closed down, reduced staff, people waiting for operations for long periods — knee operations, heart operations, hip operations. Many of them will be dead before their time comes or they will be too ill to have the operations. There is a policy now in the hospitals of sending patients home early after operations, and I believe this is reaching a stage where we would almost expect to have the operations in people's own houses, a "do it at home" effort. We have this great drive to close psychiatric hospitals which, if it worked, is something we would all welcome, that those patients would be taken out among the community, but it is something with which we will have enormous difficulties.

Sitting suspended at 5.30 p.m. and resumed at 6.30 p.m.

Before the suspension of the sitting I was dealing with the serious cutbacks in health and financial provisions. I want to say that in the casualty section in the hospital in Navan, for example, people have to wait four or five hours, sometimes, I am told. If there is only one doctor and one nurse in attendance even in serious situations it is not unusual to have to wait for x-rays over the weekend. Our roads are in a bad state, particularly the county roads. Some of them are in a very serious state. This is a result of the financial problems with local authorities. The roads are not a luxury. They are necessary. We need a good roads network. Even some of our main roads are not in very good condition, for example, the Clonee Road on the main road from Clonee to Blanchardstown, three miles of road. We have a wonderful road from Donegal right through Cavan to Blanchardstown and then we run into this bottleneck just at the entry to the city. That is a bad situation. Something should be done urgently about it.

Our agricultural policies present problems. Coming as I do from a rural area, I know that the farmers have serious problems. Even with our local authority in Kells the urban council have a farm of almost 500 acres and I know from the expenses there and the income that even though they have the best land in the country there is a serious problem. There is also a problem with beef. Cattle that were fattened over the winter have lost money. People will not enter into that area of production again. Next October the small farmers will have a loss in the markets. The foreign markets in Libya, Egypt, North Africa and Saudi Arabia will be gone. We have the serious employment loss in the factories on this account.

With regard to the Office of Public Works the numbers on drainage have been drastically reduced and there will be more reductions in August and September. This is a serious situation because, as in all areas of employment, there is the loss of the PRSI contributions to the Government. There is the loss of the income tax. If people are living in council houses under the differential rents system there is a drop in income here. There has to be a provision for medical services. There will have to be payments made for social welfare. The travelling revenue on petrol will be lost. Most of these people have to travel long journeys and the Government gets up to £1.76 per gallon on petrol.

Afforestation has been dealt with before when we spoke on the EC so I do not want to go into it in great detail. This is an area where it is hard to understand why there is not greater investment in this country. It has already been stated that a large area is suitable for afforestation. We have Sitka spruce which yields a reasonably fast return. In this area also we have a shortage of hardwood. Elm wood has been lost with Dutch elm disease and beech and oak are not being planted. Something should be done in this area, because these trees take up to 100 years to mature. Very few people would invest because it takes such a long time to get a profit. This should be looked at with greater sympathy. Some incentives should be given by way of greater grants to encourage people to invest in afforestation. Forest fires are a big hazard and something should be done in this area. Something should be done to convince people that these can be kept under control in some way. In the last few months we had reports of two serious forest fires in Mayo. It seems to me while the land is very suitable for afforestation many people who would pehaps be interested in investing in afforestation for this reason might be very reluctant to do so.

Tourism has also been mentioned, and I do not want to go into it in any detail. I want to say that perhaps another look could be taken at the situation regarding hotels in order to provide grants. Something more could be done for farmhouse accommodation.

In one particular area something could definitely be done, and that is the area of fishing, particularly coarse fishing. I made the point before that whereas salmon will be worth something like £10 per lb upwards, 1lb of coarse fish by reason of the fact of its attraction in bringing tourists to this country could benefit the country as much as £1,000. That is the kind of comparison. We have many rivers, lakes, pools and possibly canals where the coarse fishing could be improved.

There is one area that I am particularly interested in, and that is in regard to thatched cottages. Some finance could be given in this area. The thatched cottage is used as an emblem on Bord Failte literature. It is a great attraction in bringing people to this country. As I understand, no Government from the foundation of the State encouraged the building of thatched houses. They did not build thatched houses under any Government or local authority scheme. It seems that the decision was taken, which was a correct one, at a fairly early stage to abolish thatched houses. We have a number of very beautiful examples. I attended a meeting very recently in Slane where the tourist board launched a brochure for the Meath-Westmeath area. It is a very attractive brochure.

The Minister, Deputy John Bruton, was there and in his introductory talk he referred to the beautiful farmhouses which we have in this country of which we should be proud. They are a great attraction and are very beautiful. As regards the thatched houses which we use in a romantic sense to attract people to this country, we have neglected them completely. There is no grant of any kind I know of to help people with the heavy maintenance of thatched houses. In the North of Ireland the situation is different. They value their heritage in this regard and up to 100 thatched houses are listed as buildings worth retaining. If it is necessary to give additional grants to preserve these buildings those grants are obtainable. In this country we have many beautiful examples, fortunately preserved. We have a situation where we have these, not as museum pieces, for example, as in Bunratty Castle, but where people are living in those houses and using the artefacts. We have something we should cherish.

An Leas-Chathaoirleach

The scope of this debate relates mainly to taxation, with some reference to expenditure.

I am almost finished on this particular point. I am making the point that tourism comes within the scope of this debate, and I am speaking on tourism.

An Leas-Chathaoirleach

I do not want to interrupt the Senator again, and I will do it with Senators who come after you also. The main debate is taxation. I accept what you are saying, Senator, that tourism comes within the scope of the Finance Bill, but only with reference to expenditure. I do intend to check other Senators as well during the rest of this Second Stage, just in case they drift.

I have made the point, a Leas-Chathaoirligh, but I feel you are being unduly harsh with me because earlier in the debate Members were allowed far more scope than you are allowing me. However, I am simply emphasising that this heritage is important and I am urging the Minister to consider, with great sympathy giving some help in this regard.

I wish to refer to the fishing industry and to say that as we are an island nation it seems to me that this should be one of our best industries. Apparently, many of the fishermen are in trouble with regard to payment of boats. I feel there is great scope in this regard.

I would also like the opportunity to make a case for reconstruction grants. We have details in the Bill of the increase in the new house grant, from £1,000 to £2,000. Nothing hs been done with regard to the reconstruction grant. This is an area which would help the building industry because, as I have already said in considerable detail, the building industry is in a bad way. We have a position regarding reconstruction grants where the inspector must examine the building before any work is commenced. The primary purpose of those grants should be to improve the housing stock and by using this condition it is a bureaucratic method to avoid payment of the grants. I have made the case before that instead of having the condition that the inspector should call before work commences it should be sufficient that the inspector would call before work is completed in order to decide what exactly was done. I would ask the Minister to look sympathetically at this.

I feel, like some of the other Members on this side of the House, that the changes are minor and cosmetic. I do not agree with Senator Higgins that it is the start of a reform. I would expect that reform would show considerable flair and imagination and start on a course which would get us out of this impasse regarding all the problems I have mentioned.

An Leas-Chathaoirleach

I am sorry if I upset you by interrupting you, Senator Fitzsimons, but I do not want the debate to drift away from the Finance Bill. I appreciate that you were coming back with the tourism point. I call Senator Hourigan.

First, I would like to welcome this Bill and to say that in my opinion it goes a long distance to help to solve the difficult problems that exist at the present time. It does, as we know, concentrate mainly on the areas of VAT and income taxation generally, including PAYE. Frankly, I believe that right through the Bill and right through the statement of the Minister this morning there is a clear and positive indication that these two vital areas of taxation — VAT on the one hand and income taxation in its various forms on the other — are being tackled very seriously with the very definite objective of establishing equity and also of establishing a more progressive and more industrious economy than we have at present.

It is only appropriate that we all acknowledge that matters in the economy are difficult. It does require very positive and definite measures, as introduced in this Finance Bill, to take care of what is a very difficult situation. However, it is encouraging to note that in recent times we have very definite and clear evidence and examples of where improvements are coming about, particularly the fact that our inflation rate has come down to the level of between 5 and 6 per cent. It is now lower than that in the UK. It is in accord with the inflation rate throughout the European countries, many of which are our competitors in various fields of exports and also in the import area. That is an important barometer. We look forward to a greater, and hopefully more rapid, reduction in interest rates than has been the case in the recent past.

Having said that, I would acknowledge that the levels of personal taxation are still significantly too high. In spite of what the Minister has done in the budget — which will help the matter quite a lot — levels of personal taxation are too high. I am certain that we have not yet achieved this thing we call equity where persons who can afford to pay tax are paying it to the extent that they ought to and that those who are in a difficult position are not overburdened. As of now and as of the immediate future that still continues to be the case. I know the Minister and the Government are working very positively and very definitely towards correcting that imbalance. At present, if you look at the PAYE sector, there is not enough incentive — even in spite of these changes in this Bill — for them to take the greater risks and greater responsibility that one would like them to take because of the tax dimension. This is fairly serious. We have, in fact, even allied to that, a situation in some cases where in multinational companies workers are taking certain options of working in overseas plants of these companies rather than working in a home-based situation, which again, unfortunately, bears out the point of this taxation problem. Nevertheless, we must acknowledge that any changes in the taxation code that are introduced will be criticised. There will be no system that is going to be perfectly and ideally accepted by any section of the community. By and large it is an inherent trait in people generally that they do not like paying taxes and they pay the minimum amount of tax that they have to pay. That is a natural trait in people.

As we progress and move forward there is a greater responsibility or understanding. People realise that the Government of the day are, effectively, housekeeping on behalf of the taxpayers. They take in so much money on the one hand and distribute that money in the form of benefits in social welfare, health, education, justice and various other areas as best they can. There is no question but that there is a better realisation of that very important fact. It does need stressing that the Government have a function in the collection of moneys from people in tax. Their most important function in the first instance is to make sure that they have an equitable, reasonable and fair system. I am satisfied that while this has not yet been fully achieved the steps that have been followed in recent times — and, indeed, in the last two years during the period of office of the present Government — are leading in that direction. It is not something that can be changed overnight where one had a very major imbalancevis-a-vis the whole tax situation. At the present time we are moving in the right direction.

We have now within the VAT context zero, 10 per cent and 23 per cent levels. That, in my view, has been a great help to industrial development. It has been a great stimulus to get business moving again, coupled with the concessions that have been granted to the PAYE section. We have, very closely linked with all this, a very major unemployment position. We have a number of things linked very definitely here where we have a major balance of payments deficit. There is no way that we are going to have a major alleviation on the taxation front. This is a fact that has to be realised. We have that major balance of payments deficit. It is not something that came about overnight but something that has come about over a number of years. Basically, it can be related and traced to excessive foreign borrowing for the purpose of everyday spending. This is where, I do believe, that people today will criticise the Government for borrowing for day-to-day spending. Those persons might, realistically, examine the sort of moneys that were borrowed in the past for the very same purpose. In proportion to the value of money at that time, far greater sums of money were borrowed. It is true to say that there are higher figures borrowed now than in the years gone by. That is very understandable with the drop in the value of money. If people are to be absolutely honest and straight about the matter, we must admit that we have had a lot of excessive borrowing of finance for personal spending. This in itself has been the root cause of a lot of our problems.

There are many things within the Finance Bill that one could talk aboutad nauseam but I do not propose to do that. There is one matter that strikes me very forcibly by way of its exclusion rather than otherwise. That is the question of the rescue package for farmers. This has been referred to earlier today by a number of persons. I, too, would add my voice to the absolute need of there being a rescue package for people in financial difficulties. This, indeed, does relate very forcibly to a tax situation. Quite honestly, there are 5,000 to 6,000 persons out there and without some form of rescue package this year not alone will they not be taxpayers but they will not be viable operators of businesses at all.

We know that perhaps 220,000 or 230,000 persons have benefited very directly this year from the change in the taxation system. This is very good. We have also seen the removal of a certain distortion of trade by the VAT changes. We still have a certain amount of VAT. We have had improvements, but yet we have a distance to go. There is no doubt but that cuts are being made and being made very, very bluntly and very severely. I have listened to a number of speakers during the afternoon talking about borrowing, and borrowing for social welfare payments, and so on and saying that this was totally and utterly irresponsible. There is no way that one can cut beyond a certain level. If money is not available from within the economy itself there is no choice but to borrow that money. I disagree slightly with what the Minister of State in his address earlier today. I believe that borrowing for productive purposes is a proposition that can pay dividends, but productive purposes need to be very clearly and carefully defined.

We have had a good deal of talk about the construction industry and the infrastructural areas being in the productive area. Perhaps one could debate that point. We have areas that are very definitely related to the productive capacity. They are agriculture, tourism and some industrial projects. I am satisfied that the potential in these three areas, if fully exploited and developed, could yield a massive return that would, in itself, in the form of taxation yield a great deal to the economy and would help enormously in the area of unemployment. In fact, it could change the whole face of thingsvis-a-vis our balance of payments deficit. I acknowledge and agree with those who make the case for the construction and infrastructural business. Our present problem is one of taxation — why it is at a certain level and why it is not at a lower level. Our problems are not totally and utterly confined to Ireland but are of a worldwide nature.

I, like other persons, share the confidence that the worldwide recession will not last indefinitely. It is very important that were as a nation should place ourselves in a position to avail of that improvement when it comes about. For that reason infrastructural development is an extremely important matter. The establishment of industry, which will of itself yield a lot to our economy in the way of taxation of various sorts and in the way of employment and of persons paying tax, is going to be of paramount importance. It is the foundation stone for effective and meaningful industrial development in the future. A great deal more needs to be done in the area of capital taxation with particular reference to the area of capital acquisitions tax. A certain amount is taken on board there but it is an area where a good deal more must be done.

In the area of small businesses and their development, I believe that those who are prepared to engage in small business development must be given very serious tax considerations to make sure that those businesses can get off the ground. I also believe that while for manufacturing purposes various grants and aids are available, there are a lot of service industries of a small nature that in no way are entitled to any concession of any sort either in the form of grants or taxation concessions. I believe that those service industries should, too, be considered for some special help. They reduce the number of unemployed and in that way they affect very positively the whole matter of taxation. They reduce the number of persons to be looked after by the State and, consequently, the social welfare bill is reduced accordingly.

In the last 12 months we have seen an extremely encouraging performance in the area of exports. This is something we can all be glad about. It is something that the Government can claim as a very positive achievement, where our exports have been very good and where we have made a major impact in markets that we did not have access to before then. Regrettably, we have not seen a spinoff effect in the employment area because of this development. This is a great pity.

We have our balance of payments dramatically improved. We can only look forward to a significant reduction in foreign borrowing when we do get our balance of payments into its proper and correct perspective and proportion. That is something that must be understood by all concerned. In the same way, if that kind of scenario does not develop, there is no way we are going to have the sort of alleviation and concessions we all would like to see in the the taxation front.

All these matters are so closely intertwined, inter-related, that we would not want to forget that we do not stand up and make claimsvis-a-vis taxation in isolation. We must attach them in their correct perspective to the matters of balance of payments, foreign borrowing and so on. If we do that, we will be on the right road.

Land tax was talked about a good deal. Land tax is quite a different form of taxation to that which Senator O'Donoghue mentioned of the 2 per cent resource tax with which he was personally associated. We know that the late George Colley, then Minister for Finance, introduced that 2 per cent resource tax. Senator O'Donoghue made the point that there was no difference between it and a land tax. I think there are as different as chalk and cheese. There is absolutely no comparison. It is utterly ridiculous to even attempt to make a comparison between those two forms of taxation. The 2 per cent resource tax was nothing more than a tax on turnover. A person need not be the owner of any property. If he had a turnover of X thousands or millions of pounds, he would pay 2 per cent on that. It took no account whatsoever whether that person was a propertied person or not. The land tax, though perhaps not perfect, is not of that nature. It is based on an adjusted acre basis of valuation and does take account of the person's property situation.

I would say to the Minister that there are a number of anomaliesvis-a-vis the land tax that include such things as hardship cases caused, perhaps, by excessive borrowing, by disease in livestock and by other factors that need further consideration. We must acknowledge and be fully aware that the land tax has been decided on by the Government. It is a matter now of including any improvements that will avoid and alleviate hardship situations.

In the same content Senator O'Donoghue made the point, again quite erroneously, that land tax was being seen as the means of financing local authorities and he questioned its ability to do so. My understanding of the land tax is that it is one form of financing local authorities, and I do not think it is intended that local authorities can, in all cases, indeed, be financed in their entirely from this source, but it is one source for finance for local authorities and will give the autonomy to local authorities that is much needed.

I referred earlier to the area of productivity, the area that I feel can make it better for the future Finance Bills, the future budgets. I believe it is of paramount importance that moneys are made available for the real and proper development of agriculture — I will not go into the complexities of this matter — tourism and many of our industries that will positively give results. This deals with structural matters. In the tourist area we have included positive concessions granted in the budget. These are to be welcomed. I believe that that is the approach we need. If we tackle these areas and other areas like unemployment and so on will find a correct level from there on.

I am confident that the measures in the Finance Bill will not solve matters overnight but will add to a solution that already is taking shape. A very serious position has existed in the last number of years both on the national plane, international plane and on the worldwide plane. For that reason I believe our Government are to be congratulated on doing what they have done this far. The unfortunate position we find ourselves in as a nation — other nations also enjoy the same unfortunate position but do not necessarily enjoy it — requires the full thrust of everybody of all political persuasions to make sure that we come out of this.

There is one point that very often is overlooked. A Government can do only a certain amount to bring about improvements. They can create the environment for improvement but they cannot, without the total co-operation and involvement of people, bring about the sort of improvements to enable them to have to levy fewer taxes in the future. There are two main ingredients where the Government can help quite significantly. There is inflation — we are now talking about something between 5 per cent and 6 per cent compared to 20 per cent in the not too distant past. That is the kind of inflation rate we had to sustain. Our interest rates are still artifically high and hope-fually they will come down. The Government have not created those set of circumstances. It is a matter for people themselves to take matters forward. Confidence is going to play a big part in this. I am satisfied that confidence is being restored but there is still room for improvement.

The recent budget, the Finance Bill and the three year programme have done a great deal to restore confidence. We have heard people talking about the reaction of various people in business, the trade unions and so on to present Government policy. It is very encouraging and enlightening that people who are completely detached from the political scene have said quite clearly and categorically that they welcomed the recent budget. They talked about light at the end of the tunnel. It is very encouraging to hear people who have no axe to grind one way or the other coming out positively and talking about this. There are many other areas that I could touch on, but I might run the risk of departing from the brief which you laid down. I thank you for your indulgence.

I recommend this Bill and I hope it will get the full support of every Member of this House through its various stages.

I do not intend to speak at length on this Bill as there is a repetition of euphoria because of the increasing confidence that is being created on the Government side and there is on the Opposition side the factual reaction to this Bill which is the reaction of the people to legislation which has not created an atmosphere to help people to enjoy the working environment in which they are involved. It would be very easy to stand here and just lambaste the Government because of their lack of concern for the people as is instanced in every section of this Bill.

It has been said that the economy is performing well. Anybody who talks about the economy as if it was something up in the air is living in cloud-cuckooland. The people are the economy and if you go through any small town, any big city or any rural area, you will find a lack of confidence. People are fed up listening to talk about the economy. When they go up to their community welfare officer looking for benefits to which they are entitled, they cannot get them through the employment exchanges.

There is a lack of confidence in business people in investing in labour and investing in capital projects which could be of benefit to the country. I am a long time in business and hopefully I will be able to stay in it for a little bit longer, but the way things are going it does not look as if anybody is prepared to invest time and money. When I say time there is not a business person who has not invested a large amount of time and a considerable amount of money in trying to stay in business. The climate in business is diabolical except in a certain number of export-orientated businesses which are not producing what we need. They are not producing jobs and they are not producing profits retained in this country. The only effort that has been made in the past couple of months was an effort by the Government to have profits made in this country re-invested without problems. Multinational companies are not going to get involved in that sort of rubbish. If they have profits they are going to repatriate them to the countries from which the company came.

We have a beautiful economy with inflation falling, the jobless rising and the climate for the ordinary business person deteriorating. If one had a small industry or a major industry which is export-orientated and which is not Irish, where profits are being expatriated, one does not see support industry growing in the area. One does not see the spending power in the area in which that industry is placed benefiting because the profits are not being reinvested. There are very few people working in these factories so, therefore, you see the economy in terms of a book-keeping exercise of the Government seemingly improving, but the climate for investment in business is declining.

Senator Hourigan mentioned that the world wide recession is over and that this would be a big help in keeping the improvements in the economy alive. Anybody who looks at the world economy will have to agree that it is not improving. We are beginning to see the first signs of the break-up of what was considered to be the major transformation in economic terms in world economy in the last few years and this is the breakdown of the supposedly fantastic American economy. There will be a downturn in the American economy this year which will have the gravest effects on countries like Ireland which are dependent to such a large degree on exports to the United States. It will have grave effects on countries of the Third World who have been increasing exports to the United States and who seemingly have been benefiting from an upturn in the United States economy. Once the United States economy starts flattening out, the benefits that were being given to Third World countries will disappear and they will find themselves in the situation in which we are at present. The people of this country are not getting the benefits they should be getting.

Incentives have been mentioned by many speakers. There has to be an incentive for people to work and also an incentive for people to employ. The incentive to employ with a tax of 12.7 per cent on employment at present is too little. That 12.7 per cent has to come off the top. It is a little bit like the McDonald's franchise, everything comes off the top and PRSI comes off the top before a penny is earned.

Then we have the penal rates of VAT. We hear continuously Government speakers talking about the simplification of the VAT system and the fact that they brought down the high rate of 35 per cent to 23 per cent and in certain areas have levelled off the 23 per cent to 10 per cent. It was this Government who increased the VAT rate to 35 per cent. Why give credit to someone for bringing down a VAT rate of 35 per cent to 23 per cent when it was they who introduced it in the first place? Why should the public be expected to fall for that ludicrous argument? Why should business people give credence to that kind of argument?

One of the only pluses in the provisions that have been made over the past 12 months for work improvement has been short term employment schemes which up to now have not been geared towards the learning process or helping young people to advance themselves, but rather have they been schemes to get people off the unemployment assistance list to prove that they are not unemployed, stick a shovel in the hands of a graduate and say "go off and clean the side of the road." I am not suggesting that the side of the road does not need to be cleaned and that it might not be an exercise in humility for a graduate to do so, but in terms of work done and job satisfaction these schemes have been ludicrous. They are now being replaced to a large degree by schemes whereby people can work for two-and-a-half days and get £70 per week and can go off then and work somewhere else and not, as the legislation states, be caught in the trap of illegality because they are doing two jobs and collecting social welfare benefit. In my own county of Kilkenny we have a large number of environmental improvement schemes which come under the aegis of the two-and-a-half day working system. These are schemes which, when there was an environment grant available, would have been done under the environment grant. All we have done is change the verbiage and the civil service bull and pretend to people that there is a new system of encouragement for people to work being introduced. Many people may benefit in the short term from these schemes but there is no long term benefit for the people involved.

We have had an excellent response to the teamwork schemes. This was introduced by the Government under the Youth Employment Agency, and it has to be said that it was an excellent attempt to get young people involved in projects which were of benefit to the community. Having brought in the schemes, it is impossible for these people who are privately motivated and if they are privately motivated — they are not State agencies but voluntary agencies who have got together and brought in five or six people to clean up a river or plant flowers in certain areas — but now they cannot continue the schemes because they cannot get insurance. The teamwork system throughout the country is breaking down. The Government will say that it is not their job to insure people who are not employed by the Government. The scheme was set up to give young people a chance. The Government should put their money where their mouth is. Every public employee is insured under the aegis of the same insurance agency. Why should anyone involved in a teamwork project not be insured under the Public Authorities Insurance Act? Let the people who are the sponsoring people pay the premiums but let the insurance policies be taken up by the State agencies. It is ludicrous to bring in a half cocked system of teamwork enterprises and then pretend they are going to work but then make certain that they cannot work because insurance cannot be got for them.

The special taxation report was mentioned today and the fourth report of the Commission on Taxation in which it is suggested that there should be changes in the local taxation scene in that a resource or property tax should be brought in. I cannot for the life of me see why they are prepared to allow a taxation system based on property but not allow a taxation system based on land. It seems ludicrous to me. On the one hand, they say that you must tax all property on a local basis or on a regional basis and give the money to the local authority and, at the same time, they say that land tax is out. There seems to be a total divergence of reality as between the two concepts in this. It is interesting to note that the farmer representatives — and there are farmer representatives — on the Special Taxation Committee did not sign this document. I wonder why. Perhaps they can see, like many other people can see, that if you start taxing property you are nationalising property in actual fact. That is the end result. It is all right to say we will put a £10 per house tax or a £10 per business tax or a £10 per square metre tax on and say that it is not nationalisation. But who is to say that next year the Government will not make it £20 or £50 per property and let the State in the end own all property? That is the inevitable result of this special report. There may be people who would wish to see private property taken out of private hands and invested in the State totally. I am not suggesting that that is an immediate probability, but the inference in that report is that property should be nationalised. There is no doubt in my mind about that.

The areas of our economy which could have benefited from an adventurous Finance Bill were mentioned — agriculture, tourism and service industries. In fact, agriculture has not benefited one iota from this Finance Bill. There are a number of people who seem to think that agri-business has to do with farmers who are making a fortune. There are very few places where agri-business does not have an influence. There is no area in which the spending of the agricultural community is not important.

One of the reasons for the downturn in the building trade over the past number of years has been the fact that aids to farmers for developing their lands, their buildings and their facilities to improve their profitability were withdrawn. Once they were withdrawn the small builders failed. They had to fail because their livelihood was taken away from them.

The tourism industry is benefiting as a result of the increase in the number of Americans and British who are coming here. It has been said that that is because of the imaginative policies of the Government. It is happening because Ireland is a reasonably good country in terms of the value of the dollar versus the punt, or the punt versus the £. They are coming here because of our climate. Not everybody wants to go to the sun. Many British people are coming here instead of going to Spain or Portugal because prices are increasing in those countries. The only reason they went to those countries was to lie in the sun and drink cheapvino. Now the vino is not so cheap, they understand the language here and they can relate to the people.

The Government have done nothing to boost tourism. They say that they have brought down the rate of VAT on hotel bedrooms by a small amount and that that will attract tourists. The VAT rate on hotel bedrooms has very little to do with increased tourism from America or Great Britain because when the all-in price is worked out by the tour operators a decrease in VAT will not make much difference. Many local authorities have had to cut back on refuse collection services, resulting in a growth in what we thought we had eliminated, the indiscriminate dumping of refuse on roadsides. I am not suggesting that the Government are totally to blame for this. Some people who like to drive their children into the classroom would not bother their barney to burn or bury their refuse. It is much easier for people, say, from Tipperary who go to the dogs in Kilkenny, to dump the stuff into the boot of the car and drop it off in County Kilkenny and expect somebody to collect it. I have noticed in Kilkenny city that people will drop off rubbish outside a business premises where there is no refuse bin and expect the corporation to deal with it. Indiscriminate dumping may seem to be a minor matter, but in terms of tourism we were considered a dirty country ten years ago. Because of improvements in our refuse collections and in the education of our people, Ireland has been achieving a reputation of improving environmentally all the time and dirt such as was there ten or 15 years ago was not seen. When people talk about charges I hope they realise that a simple thing like refuse dumped on a roadside can deter a tourist from ever coming back to that spot.

It is too easy to spread despondency among young people. Young people have not been over encouraged by politicians, business people or trade unionists over the past few years because everywhere they turn the cry is that we have a great number of young, well educated people but no jobs for them. I sincerely hope that we can stop that cant and give the young people encouragement. Young people, especially well educated people, are getting jobs, though they may not be getting the jobs that they want. We must tell it as it is. They know from their peer groups that jobs are available, but they may not get them where or when they want them. We should not be continually telling them that there is no hope. I was speaking this morning to a group of third year girls in a convent in Kilkenny. They were not despondent about the future. Older people are more despondent than the young. It may be said that that is because young people have not got the sense to know what is what. Young people of 15 or 16 years of age know what life is about. They have a good idea of where they are going and that they will eventually, get suitable work or if it does not suit them they will, at least, have a chance to be employed gainfully.

I was disappointed to hear Senator Manager ask where the entrepreneurs were in Ireland. He suggested that Ireland is a country in which there are no entrepreneurs, no risk takers, and that only in Government, semi-State or State bodies will you find risk takers. There may have been some risk takers in the public service, but the risk they take is with the public's money. The risk takers, the private entrepreneurs, are risking their own money and their own time. When they go out of business there is nobody to bail them out. Allied Irish Banks today claimed profits of approximately £64 million. They made a provision for bad debts of about £30 million, which was half the provision for bad debts made by the Bank of Ireland. A bad debt in a banker's book is two words, but the bad debt in many cases can mean the demise of a family business. It can be the wiping out of years of enterprise and can have the most devastating effects.

I was speaking to a family the other day who were leaving a business premises and had no place to go. It could be said that this was of their own making, but it was not. They worked extremely hard to try to create a profitable atmosphere but failed to do so. The bank were being paid as much as they could get out of the sale of the premises. The suppliers and the taxman were getting as much as could be got, and a 50 year old man and his 49 year old wife and two young children were heading off to stay with relatives until they could rent a caravan or get unemployment assistance organised, and somebody who has been self-employed finds it difficult to get unemployment or any sort of assistance if he has not been involved in PAYE or PRSI. A bad debt is something that we must not just consider as two words out of the dictionary. A bad debt can be a devastating and cruel blow to a family situation.

Unfortunately, we see more and more people going out of business. The atmosphere in the business that I know best, the motor trade, is one of continuing downturn. There is absolutely no sign of a recovery in that business. Up to two or three years ago when a garage became vacant it was turned into a furniture emporium and throughout the country garages were changed overnight into furniture shops because the building industry was booming and houses were being built at a greater rate than they are being built now. People were buying furniture and all the ancillary items that were needed to furnish their houses. Now the garages that closed down then and were turned into furniture emporiums are being closed down again because the furniture business has collapsed as a large element in the motor trade has collapsed.

They are being turned into garages again.

No, they are up for sale, and if you think they are being turned back into garages you are living in cloud cuckoo land. Anybody who would go into the garage trade at present, might have the backing of a very large sum of money going in but he would be guaranteed that he would have nothing coming out.

Provision and cost of jobs must be taken into account when we deal with the Finance Bill. Nothing in the Finance Bill will create the environment for new job creation, and now a further element being brought in is the conflict between the IDA, the Government and the Hyster Corporation about the viability of a business. The Government seem to be saying that the corporation were not putting enough risk capital up front, that the Government were putting up all the risk capital, but not account was taken of the number of people who would be employed who would be contributing to the economy.

The loss of those 800 jobs in Limerick because of a divergence of opinion about the risk capital cannot be justified. We will always have an element of risk in business and it is extremely difficult to quantify the real risk, but if the IDA, who have been extremely successful, are not to be allowed to do the job for which they were set up, they should be disbanded and the gurus in the Department of Finance who have never been out in the real world should attempt to take up what the IDA have been so successful at for many many years.

We criticise the IDA on occasion when firms which they brought in here fail, but their record in job creation and job maintenance has been excellent. There is absolutely no doubt about that. I hope that either the Department of Finance, the Government Ministers or whoever is making the decisions will have the courage to disband the IDA and tell them that they are not relevant any more because they have not got the powers that they had, or that they will be allowed to continue to do the job at which they are so excellent.

The inflation rate drop to 6.2 per cent has been mentioned. Fair enough, it has dropped to 6.2 per cent, but not because of internal measures that were taken. The basic reason for the drop to 6.2 per cent is a continuous drop in world oil prices and in our foreign borrowing, nothing except external exchange rates influences.

Certain Government Senators have suggested that we can not increase investment in the building industry, that too many office blocks around the country have not been taken over. The building industry does not produce office blocks alone. That industry is very labour intensive, uses Irish products extensively and has very little foreign involvement. Throughout the country we can see that the infrastructure needs attention and the Minister of State, Deputy Fergus O'Brien, here last week in the Seanad said that we are spending a fortune on building roads. I said on that day that we are building eight-lane carriageways in certain areas and we cannot improve a county road in Kilkenny, Clare, Mayo, Galway or wherever because the money is not being provided. Senator Alexis FitzGerald alluded to the fact that we are to have a six-lane highway passing St. Patrick's Cathedral in Dublin. That most ludicrous suggestion is worse even than the decision to build the Dublin Corporation office block at Wood Quay. Imagine the damage that will be done to medieval Dublin by that monstrosity of a roadway. If that is what spending money is about I am afraid that the Government are making a big mistake. Throughout the country building firms are closing and going into liquidation daily. A builder told me recently that when he gets a contract now he wonders where he got his figures wrong, because competition is so strong in the industry that they cannot get contracts unless they misprice them or price them to a point of no profit.

It is all right to say the economy is doing well, but when we look at the elements that make up the economy we must admit that unemployment growing rapidly, let nobody be fooled about that. Seasonal upturns that we expect in the building trade are not coming about this year. Rather at this stage of the year when the building and construction industry should be at maximum activity we find that the climate is deteriorating and people are still losing their jobs. There was a drop last month in the number of people employed in the building industry when every other year there would be some sort of an increase at that time. Cement sales are down. Even sales of imported cement which is being dumped here from Spain and other places are down, not because of competition but because there is no point in bringing in cheaper cement from Spain and then leaving it on the docks at New Ross, Drogheda or Dundalk. The changes in personal taxation will not have the anticipated effect. The Minister's short and enthusiastic statement in his budget speech implied that people would be better off as a result of changes in the tax bands, but reality struck people when they got their tax certificates from 5 April and found in a number of cases that they are paying more now in tax then they were before the taxation year ended.

The feeling in the country is one of despondency, as I have already stated, and the Finance Bill as presented to the House is not doing anything to decrease this despondency. There is no point in suggesting that decreasing VAT rates is an advance; it is bringing things back a little towards what they should be if the VAT rate had not been raised to 35 per cent in the first place. Certain industries such as the white goods, radio and television industries should not have folded up as they did. We have seen the recent demise of a company which has been in the country for many years: the closure of Philips radio manufacturing company of Clonskea proves the point I have just made.

The House will be dealing with the details of the Finance Bill on the Committee and Report Stages. The Bill gives nothing to the people, and to try to gloss over the problems by suggesting that the economy is doing well is ludicrous.

I have great respect for Senator Lanigan. He has always struck me as one of the most intelligent Senators on the other side of the House——

When is he going to say "but"?

——and I have no doubt that if he sat down and constructed a speech on Second Stage of the Finance Bill he could produce a speech which would be worthy of that important occasion. On this occasion he has failed to do that. He has produced a speech which, because of his basic honesty, contains more than one or two nuggets of truth, but because of the apparent lack of preparation seems to wander all over the place and blame this Government for everything which I am sure Senator Lanigan in a more thoughtful mood would realise either was not the responsibility of this or any Government, or alternatively was primarily the responsibility of the Government which consisted of the party he supports.

One thing which struck me about Senator Lanigan's contribution was that he expressed the wish that we should tell it as it is, that we should give the people hope; but having made that excellent suggestion and having brought to our attention that many young people had hope, he proceeded in the rest of his speech to demolish that hope. He certainly did not tell it as it was. He told it in the same negative way as it is being told by the party which he represents, not only in this Chamber but in the other Chamber and throughout the country. It is important that it should be told as it is. People should be told the good things, and the bad things should be examined and corrected and blame should be apportioned to this administration or to any previous administration of whatever hue which is responsible for any difficulty which might be disclosed on analysis.

There appears to be within the Fianna Fáil party a complete dislike, distaste and distrust of economists and the economy as if the economy was something separate from the people and did not represent what a man or a woman has in his or her pocket on a Friday night. This is what the economy is. It is the ability to maintain a standard of living not only for those people who are in work but for all those people who are unfortunate enough not to be in work. This is what the economy is all about. It is not something which Deputy Alan Dukes, Minister for Finance, fiddles around with inside the Department. It is real. This anti-intellect-ual bias which is becoming dominant within the Fianna Fáil Party is something that we should stop and bring to their attention as being against the national interest. Knowing the patriotism for which the Fianna Fáil Party are famous, I know that if we persuade them that it is not in the national interest that they will stop doing it.

One of the measures of the health of the economy of a country is the way in which its currency is behaving. With some pride we can look at the way in which our currency is behaving in recent times. On the front page of theFinancial Times last Monday morning, 20 May 1985, it was pleasant to see a little box on the top left hand side stating that the IR£ continued to be at the top of its band in the EMS, to be the top and strongest currency within the EMS. In addition to being told the bad things about unemployment, which they are entitled to be told, the people are also entitled to be told this. We are entitled to have that national pride. When it was, unfortunately, necessary at one stage to devalue our currency everybody knew about it, and now that our currency is riding high they should also know about it. There is good reason why our currency is at the top of the currencies within the EMS. First of all, there is the strength in our balance of payments. It is true that our balance of payments is not as good as our balance of trade, but our balance of payments has improved dramatically. An examination of the annual report of the Central Bank, which was recently published, pages 86 and 87, will give a good idea of what I mean. The figures for 1984 are not fully available but it is quite clear that there has been a dramatic improvement between 1983 and 1984 in the balance of payments. An examination of the 1983 figures and a further examination of the quarterly figures given for 1984 show that there has been a really dramatic improvement in the balance of payments during the course of that year. This is something of which we may be proud on the one hand and is the reason why our currency is so strong on the other.

In addition to this, we can also be proud that our balance of trade — our imports versus exports — has improved from a situation where we were importing £1,365 million more in 1979 than we were exporting, to a situation where we were as close to equality in 1984 as made no difference, and all the indications are that in 1985 that we will have a trade surplus. This is one reason why our currency is at the top of the EMS band and why our people should be proud of that fact, and it is one of the reasons why the people in Ireland, whether they are Fianna Fáil or Fine Gael, should be proud of that fact.

The third reason why our currency is at the top of the EMS band is because of our inflation, and there has been a general welcome in the House today for the fact that the inflation rate has dropped to 6.2 per cent. There has been a total misunderstanding of the significance of that achievement. Senator Lanigan, for example, seems to suggest that it is only because it came down everywhere else. If I am wrong, I am sure he will correct me, but that is what I understood him to say. Of course that is not right.

If you look at the annual report of the Central Bank for 1982 you will see on page 37 of that report in 1982 our inflation rate was 17.1 while the average inflation rate of the OECD countries was 7.8. In other words, it was two and a half times the OECD average. In 1983 it was still almost double the OECD average. Now, the situation has come about where it is only fractionally above the OECD average, and that can be seen on page 43 of the latest annual report of the Central Bank. In 1985 the position in Ireland is that an inflation rate of 5½ per cent is expected and that the OECD average is estimated to be 4½ and the EC average is estimated to be 5¼. This is the reason that the Irish currency has behaved in such a strong fashion. These are the facts to which the people are entitled.

Also, on examination of the way in which relative wages costs have gone in Ireland — not wages, because wages have continued to expand in Ireland and to grow — but relative wage costs, taking into account productivity, will show that consistently over the last few years the relative position with regard to Irish wage costs has improved whether expressed in national currency or expressed in foreign currency. That is the fourth reason why the Irish currency continues to be at the top of its EMS band and that is why the pride, of which Senator Lanigan spoke, should be rekindled in our people and why we should give them hope for the future and not be speaking in a negative fashion on all occasions.

In addition, there is another reason, of course, why our currency is so strong, and that is because there is a determination by the Government to reduce their borrowing and to reduce particularly borrowing for current purposes. I will deal with two aspects of that matter separately, because there is a political stance within Fianna Fáil developing on this and it is important that we should tell the people the truth before that political stance would become the accepted wisdom. Secondly, I would like to suggest some future action to the Government in this area. But, not considering for the moment either of those two points, it is important that the Government have succeeded in limiting the growth of the budget deficit and indeed reducing it as a percentage of our gross domestic product. That shows a very significant determination which is recognised abroad and is one of the reasons for the strength of our currency.

I would like to say why it is important that the political stance being adopted by Fianna Fáil in this matter would be tackled head on. There has been much talk recently within Fainna Fáil in criticism of the Government, much talk that this Government had engaged in more borrowing than Fianna Fáil. That is the general tone of the discussion. I heard the most extraordinary speech today from Senator Ellis on the matter: it was the most extraordinary speech I ever heard. The central message he was trying to get across is that we borrowed more than they borrowed. If you look at the situation from 1978, Fianna Fáil has been in power approximately half the period of time since then. In considering the question of borrowing and who is responsible for it, it is not the man who is borrowing the most money but the person who creates the conditions which give rise to the borrowing who is responsible for the borrowing. If you abolish rates and substitute borrowings for those rates and after a few years lose power, leaving the same policy intact, the increased borrowing of the following year is your responsibility, not the responsibility of the new administration.

It is very important to understand that what Fianna Fáil did in the period of office between 1977 and 1981 is to create a condition not only where they needed to borrow during these four individual years but they created a condition where the condition of borrowing in the future became a permanent part of our life unless corrective action was taken. They are responsible for the borrowing which took place, even though it took place in our period of office. In addition, to that, of course, the borrowing between 1978 and 1981 was in itself substantial and continues to give rise to the need for substantial borrowing. In 1978 the deficit which needed to be borrowed for — the current deficit — was £398 million approximately; in 1979, £522 million; in 1980, £546 million and in 1981, £802 million, giving a total borrowing over that four year period of £2,268 million. This was the borrowing needed to finance the current deficit. That borrowing, of course, had given rise to the need to pay interest on that borrowing and that interest itself had to be borrowed in the meantime. The cumulative effect of those four years borrowing has been, according to my best estimate, a need to borrow for the foreseeable future a sum of £300 million, or £300 million of our current deficit is the responsibility of Fianna Fáil and can be traced back to the specific borrowing of those four years.

This is quite separate and distinct from the conditions which they created which gave rise to the need for borrowing in future years. For example, they abolished rates and they did not substitute anything for them except borrowing. They responded to the Murphy decision on PAYE and really borrowed without making any alternative arrangements. They made various concessions on PRSI and did not broaden taxation in any way to make up for it. They expanded the numbers in the public service, a thing which is very difficult to reverse, and made no provision other than increasing borrowing for that irresponsible action.

Against that, in the national plan of the Government,Building on Reality, you can see where the Government have set tax limits on pay and pensions over the period of tax, and if this kind of financial discipline had been undertaken by Fianna Fáil then we would not be in the mess in which our public finances are today and which require such careful husbandry by the present Government. Having said that, it is also true that to say that some people within the Government administration had been critical of the Government, myself included, not because they have not managed the public finances well — because they have done an exceedingly good job — not because they have not been imaginative in the matter of taxation because, by and large, they have been, irrespective of what the Commission on taxation might say, but because there appears to have been a failure to tackle the problem of public expenditure in as dynamic a fashion as it should have been tackled. That is a very easy thing for me to say. I am not going for election therefore it is easier for me to say it. But that is why I am saying it. The fact that it is easier for me to say does not mean that it is not right. I think it is not that we are overtaxed but we are spending too much. We are not really tackling the problem. We have not really rolled back the additional expenditure which was created by Fianna Fáil in the period from 1977-81. We have not even begun to change the attitude of mind which gave rise to that initial expenditure.

The public reaction to things like the Hyster Corporation is that the Government should continue to throw money, even any amount, at a problem in the hope that it will solve it. First of all we should convince the people and re-convince the people that reduced public expenditure is necessary and having done that we must then go out and do it.

I was looking for an example of what I mean during the week, and the Members of the House will be familiar with a document which was produced in 1983 on an experimental basis by the Department of Finance and on a much more substantial basis in 1984 called the Comprehensive Public Expenditure Programme. We have already discussed it in this House and I congratulate the Minister on what I considered as far as I am concerned or anybody else interested in public finance, one of the most prominent developments in information that has taken place since the foundation of the State. In this, the activities of the State in so far as they are covered — and almost all of them are covered now — are gone through item by item. I was looking for an example for my speech here and the first one I picked, without looking for it, was forestry. Page 127 of the current report dealt with forestry and shows precisely what I mean by our failure to tackle the question of public expenditure.

The Government expenditure anticipated in forestry in 1984 is £46.9 million almost £47 million and it is divided between capital expenditure and current expenditure and overheads and various other things and, of course, there is also a little sawmilling and there is game development and management. There is amenity development. Leaving aside the amenity development, the game development, the wildlife conservation, leaving aside all those things we can discover the following information with regard to forestry. The total cost of maintaining our forests and of harvesting material out of forests — I am not talking about creating new forests — plus the proportionate amount of administrative overheads in the year came to £22 million which, when you add some general administrative overheads comes to about £23.75 million. That is what we spent on ordinary running expenses. I am not talking about capital. I will talk about that later.

The timber we sold out of those forests earned £9.4 million. In other words, the State lost £14.4 million, not on making an investment for the future but on the actual running of the forests. It does not make any sense to me for the State to be involved in an area of activity where it is going to lose that kind of money every year. We are planning to do it for the next 50 years. We have the grandest plans: we are going to increase our investment so that we can lose more money in the years ahead. In addition to that, we did acquire land. Every acre of land which we got and planted cost us about £1,500. That is not going to develop or produce any income for upwards of 25 years, at which stage each acre will have cost us £10,000 and when it comes on stream we are then going to lose money on the individual years in which we try to harvest the goods.

We will have to become a bit more realistic about this. I do not see any good reason why the State should lose money on forestry. All over the world forests which are owned privately make money; they are the moneymakers. The Government normally so as to use the material from the forests, have the difficulty of running the processing facilities. Even in Sweden, the vast majority of the forests are owned privately and make money. That is the main moneymaking side of the business. Our forestry cannot make money. That is £25 million which is perpetually going to go out of our pockets for the purpose of engaging in an activity which is costing us a lot of money.

Within the programme there are plenty of other examples of that. I know it is not easy to get substantial savings unless you tackle the really big spenders and that is social welfare. I know that various changes have been made in the tax codes to take account of this. It is still ridiculous for any person in receipt of the kind of money which Members of this House, with their various sources of income are in receipt of, or indeed many other people, to be still in receipt of children's allowances; it is just ludicrous. It is pushing pieces of paper around. They are taking it from us in tax and giving it back to us in children's allowance. It makes no sense.

There are plenty of other areas of activity as well within the social welfare code. The open-handed and open cheque book approach of successive Governments over the last few years to the question of maintaining single parent families never ceases to amaze me. We seem to have no control in that area whatsoever. For example, in the area of education, in the city in which I live we have so constructed our housing policy that all our young people have to go into new houses to get the benefit of the grants which are essential — otherwise we cannot buy houses. If they go into new houses, of course, they must go out to green field sites. Because they——

I do not want to interrupt the flow of the speech of the Senator, but largely what we are talking about here is taxation with some reference to expenditure, and the Senator may be giving too much attention to and concentrating unduly on expenditure rather than both.

I will be leaving expenditure very shortly. Does it make any sense whatsoever for us to bring about a situation where we so construct the areas in which our population lives that we must always build new schools? We cannot use the old ones: they are lying idle. I am not talking about really old schools. I am talking about those that are 20 years old. There is an element of planning in the expenditure of the State which is just not being tackled. I am conscious of the recommendations you made Chairman that I should not spend so much time on expenditure and, of course, I will obey your stricture in that regard. It seems extraordinary, however, when you compare it with the rambling which I heard from other speakers here today who were allowed to go to everything from bovine TB to digging potholes in County Kilkenny.

Acting Chairman

I was not in the Chair.

It seems extraordinary that what I hope was a serious analysis of public expenditure should be the subject of such criticism. I know, Chairman, that you were not in the Chair at the time. I shall have to be more careful who is in the Chair the next time I wish to make comments.

You should choose your time.

I should indeed, and you should choose your party. One of the matters which the Finance Bill has not tackled is in regard to what we are going to do now that we have all the tax avoidance and tax evasions legislation on the books. I have no objection to any of that legislation. I think it is good and it is right; I support the Minister on it and in so far as there are some residual matters still to be dealt with, the Minister will continue to have my support. But we should recognise that tax evasion has been almost a pastime in Ireland; it has been a sport; it has rivalled the Gaelic Athletic Association as a major sporting pastime of the people. As a result of that, substantial sums of money have not been disclosed to the Revenue authority. They are being held in the United Kingdom; they are being held in the banks in Ireland on the basis of declarations of residence in the United Kingdom which are not correct. They are being held, to a substantial extent, in the building societies.

We need to tackle that problem, we need to get this money out in the open. If you call for an amnesty I realise that it can be construed that you are giving too much of a break to those people who have defrauded the Revenue, and the people, in the past and I realise that there is a significant and substantial argument against it. In the past amnesties have merely referred to the fact that there would not be prosecution. I do not think that is sufficient to gain the disclosure of the kind of money I am talking about. There has to be substantial additional incentives. On the one hand, we want to do it in such a way as to get the money out in the open so that this will not happen in future and, on the other hand, we do not want to create the impression that people who have evaded or avoided tax in the past are going to get a better tax rate than those citizens who behaved themselves.

The Minister should look at this matter and give consideration to some kind of a scheme, for example, a scheme whereby funds would be put into a Government-type security which would not be negotiable and which would have a low coupon from an interest point of view, perhaps as low as 3 per cent, and that the funds would be under an obligation to stay there for a period of perhaps five years. This would represent a situation where the funds would be disclosed on the one hand and on the other hand those disclosing them would be penalised by reason of the low interest rates they would get and the State would correspondingly benefit as a result of that cheaper money. It is important that something along those lines, which is going to penalise the people who disclose the money but is going to be attractive enough for them to disclose that money, should be done.

The Minister has gone through the Finance Bill itself and, as Senator Lanigan said, we will be going through it on Committee Stage. I look forward to that as being an essential part of the legislative process in this House. The Minister has already indicated what the highlights of the Bill are. There are significant changes in the investment scheme for certain trades. It is called——

Relief for investment in corporate trades.

Thank you. I think the changes being made there are sensible. I have one or two things to say to the Minister in addition to that but he is adopting a very sensible attitude on that. I support the idea of the leasing of land and I think it will be welcomed generally. I am not going into detail now because we will go into detail on Committee Stage.

In sections 21 and 22 the Minister is making a very sensible arrangement with regard to residential accommodation and conversion of accommodation to residential accommodation. That is a first step to overcoming the problem of utilising the older buildings in our cities in a positive, constructive and tax-efficient fashion.

Under section 23 the Minister is proposing to reduce the length of time available to delay the payment of corporation tax. I have no objection to it in principle; however, I think there are practical difficulties.

The Members have discussed,ad nau-seam, the question of the reduction in the VAT rates. I do not intend to go into that. I have mentioned to the Minister before that the levy on the banks, while it is a good idea and I think it is right and proper that that levy should be there, should be allowed as a set-off against their other tax, certainly as a deduction from their taxable profits. I do not suggest that it should be a reduction of their tax but that it should be an allowable expense for the purpose of calculation. I have made that point consistently; otherwise it becomes to much of a stamp duty, too much of a levy on what, after all, is really meant to be a levy on profits.

The Minister is to be congratulated on his changes in the capital acquisitions tax legislation. I am sure the Minister has a very good reason for not extending the change to gifts. Generally, in the community there is surprise and delight at the Minister's decision but there is surprise that he did not extend it to gifts. The legislation is such that to differentiate between inheritance and gifts is quite extraordinary when you bear in mind that, by and large, people are taxed at a low rate to encourage people to transfer property and assets during their lifetime. It appears now, under these circumstances no husband would be wise to transfer property to his wife orvice versa until such time as he dies because by doing so he will avoid capital acquisitions tax and if he does it while alive he will not avoid capital acquisitions tax. That does not seem to be very sensible.

The financial arrangements with regard to Bord Telecom are something about which I would like the Minister to give us further information. I understand — the Minister will correct me if I am wrong — that it is in some way a levy which is going to be set on Bord Telecom, and that is quite proper. It seems to be tied up in some way with the authority of the Minister to take shares in the company. I am confused as to whether these two things necessarily go hand on hand or whether they are just powers that have been given to the Minister. Do they have to be operated together? Is it the Minister's intention to operate them together or is it the Minister's intention to ask for moneys from Bord Telecom Éireann without necesarily getting involved in the share transactions at the same time? The Minister will no doubt deal with these matters which arise on the Bill during the course of his reply to Second Stage. I will take the opportunity during Committee Stage to question the Minister on the matter again.

There is a responsibility on the Members of this House to ensure that the information which is given and the tone of their speeches reflect the reality in the community. That reality includes the problem of unemployment. It also includes a substantial amount of good news. I have emphasised a lot of the good news here because it is necessary to set the record straight. I would, however, be wrong to conclude without saying that the success of the nation, as distinct from the success of the Government, rests on its capacity to give gainful employment to its citizens. The long term objective not only of full employment but of plentiful employment is one which should not be lost sight of. The Minister does not need to be told that, but it is very important that our taxation policy should be consistent with that aim.

With regard to the more esoteric flights of fancy of Senator Lanigan in relation to the building industry, I think we will leave that to another day. There seems to be some kind of a coalition of interests between certain vocal elements of the building industry and the party opposite which I always find it difficult to understand. They seem to think that everyone in the building industry supports them and they automatically will support everything for the building industry irrespective of whether it makes sense in the national interest or not. The other more eccentric suggestion of Senator Lanigan was with regard to the IDA being allowed to do their job. It has always been the situation that the IDA needed approval beyond a certain amount of——

An Leas-Chathaoirleach

There is a division in the other House. I am sure the Minister for Finance would like the opportunity to vote. Senator O'Leary may continue in the Minister's absence if he would like to do so.

I do not think I have anything else to say except to thank the Minister for his presence and to hope that he wins the vote in the other House.

Senator O'Leary's contribution is nearly an admission that the Government's programme of financial rectitude has failed. When they assumed office they promised they would eliminate borrowing. According to Senator O'Leary they have not remedied the situation. If they did remedy it they would be taking all the credit for it and they would not be giving the credit to anyone else. Now, because they cannot remedy the borrowing situation they are blaming their predecessors. They have been there long enough to have remedied it. It was disclosed in the Dáil last week that borrowing at present is £9.3 million a day. If you break that down to hours it is £387,000, and nearly £6,500 a minute. To say that the Government did rectify the state of the economy and especially borrowing is not on.

Senator O'Leary also mentioned the big loss in forestry and asked why the State is involved. What would his remedy be? He mentioned that private forests can earn a profit. If the Government suggested that there should be private forests or that forestry should be handed over to private enterprise, I am sure you would nearly have an election in the morning because the Labour Party would definitely not agree to such a move. The proposed land tax is expected to double. The Government should not count on the tax take from the farming community. This tax is incredible and will bring widespread disharmony. It will tax farmers without regard to their ability to pay and no other section is taxed in that way. It is an unworkable tax. It is unjust. What it will mean is that the farmer must pay even if he does not have a taxable income, which is most unfair, and the profitability of the farm is not considered, which is also unfair. It will selectively tax farmers and be selectively increased for political pressure. Political pressure has brought about this land tax. The Labour partners in Coalition are insisting on this. That is why the land tax is being introduced.

The way of life of the farmer is different from the way of life of the factory worker, the office worker, or other worker. The farmer's methods of earning income are very different also. This tax, when introduced, will ignore family circumstances. There will be no allowance made for catastrophes within the family or on the farm. You could have losses on the farm which should be taken into account. There will be no account taken of the farmer's financial position. Many farmers have borrowed large amounts of money to develop their farms and to ensure that they will have a modern farm to produce enough. If they had the opportunity of doing this some years ago maybe we would not be in the super-levy position in which we find ourselves today. The state of development will be ignored and irrespective of what financial position he finds himself in, or what circumstances, whether he is able to pay or not, he will have to pay this land tax, which is indeed most unfair. The land tax is being introduced by a Coalition Government. There is also the question of adjusted acres. This system will be based on adjusted acres at £10 per acre. I am sure there are a number of questions to be asked as to what constitutes an adjusted acre. There are likely to be many disputes and anomalies in this regard. Perhaps the Land Commission will be asked to decide on the adjusted acre. I do not envy them their job. It will take time for this to be finalised. Will it be done fairly? To introduce a land tax at this time when farmers' incomes are not even keeping pace with inflation is to guarantee stagnation in agriculture and at worst a fall in output and in the standard of living of most farming families. Some dairy and tillage farmers will be hit very badly, by this new tax. The fourth report of the Commission on Taxation has asked that this tax be dropped. I will quote from page 48, paragraph 5.28. It reads:

It appears that this proposed tax will be an assigned revenue and not a local tax in that there will not be scope for independent local variation. We remain of the view expressed in our first report that farming profits should be charged to tax on the same basis as other profits. The proposal for a farm tax is misconceived and should be dropped.

I hope the Government and the Minister will heed that report and act accordingly.

The Minister in his speech said that unemployment is our greatest problem and that the recent improvement in the economy has not resulted in lower unemployment and that this is disappointing. I would like to highlight what happened in Limerick during the past week when an American company named Hyster were to take over the Ferenka plant which has been idle since Ferenka moved out of it. They were going to manufacture parts for forklifts which was definitely a low risk business. There is a worldwide demand for these parts and there would be a good export market for them. I do not know what blinded the Government who did not ensure that this company would set up in Limerick where 800 jobs would be provided and would ease the unemployment situation in Limerick and would have an impact throughout the country. That business is being set up in Holland and it is a pity the Government acted in such a way that this firm had to move to another country.

Before I conclude I would like to raise the matter of VAT on hurleys. Hurling is our national game. It is artistic and is a vital part of Irish culture. It is one of our national pastimes. I have raised this matter on several occasions in this House before. Many of my colleagues, both from the other side and this side of the House, have also raised it. Our contributions have gone completely unheeded by the Minister and the Government. The GAA personnel from top level to ground level, that is from central council to club level, are disappointed that the Government are not heeding their request, which I hope to highlight here today, to remove VAT on hurleys. There is £100,000 spent on the purchase of hurleys every year and the VAT contribution at the rate of 23 per cent would be £23,000. It was even more previously because the VAT on hurleys was 35 per cent. With Government expenditure at such a high level £23,000 would not be missed if they removed VAT from hurleys whereas £23,000 would be of great benefit to the clubs and to the people promoting hurling.

The GAA are a voluntary organisation who provide amenities throughout Ireland for the benefit of youth and the public. They have provided playing pitches by voluntary contributions and voluntary work. Through voluntary efforts GAA clubs have to accumulate the price of playing pitches by organising club draws, football tournaments, festivals and so on. Through voluntary and community effort they have provided pitches, developed them and provided club rooms and other social amenities for the benefit of members and the community in the immediate area.

After providing a pitch they have to do further fund raising to meet expenses and develop amenities. The Government should appreciate this great work being done for the community by the GAA on a voluntary basis. The Government should recognise the work of the GAA in urban and rural areas. These amenities would not exist were it not for the GAA clubs. They are saving the Government from having to provide facilities. With so many people unemployed it is necessary to provide sports facilities. I strongly feel that the Government should remove VAT from hurleys. This is the only request the GAA are making to the Government. The VAT on hurleys is a penal tax on the promotion of our national game. Considering the other expenses incurred by GAA clubs and units it is not too much to expect the Government to remove this penal tax.

Insurance liability is costing the GAA £¼ million. I am not asking the Government to do anything about this. I am emphasising what it is costing the GAA to keep their association going so as to provide the necessary amenities for youth and the community. They are doing this through the efforts of the clubs and the grants from the central and provincial councils of the GAA. There is very little assistance from central government.

It would be most prudent at this stage in order to ensure that our national game of hurling will be preserved and promoted that the Minister consider the removal of the penal tax on hurleys. It would not mean much to the Government, it would only be a loss of £23,000 but it would mean a lot to the GAA. It would also show the GAA that the Government appreciate the work they are doing and would show a certain amount of goodwill towards their work and encourage the work to continue. There is much talk about our national games and the protection of our heritage and culture. The imposition of VAT on hurleys is a penal charge. Hurling is recognised and respected as being the greatest field game in the world. It is envied by people in other countries. In Ireland we choose to penalise our great national field game. I am not asking the Government at present for any relief in the rates the GAA pay but I would be delighted if the Minister would remove VAT on hurleys. I understand deputations from the GAA met the Minister for the Environment, because the rates would be an environment matter, but the Department of Finance have some control over the situation also. I believe the question was also raised in the Dáil. The removal of VAT on hurleys would be of benefit to the youth of Ireland.

May I begin with a comment on perceptions, particularly in the area of levels of taxation, the burden of taxation on Irish people and the fixation that we have an allegedly impossible burden of taxation with absolutely no possibility for sources of revenue? With all due respect to the Minister's profession I think we would want to be wary of economists. The fate of the country is far better left in the hands of ordinary people than in the hands of any experts whether they be economists, engineers, doctors or whatever. Therefore, you get this almost hysteria of reaction from the economic establishment, a large part of which is as much political mudslinging at politicians as it is an analysis of the facts, in which they apparently imply that it is simply the weakness of politicians, their inability to tackle the issues and their inability to handle the problems of society that is the cause of the problem but that we the economists know what the solutions are if only people would listen to our plainly, blatantly and entirely obvious commonsense. That is the perception which is abroad.

Reading economic journalists, particularly, one would come to the conclusion that there is not even a small iota of an alternative viewpoint to theirs, that Scandinavian social democracy never existed, that countries like Austria do not exist. There are all these examples of the capacity of a country to do a number of things at once, (1) to have a very high level of public expenditure, (2) to finance that high level of taxation, (3) as a consequence of that to have a very active and developing public service and (4) to combine all that with a very successful economy in terms of any index you wish to use whether it be in growth as in gross national product, reduction of almost elimination of unemployment and so on. Our economists have a fixation with western horizons, that is to say the United States, in which they are prepared to exclude from their contemplation things like a massive budget deficit in their enthusiasm for what they see as a magnificently successful exercise in the reduction of public expenditure, which is not true.

We have a good reason to trust the instincts of ordinary people. That is what democracy is all about. The instincts of ordinary people have identified a number of problems in Irish society, however poorly articulated they may be by the politicans who represent them however inadequately. One of these is a sense that there must be another way of dealing with the country's financial problems other than crippling the easiest target of all, the PAYE worker. A second is that the argument that a succession of cripplingly low increases in take home pay in recent years is somehow a recipe for economic take-off is also in the eyes of ordinary people highly suspect particularly when they have a fairly strong view that many of those who are in positions of managagement, ownership and control of wealth, property and capital do not seem to have to suffer from a similar decline in their earning capacity.

Related to most of those is the myth that we were pricing ourselves out of international markets at a most alarming rate in recent years. Much of this has been foisted upon us by allegedly objective economists, and economists are no more objective than myself. They have a perception of society, a perception of life, a perception of priorities and particularly a perception of what is to society at large an acceptable level of taxation and what is an unacceptable level of taxation. They have decreed that the present level of taxation in Irish society has reached some sort of absolute ceiling within which there is no capacity for redistribution of burdens and no capacity for increased revenue. I do not have a great deal to say on any of these issues but I want to produce briefly a number of figures which challenge a considerable number of the assertions made.

On the issue of taxation levels, absolute or relative, it is impossible to make a total comparison because of the extraordinarily high levels of dependency we have. We have a very high population which is too young to be productive. We also have an extraordinarily high proportion of population which is too old to be productive. Inevitably, to sustain social services — pensions for old people, educational and health facilities for young people and the increasing burden of providing even the present pathetically low levels of income for our unemployed — given our population structure relatively high levels of taxation are a fact. We are a relatively poorly developed economy and therefore high levels of taxation at a time of high prices are a burden on people. But let us get this into some sort of perspective.

First of all, on the competitiveness argument which has been sold to us by members of both of the conservative parties — I am not sure whether there are two or three conservative parties but I will give the Labour Party the benefit of the doubt — that we were pricing ourselves out of international markets. I have received in the post the OECD publication which is a mine of information. It may not be entirely reliable but much of what the OECD says has been quoted to us in the past. One of the interesting ones was the growth in real terms in exports, the volume change of total exports from 1978 to 1983 and the average percentage per year. I went looking for some of the great performers in this area like Japan which had a growth rate of exports in volume terms of 6.3 per cent. The United States had a reduction of .2 per cent per annum in that five year period. Germany had a growth rate of 3.1 per cent in the volume of exports in the period 1978 to 1983. Ireland had a growth in exports of 7.1 per cent. There was only one country in the OECD which had a higher rate of growth in exports on average per annum between 1978 and 1983 than Ireland and that was a period when the almost unanimous theme of most of our major politicians — I am anything but a major politician — was that we were pricing ourselves out of international markets.

I do not understand how the country in the OECD with the second highest rate of growth per annum in exports can be pricing itself out of international markets. I accept there are certain inefficient, poorly managed, under-capitalised, poorly marketed products produced by native Irish so-called entrepreneurs that were priced out because they had life far too easy for far too long, but to suggest that overall the Irish economy was pricing itself out of international markets seems to me to be at variance with the facts as produced.

On the question of taxation revenue, over the same period from 1978 to 1984, from the Government's figures, the growth in taxes and income between 1978 and 1984 was 229 per cent. The growth in taxes on spending was 193 per cent. The growth in taxes on capital was 80 per cent. At a time when the burden of taxation in the area of taxes and income had increased by a factor of two and a quarter the growth in capital taxation had increased by a factor considerably less than the growth of consumer prices in the same period. It would appear to me, and the figures suggest this, that what has happened is that the burden of taxation is being gradually shifted on to the backs of those who earn income or those who spend their incomes and away from those who have had the good fortune either through work or through inheritance to be the possessers of capital. What has happened is that we have distributed the burden even more unjustly as the pressures of recession began to bite.

It is also a fact that the revenue from farmer taxation over the last ten years has not exactly taken off in line with the growth in farm incomes. It is also a matter of considerable annoyance to me and to other people that whereas people paying PAYE are expected to pay what is necessary to fund the State, people paying farmer taxation are expected to pay what is usually described as a fair level of taxation. The truth is that PAYE workers do not pay a fair level of taxation, they pay a lot more than a fair level of taxation. It is not a fair comparison to suggest that other areas of earnings should be subjected to some sort of mythical fair level of taxation, by which is meant a politically acceptable level of taxation, whereas it appears that the PAYE worker, given that our two biggest parties are equally conservative on the issue of redistributing the taxation burden, will not be offered much leadership in this area but the farming lobby is considerably more powerful.

People say there are no other major sources of taxation income. They do not say there are areas that we dare not tax or that there are areas we have promised not to tax because there have been many promises made to other people about reductions in the taxation burden that were broken. I would like to know what the official estimate of profits from exporting manufacturing companies will be in 1985. It should be somewhere between £50 million, £100 million and £2,000 million, given the figures that have been quoted in recent years. We do not tax that at all. In 1990 some of them will begin to pay around 10 per cent. What we have done is we have made a deliberate choice to exclude that sector, in order to attract it here, from the burden of taxation. We are not being honest with people when we tell them that there is no other source of revenue available. What we are saying is that there is no source of revenue available that we are prepared to risk either economically or politically and, therefore, those who are not mobile in terms of being able to move with their labour or in terms of being able to move with their capital, carry the burden. Those who can threaten or who intend to move out are left virtually exempt from taxation.

The usual argument is that those areas play an excessively high level of employers PRSI. The truth is that employers' social insurance contributions are the lowest in Europe. We do not recoup it that way. What we have is a growing and active export industry employing a decreasing number of people because of the properly conceived movement towards high technology. There is only one direction for industry to move, and it is in the direction of the maximisation of efficiency. If that means a reduction in employment then that is what is necessary in order for industry to do that which is its primary purpose. This may astound some people, coming from me, but the primary function of industry is to create wealth. What we do with the wealth created is a separate issue, but speaking as a biased engineer I believe the purpose of industry is to create wealth. The wealth that is created to the extent that it manifests itself as profit is not available to this country. It amounts to the order of £1,500 million to £2,000 million. An increasing proportion of it is being exported out of the country.

At this stage we would need to have a look at the cost benefit to this country of the exemption of that level of earnings from taxation and the consequential mal-distribution of the country's taxation burden on other people. It is arguable that it may not be particularly beneficial to create manufacturing industry employment in industries where the employees have to carry a perceptibly excessively high level of taxation in order to exempt many of those same employers from a natural and reasonable level of corporation profits tax.

Somebody has to address the fundamental issue of why there is such an extraordinarily uneven distribution of the taxation burden, particularly the extraordinarily low level of capital taxation in Ireland. The capital taxation was at least two orders of magnitude higher as a proportion of Government revenue 50 years ago than it is today in a country which had very poor levels of capital formation, which was by and large extremely poor, but in the days when Fianna Fáil was a radical party — probably at least 45 or 50 years ago — they did have a decent level of capital taxation. The levels of capital taxation now are probably proportionately about one-sixty of what they were in the 1930's. There is only one conclusion one can draw, and that is that the class with which Fine Gael and Fianna Fáil have identified themselves is the class which controls and owns capital. Therefore, that class has in proportion to its numbers an enormously significant clout in the thinking of those parties. The problem economically and politically with Ireland is that the class which owns wealth and capital is in control and the class which does not own wealth and capital does not have control and, therefore, the burden is passed onto those who lack the political clout to enforce their will and will continue until such time as the class which is without wealth, power and influence comes to power.

I would like to thank the Members of the House who contributed to the debate and who, as Members of this House always do at this point in our discussion of the Finance Bill, ranged over a number of matters that go somewhat outside the strict framework of the Bill itself. I do not intend to range quite so far, a Leas-Chathaoirligh, but I am sure that you will permit me the odd passing reference in response to some of the points that have been made.

Senator Smith began this morning by claiming — as others have done — that while he felt that there were some aspects of this year's Finance Bill and budget which he would welcome he found, nevertheless, that he had to claim that to some extent I was undoing measures that I had brought into effect in previous budgets. That is something I have heard before in other places, but it is possibly one of the most facile and misleading comments about budgetary policy this year and in the last two years that could be made. There is no doubt that without the progress we made in 1983 and 1984 on the financial front, inadequate though it can be represented as being, without that progress we would not have been able to get to the point this year of making the substantial changes, particularly in our taxation system, which we have made.

I find it rather amusing to hear Senator Smith make that kind of remark coming from the lips of one who also criticises levels of borrowing, levels of taxation and who would like them both to be reduced without saying anything constructive, in my view, about what we should do about the level of expenditure. There is a three-card trick that can never be done. It cannot work because the figures will never add up. Senator Smith in one of his flights of fancy, if I may borrow a phrase from Senator O'Leary, asked me if I had been converted on the road to Damascus. It seems that he and some of his colleagues in the party started off on that road after they began to move away from a certain document published in October, 1982. They have not yet arrived anywhere, so it is very difficult to find out just what their opinion is about any aspect of economic policy. They still seem to be like a man standing at a four-cross road wondering which one he is going to take and knowing that the one he has come is not one he wants to go back on.

Senator Smith also had a number of remarks to make about the level and the servicing cost of our national debt. He asked if debt could be rescheduled, and then he bethought himself a little and ventured the opinion that perhaps it was not all that wise to speak of rescheduling debt. My only comment on that is that we are not in a position where we have rescheduled debt. I have no intention whatever—and I can assure the House of this — of letting us get into a position where we would have to begin to talk about rescheduling debt. I am, nevertheless, in the position of one who pre-pays debt, and I have been doing that to the maximum extent possible over the last couple of years. It has been a fruitful means of securing reductions in the cost of debt servicing. That may have been what Senator Smith had in mind, and I am happy to assure him that our borrowing policy is managed in a way which allows us to take advantage of conditions on the market in order to substitute cheaper debt for more expensive debt. Indeed, if we analysed it more in depth along the lines developed by Senator O'Leary we might very well find that some of the more expensive debt which we have prepaid and rolled over is attributable to the period between 1977 and 1981 which Senator O'Leary identified as being the happy father of £300 million worth of our interest payments this year.

There have been quite a few references to a number of the problems which Members of the House see in our present situation and, I must say, rather sparse references to some of the things we can count as achievements over the last couple of years. I would like to repeat very briefly some of those to which I referred earlier this morning. Last year we achieved the highest rate of growth in GNP in the European Community. I am extremely happy about that, and if other Members of the House thought long enough about it would find cause for some happiness in that. We have brought inflation down by a combination of actions by the Government and the community in general. We have brought inflation down to a point where it is now lower than in our most important competitor country and our most important export market, that is the UK. We cannot exaggerate the value to us of bringing down inflation to that point.

It is not so many years ago that we spoke of inflation being in the region of 20 per cent. We are now talking about the prospect for this year of inflation being below 6 per cent and possibly in the region of 5 per cent next year. We all know the damage that high inflation rates, or even the expectation of high inflation rates, can do to confidence, to productive enterprise and, particularly, to industrial relations. When we get inflation rates down to the kind of level that we can foresee now for this year, we have, of course, corresponding advantages. Low inflation is a factor that has a very positive influence on confidence, enterprise and above all, can have a very positive influence on industrial relations. That is something to which we would all attach some considerable importance. It is within our grasp to bring about improvements on all of those fronts. We can if we wish turn the improvements into extra jobs, more employment both for people who are coming onto the labour force for the first time and for people who have been unemployed for quite some time.

Senator Ryan referred to our performance in terms of exports. I do not entirely agree with his comments on the importance of competitiveness. The Senator will not be surprised to hear that. The conclusion I draw from those reflections is simply this; if we could make the kind of progress that we have made on the export front in 1983 and 1984, and are well set to repeat this year, if we could make that kind of progress with the cost disadvantages which we have heaped on ourselves over the last few years, how much more progress could we make if we did not have those disadvantages? The one aspect of that argument which was notably missing from Senator Ryan's argument was the simple, obvious and unavoidable fact that we have to export to live. Most other countries to which the Senator referred do not have to export to live and are far less open to the world economy in general then we are.

Senator Smith expressed some surprise at what he seemed to regard as rather excessive optimism in the early part of my speech. I do not think that I am excessively optimistic. I do not think that I would be regarded in the country generally as one of very sanguine temperament. I am accused of being the opposite. There are positive aspects in our situation, founded on the economic progress that we have made. It is perfectly in order and perfectly desirable that we should remind ourselves of them from time to time. Unless we know what the positive features are in our situation, we are not going to adapt our policies to take advantage of those. The Government intend to adapt our policies to take advantage of those achievements so that we can capitilise on them for the benefit of the people.

I apologise to the House for what would seem to be a rather discreet presentation of the points made. I hope to wrap up replies to various points made. I am taking them in the order of the speakers this afternoon.

Senator Smith was critical of some aspects of our foreign borrowing policy and in particular critical of the extent to which we borrow in dollars. That is a discussion which I have had in other places. I am quite happy to rehearse some of the arguments for Senator Smith. In the first place we must take account of what is available on world markets. There is absolutely no point in my taking the view that to the extent we borrow abroad we want to borrow in soft currencies in order to reduce the exchange risk and the burden of repayment. There is no point in deciding that and then going out to the market and finding that there are no soft currencies available. The fact is that for any country running a substantial borrowing programme it is inevitable that a substantial proportion of that will be borrowed in dollars. Over the last couple of years that is where the funds have been. In addition to that there are restrictions on a number of other markets which make it very difficult to carry out any substantial part of a borrowing programme in currencies other than dollars. In that respect, however, we have probably been more successful relatively than many of our European neighbour-countries in that we have a higher proportion of EMS currencies in our borrowing programme than most of the other member states of the EMS. From that point of view, far from having an excessive concentration of dollars in our borrowing programme, we have, if anything, been more successful than many other countries in diversifying our sources of funding over the last few years. It has been said on many occasions that hindsight makes wise men of us all. I wonder what Senator Smith's advice on borrowing was four or five years ago or, perhaps, what insight he has to offer us today as to the future course of the dollar or other currencies. If he has any advice he has not given it to us. If he had any four or five years ago it does not appear to be on the record.

Senator McDonald suggested that I should give consideration to giving some relief from taxation on red diesel for farmers on the ground that its price has risen but produce prices have fallen. Members of the House will be aware that the major factors in determining the price of oil are beyond my control or, indeed, beyond the power of the Government to control. I would point out that our existing system does provide a very substantial relief on excise duty for farmers. The duty per gallon on red diesel is 8p compared to a general rate of 17.21p per gallon. That is a measure which has been deliberately taken, and a difference has been there for some period to take account of the fact that there are particular difficulties in the agricultural sector. The duty on red diesel has remained static at its present level since the beginning of 1983. Changes in the duty on red diesel have not been a contributory factor to a cost price squeeze in relation to agriculture.

Senator Fallon wondered whether the Fourth Report of the Commission on Taxation, to which I referred this morning, would be left on the shelf. I am not sure if the Senator heard my remarks about it this morning but if he did he would know that it is not in any way my intention to leave that report on the shelf, any more than I have any of the other reports of the Commission on Taxation. It will be examined in some detail and the Government will assess the advice given, in the light of the circumstances in which we find ourselves. I cannot speculate today on what conclusions the Government might draw from a report that was issued yesterday. I do not intend to discuss in detail the relative merits or demerits of any of the proposals in the report.

I want to emphasise to Senator Fallon and to other Senators that they are completely wrong in suggesting that the Government have disregarded the findings of the Commission on Taxation. Indeed, members of the commission have said that they can see the effect of their advice in a number of measures in the taxes field which the Government have taken over the last couple of years. The commission themselves, as I said this morning, recognise that fundamental changes in the tax system take time to bring about, and stated that very clearly indeed in its first report.

What intrigues me is that I have never heard from Senator Fallon or, indeed, from any of his party colleagues just where exactly they stand in regard to the many recommendations made to date by the Commission on Taxation. As far as I am aware, they have never unambigously supported the proposals of the commission. Neither have they said that there are any of the proposals with which they disagree. In particular they have never said, although it has been part of their criticism of Government policy for some time, what their position is on the basic proposals in the first report of the Commission on Taxation. I think, perhaps, that is because they do not want to do the sums.

I wonder if those who criticise the Government for not having implemented that report are really saying that yes, they would like to see a single rate of income taxation on all income with all of the reductions, reliefs and exemptions that the commission proposed in that first report and that they would like to see a single rate of 35 per cent of income tax on all income. Are they saying specifically that they would like to see a single rate of 35 per cent being charged on all the incomes of the many thousands of people who now do not have a tax liablity? We have structured our income tax code so that people who have accumulations of personal allowances and other allowances are kept out of the tax net. I would be very interested to know if that is the view of Senator Fallon and his colleagues. All the PAYE taxpayers about whom they shed so many tears particularly during the course of the debate on the Finance Bill would be very interested to know that. The people who do not pay any tax at the moment would like to know, for example, whether Senator Fallon and his colleagues really want them to pay 35 per cent of everything they earn. I ask that question because it is a very pertinent one.

I have said on many occasions that I believe that the principles enunicated in the first report of the Commission on Taxation are defensible from many points of view and that they have proposed a change in our tax system which would be beneficial. It would be fine, as I said before, if we were starting from scratch and introducing a systemde novo, but to go from where we are now in one jump to that system would put a very substantial burden on large numbers of people with relatively low incomes. Until that is recognised I do not think there is an awful lot of point in the debate, and it has to be recognised at some time. What we have done, however, particularly this year is to begin the process of making that transition, first of all, by reducing the number of tax rates and by widening the bands. That in itself is a very important change in our system and one which will produce benefits for taxpayers over a period of years, not just this year. It will continue to be of benefit to them in future years.

Senator O'Donoghue spoke at some length about the proposals for a property tax in the Commission's latest report. Again, as I said on another occasion today, I do not intend to be drawn on that, but it seems to be a little out of keeping with the function of the Oireachtas to come along the day after a report was issued and to hand out a ready-made opinion on what is proposed in the report. That is the only criticism I would have to make of what Senator O'Donoghue said during the course of his contribution today. I am sure that he will forgive me if I do not go on at any greater length about the more positive aspects of the remarks that he made.

Senator Fallon made the criticism that in his view there is nothing in the Finance Bill to help employment creation. I do not accept that for a moment. This Bill, of course, is mainly about taxation. The two separate points in it are the changes in the income tax structure and the change in the VAT structure. The change in the income tax structure will have a substantial effect on removing disincentives to effort. The change in the VAT structure will, indeed, bring about a very substantial simplification in the system. Far more important that that, it will bring about a very substantial reduction in the cash flow burden on many productive enterprises in this country. That is something that can only have positive effects on employment. I am quite sure that there will be more meat for debate on that issue during the course of the discussion on Committee Stage.

A number of Senators raised the question of the contribution required from Bord Telecom. There will be an opportunity to debate that in more detail at the Committee Stage, but in a general way I would like to say this evening that the situation is not anything like as bleak for Bord Telecom as some have presented, nor are we faced here with an unreasonable demand by the Government. The measure that we have included in this Bill was made necessary as a result of the fact that the flow of dividends from Bord Telecom to the Exchequer has fallen very considerably behind the targets or the forecasts that were set out at the time the legislation was passed. We have to find a way of providing for the Exchequer the remuneration of taxpayers' capital that went into Bord Telecom. We have produced here a method of doing it which is neutral over time for both Telecom and the Exchequer and yet which allows the Exchequer in the short term to replace the contribution which will not be made by means of dividend, given the situation of the Bord. There is full compensation for the contributions being made by Bord Telecom on a net present-value basis over a period, so that it does not represent in any way an unreasonable burden to put on Bord Telecom.

In the moment or two remaining to me I would like to come back briefly to Senator Daly's remarks about the state of the motor industry. I understand fully the feeling that many people have that the motor industry is being saddled with a fairly heavy tax burden, but it would be wrong to attribute all of the difficulties in that industry solely to taxation. We have come through a period of fairly sharp recession, and there is no way that the motor industry or, indeed, any other industry that relies to such a heavy degree on discretionary expenditure could come through a period like that without suffering some difficulties. I would have to make the point that comparisons with other European countries in this regard are not really very valid. There are too many differences between our situation and that in other countries to be able to compare directly the tax burden that we will have to bear with the tax burden that is borne in other countries. Indeed, Senator B. Ryan pointed out a number of reasons why that is so.

It was suggested that if we were to reduce the VAT rate on cars from 23 per cent to 15 per cent we would get the same revenue yield through increased sales. I would have to say that that might be true over a period but it certainly would not be true over the period of a year or even two years, because no matter what optimistic view one might take of the degree of price elasticity of demand for motor cars, it is not such as to produce within the space of one year enough extra buoyancy in sales to offset the effects of a reduction of that magnitude in Exchequer revenue.

Senator Daly also spoke of the unsatisfactory level, in his view, of capital allowances on the business car. I fully accept the fact that the present level of allowance which we fixed quite some time ago is low, but if I were to increase it to even £7,000 which is somewhat less than the level Senator Daly had in mind, the cost in terms of tax foregone would be about £25 million. I would have to say, quite frankly, that for an expenditure of £25 million of tax revenue even though I accept that there is a foundation for the case Senator Daly has made, I would have to conclude that there are other uses of that level of tax expenditure to which I would have to give priority over that problem. At the end of the day that is what national economic policy is about. We have to make choices, and that is where I would have to make that choice, and I would be wrong to say that the industry in favour of which I did not make the choice was one which for some reason I or the Government wanted to penalise in any way.

I do not know if there is still some time remaining to me.

May I suggest——

An Leas-Chathaoirleach

I was just going to interrupt the Minister for a moment. Perhaps the Deputy Leader Senator Ferris, would indicate if the House would go on to allow the Minister to conclude.

The Minister has almost concluded, and I think the House would agree to allow him to finish so that we could complete the Second Stage now.

I do not intend to take very much longer because most of the other remarks that I want to make would possibly be more in place on Committee Stage.

Senator O'Leary made a number of very pungent remarks about public expenditure and the setting of priorities which I can only partly endorse without going over. He was making a general point but in a specific context about children's allowances, and I agree entirely with his sentiment. It makes very little sense to use a technique for paying benefits all round without regard to the need, which is precisely why we have provided in the national plan for a unified child benefit scheme where we will achieve the result of putting effectively a means test on it through a taxation system which is already in place. That would be a means of getting the kind of result in terms of equity in expenditure, about which we do not talk half enough in my view, that Senator O'Leary wants to bring about.

Finally, I want to come to some of the remarks made by Senator Ryan. I must confess that his obsession with Austria has somehow slipped my mind in the meantime but it came back to me as he was speaking. The one point I want to pick up from what Senator Ryan said, although I know we will come back to this on Committee Stage in a particular context, is this. I think it is wrong to present aspects of our taxation system as being the result of a decision that we do not want to tax certain areas or that — and I think I am almost quoting him here — we have decided that those who threaten to move out are exempted from tax. We designed our tax system and we had to make some changes in our tax system because of EC regulations and as a result of that we have a level of 10 per cent corporation profits tax which is envied by a number of other countries. We have invited people on the basis of that, both Irish people and people who have come here from other countries to set up in business and we have encouraged them to set up in business in order to employ our own sons and daughters and neighbours on the basis that up to a certain date they can be sure that their profits will be taxed at a rate of 10 per cent. We have done that so that both multinationals and indigenous firms will employ people here who they will be asked to make their contribution in taxation. We have done it not because we want to exempt people who might move out but because we want to encourage people either to move in here or to set up their own enterprises here in order to employ our people.

It is wrong to present that kind of deliberate policy measure that is in favour of employment as being in any way a caving in in terms of taxation to people who might leave. I would also make the point to the Senator, and he has heard this one before, that without that scheme it is possible that many of the 18,000 people currently at work in this country in firms that have been attracted here as a result of that measure would not have jobs and would not have the ability or the occasion to pay tax and contribute in that way to the rest of the community.

The other points I will take up on Committee Stage, and I look forward to having the same sharp and detailed discussion with this Bill on Committee Stage as I had last year particularly, if I may say so, with Senator O'Leary.

An Leas-Chathaoirleach

Is Second Stage agreed?

It is not our intention to oppose the Second Stage, but that is not to say, of course, that we entirely agree with the Finance Bill. It is our intention to table quite a number of amendments on Committee Stage tomorrow.

Question put and agreed to.
Committee Stage ordered for Thursday, 23 May 1985.