Finance Bill, 1987 [Certified Money Bill]: Second Stage.

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

Minister for Finance (Mr. MacSharry)

The Finance Bill provides a statutory basis for the taxation provisions which were announced in the 1987 budget. It also contains a number of other taxation proposals to improve the operation of the system and eliminate abuses. Some of the proposals in this Bill have major significance for the development of sectors of the economy. Before summarising individual aspects of the Bill, I would like to speak briefly on recent financial and economic developments.

When we took over the reins of Government last March, we inherited huge economic and financial problems. There was no possibility of short-term solutions to these problems; equally, it was of critical importance that we should take immediate steps, however unpopular, to arrest the decline. The lack of confidence in the economy had been demonstrated clearly by the huge outflows of capital and if this trend were sustained, the economy would wither downwards to a very low ebb. We had, therefore, to follow a twin strategy of immediate improvement in the public finances while at the same time focusing special attention on development areas to generate more economic activity and to open up new employment opportunities.

We had no reasonable alternative and the great majority of the public support our approach despite the unwelcome consequences of the necessity to cut back on services. People recognise that we had to change direction. The scale of borrowing could not be sustained because the accumulating debt would absorb most of our resources. The deteriorating financial situation was destroying confidence in the economy. Potential investors were doubting our ability to face up to our problems. Their concern is reflected in a fall off in investment, heavy outflows of capital and diminishing opportunities for employment. This is a depressing catalogue and people generally welcome our determination to break out of this bind even if this involves sacrifices in the short term.

It is still very early but already there are positive responses to our decisions. The focus of attention has been largely on the downside effects such as the cutbacks in the public service. These are regrettable but unavoidable. On the positive side, we have already seen a substantial downward movement in interest rates and we can look forward to a continuation of this trend. It is of critical importance for the development of the economy that interest rates come down as this will encourage further investment.

Confidence in the economy will grow as we demonstrate our commitment to proper management of the public finances. We have set difficult targets in the budget but we are on course and we intend to stay on course despite the pressures for relaxation. There is no merit in setting targets if they are not achieved and, unfortunately, in recent years there has been a succession of large overruns. This has had a very damaging effect because it has called into question repeatedly our willingness to face up to realities. We have paid a heavy price for this poor performance in terms of lost investment, rising debt obligations and the undermining of national morale.

Financial discipline on its own is by no means enough to get us out of our difficulties. We must at the same time give a major impetus to the economy. From the outset we have given special attention to development of areas of the economy which, we believe, have strong potential. These include tourism, food processing and the development of financial services. Special measures to promote these sectors are incorporated in the Finance Bill and I will deal with these later. The focus of attention on these areas will pay worthwhile dividends and there is already evidence of this.

The budget strategy is the basis for optimism in the recovery of the economy which has been in a depressed state for several years. While some of the factors responsible for this have been outside our control, we have compounded our difficulties by misguided policies and by failing to take corrective action. As long as there are doubts about the determination of the Government to manage the public finances with prudence, the economy remains in the doldrums because of the prevailing lack of confidence. This Government have already demonstrated firmly their commitment to good management of the public finances, despite the unpopular consequences, and this will bring its due reward in improved economic performance.

While this Bill was being debated in Dáil Éireann, I listened to repeated calls for tax reform. We all favour tax reform but there appear to be widely varying views about how it should be achieved. Too many critics ignore the budget realities and it is much easier to call for tax easements and incentives than to propose tax increases.

I recognise the significance of taxation in the economy. I acknowledge that there is need for improvement and that some of our tax rates are unduly high and have a significant disincentive effect. Reform of the taxation system is a Government priority because this is an essential element in achieving the scale of economic progress that we need. We are not in a position in the short term, because of the budget situation, to reduce the overall burden of taxation to any significant extent. This, however, does not rule out or defer the issue of reform; on the contrary, there is scope, I believe, for significant adjustments which will result in a fairer system. There is a general recognition that reform must involve widening the tax base. I agree with this but I would emphasise that widening the tax base means imposing new taxes or withdrawing concessions.

There is continuing pressure for tax incentives to encourage business and we now have a wide range of these incentives in our tax code. They are expensive in terms of tax foregone, and they are a factor in our high tax structure. We cannot have more and more incentives and lower tax rates at the same time. Incentives are necessary but they must be on a selective basis. There is a clear limit to the extent to which incentives can be allowed; the deciding factors in each case must be the balance of advantage to the economy and the need to protect the tax base.

I welcome discussion on tax reform; I see a need for change, and rational discussion can help this process. Discussion serves no purpose, however, if it ignores the budget arithmetic and degenerates into a succession of calls for concessions of one kind or another. There are no comfortable solutions and nobody should be under any illusion about this. In the present budget climate, if we are lowering taxes significantly in one area, we must expect increases elsewhere. We cannot ignore this reality.

In our Programme for National Recovery we have given a commitment to rapidly reach the stage where two-thirds of taxpayers pay income tax only at the standard rate. It was not possible to fulfil this commitment in this year's budget. Income tax reductions, however modest, are costly. We had to make choices between lower borrowing and lower taxation and the priority had to be to reduce borrowing. I think most people would agree that this was the prudent approach. As the public finances and the economy improve, we will be in a better position to reduce the burden of income tax and to fulfil our commitment.

In the course of the Dáil discussion on this Bill there were several references to tax arrears. Our problems of high taxation cannot be resolved simply by collection of outstanding taxes. There has been considerable misunderstanding about the scale of arrears and some of the figures mentioned are wild exaggerations. Uncollected tax is a serious problem and any tax reform package must incorporate measures to improve collection. Significant progress has been made in recent years. There must be further improvement and this will be a priority with the Government.

Any reference to the general economic and financial situation is incomplete without adverting to the problem of unemployment. It is the central priority and all our efforts must be concentrated on new opportunities for employment. There are, unfortunately, no overnight solutions but the steps we have already taken and the further measures over a wide range, which are now under consideration, will have a very positive impact over the next few years. The unemployment figures are most disturbing but there are some encouraging signs. I am confident that, as the Government's economic and financial strategies begin to take full effect, they will have a definite and significant impact on the employment figures.

I would now like to outline individual sections of the Bill and to draw the attention of the House, in particular, to the more significant items. The earlier sections deal with income tax. Section 1 provides for the renewal for a further year of the special PRSI tax allowance, which was first introduced in 1982. The exemption from income tax available to lessors of agricultural land, who are aged 55 or over or who are permanently incapacitated, is being raised from £2,000 to £2,800 in section 2.

New arrangements for the income tax credit for farm tax are specified in section 3. While the farm tax has been discontinued, amounts due in respect of 1986 remain payable. A number of farmers have yet to make their payments. To qualify for a credit against 1986-87 income tax liability, however, the farm tax due should have been paid by 5 April 1987 under the terms of last year's Finance Act. The deadline for payment is now being extended to 30 June 1987; there will be no further extensions. In their own interests, therefore, farmers still owing farm tax from last year should arrange for immediate payments, as they have been encouraged to do so by the IFA. There are also outstanding arrears of health contributions and levies to be paid by farmers. It is an understandable source of frustration to the general body of taxpayers that they are not being paid. It is now time that the farming organisations again showed responsibility in forthrightly encouraging their members to settle all outstanding arrears.

Section 4 abolishes in relation to Irish people working abroad the "place of abode" test for residence in the State for tax purposes. This change will enable people working abroad to visit home and transfer savings without being subject to Irish tax simply because they maintain a place of abode and make short visits home. In section 5 the ceiling for relief on dividend income from an Irish manufacturing company is being increased from £7,000 to £9,000 where the company has an approved profit-sharing scheme for its employees. This is intended as an incentive to companies to introduce profit-sharing schemes which are of benefit both to the companies and the employees and do much to improve industrial relations. To counter a potential abuse, there is also a provision that this relief is to apply only in respect of bona fide ordinary shares.

Section 6 implements the restriction on mortgage interest relief announced in the budget. It provides that the relief will be restricted to 90 per cent of mortgage interest actually paid or 90 per cent of the relevant relief ceilings, whichever is the lesser. Mortgage interest relief would cost about £160 million in the current tax year if no action were taken. This restriction will claw back a small proportion — £10 million in 1987 - of this cost. This clawback has been designed very carefully, so as to ensure that the biggest clawback comes from those who enjoy the biggest benefit from the relief. The new restriction must be seen in the context of the recently announced cut in the mortgage interest rate and the likelihood of further cuts. A primary objective of the budget strategy is to force down interest rates and the success of this strategy in the home loans area will continue to be of substantial benefit to mortgage holders generally.

The requirements for pay over of retention tax by financial institutions are being altered in section 7. The arrangements for crediting interest adopted by some financial institutions meant that they paid over to the Revenue Commissioners tax on less than 12 months' interest for the tax year 1986-87. This section provides that these institutions will have to make up any shortfall in their 1987 payment by an extra payment in October next and it also protects the yield for future years.

While I am dealing with the retention tax, I want to take this opportunity to state publicly that any activities by financial institutions aimed at avoiding the tax will be dealt with by legislation. I have in mind here, particularly, transactions which are, effectively, deposit taking and re-lending. The regulation of the banking sector is a matter for the Central Bank and my Department will take up with the bank, for immediate action, any case where it considers that activities proper to approved deposit takers are being carried on by others.

I will also be concerned to ensure that the return on all deposits taken by relevant deposit takers, in whatever form, attract the tax, and I will introduce, with retrospective effect, whatever measures are necessary to achieve this. I draw the attention of banks and other financial institutions to section 32 (2) of the Finance Act, 1986. This requires a relevant deposit taker to treat every deposit made with it — and the term "deposit" is very widely defined — as a relevant deposit unless it is satisfied it is not a relevant deposit.

Chapter II of the Bill contains important amendments to the business expansion scheme. This scheme provides for relief on certain conditions for an individual who subscribes for unquoted ordinary shares in an Irish resident company engaged in manufacture or in certain service sector activities.

The scheme has been successful to date in generating additional investment for the activities to which it applies. Since the relief was introduced in January 1985, over 140 companies, and investments of about £12.5 million, have been approved.

Up to now, the business expansion scheme has been confined to the manufacturing and international services sectors. The Government propose to extend it on a selective basis to certain other areas which we have identified as offering significant potential for increasing output and employment. The areas in question are shipping, trading houses and export tourism.

I do not need to outline to the House the difficulties which have beset the shipping industry in recent years. Positive action is required to enable the industry to recover from these difficulties. In order to revitalise the industry, the Bill provides that shipping will now come within the ambit of the business expansion scheme and, furthermore, the 10 per cent rate of corporation tax will apply to shipping activities.

Senators will note the provision that the acquisition of a ship will qualify under the scheme only where such acquisition would be eligible for a grant under a grants scheme administered by the Department of the Marine. This will ensure that all proposals to raise money under the business expansion scheme to buy ships will be vetted in accordance with strict criteria by the Department of the Marine. It will also guarantee that revenue foregone under the scheme will be subject to the same level of scrutiny as the direct expenditure of Exchequer funds in the form of grants.

The business expansion scheme is also being extended to trading houses and to export tourism. I will return to the trading houses at a later stage. The Government have already highlighted the importance which they attach to tourism and they have demonstrated their commitment to the industry with a special package of measures to attract substantial additional numbers of tourists this year. Already, these measures are showing results.

The qualifying activities under the heading of tourism are set out in section 11. The term "tourist traffic undertaking" has been defined in very broad terms to ensure that a wide range of tourist activities can be covered. There is a requirement that in order to qualify for the benefits of the business expansion scheme a company must obtain approval from Bord Fáilte for a three year development and marketing plan which is primarily designed to increase tourist traffic and revenue from abroad. The purpose of this is to ensure that qualifying companies are committed to the essential purpose for which the scheme is being extended to the tourist sector, namely, to bring in more tourists from abroad. It will also mean that the expertise of Bord Fáilte in the tourism area will be availed of in deciding on applications for relief under the scheme.

The export tourism activities provided for include the promotion of qualifying activities abroad. I draw Senator's particular attention to this provision, which I consider a very important one. It is vital not only that we have facilities for tourists who come to our country but also that these facilities are vigorously marketed abroad. The application of the business expansion scheme to promotional activities should give an additional impetus to this most necessary function of selling Ireland as a holiday resort abroad.

I am confident that the extension of the business expansion scheme to export tourism activities as defined in this Bill will give a major boost to tourism in Ireland, to the benefit not only of the tourist industry but also of the economy as a whole.

Chapter III of the Bill gives effect to the scheme of tax deduction at source on professional fees paid by certain public sector agencies. These fees are paid normally to either individuals who are taxed as self-employed or to companies who are liable for corporation tax. Under the system of tax assessment for the self employed, current tax payments use as a basis for calculation earnings generated in a period which can date back over two years in some instances. Under corporation tax, payments are due six months after the end of the accounting period to which they relate. This contrasts with the deduction at source on current earnings under PAYE. The new system provides for deduction of tax on account, at source, on the publicly funded professional fee payments to which it applies. Accordingly, from 6 June tax on account is being deducted at source at the rate of 35 per cent from all payments for professional services made by the bodies specified in section 14 of the Bill. The new system is estimated to yield £25 million in 1987 and it is an important element of the budget for this year.

There has been a considerable amount of misunderstanding about the new system and some exaggerated comment as to its effects. I would like to stress the following points in relation to the scheme. No additional tax liability whatsoever arises; this is no more than an accelerated payment of tax. There are adequate safeguards to ensure that there will be no hardship. For the large majority of those liable the withholding tax is not a significant imposition that will in any sense disrupt their business.

The tax is not inequitable; it is not disruptive and it will not affect employment. Its operation will be monitored closely and I will welcome submissions from people who may feel that the relieving clauses do not properly deal with this situation and that consequently they are in a situation of hardship.

Senators will note that section 14 enables the list of accountable persons who will operate the tax to be extended by regulation subject to the approval of Dáil Éireann. While the major public sector bodies paying significant amounts of professional fees are already included, I have arranged for a study of fees payable across the public sector with a view to possibly adding to this list at a future date. There were proposals in the course of the debate in Dáil Éireann that payments made by the Voluntary Health Insurance Board for doctors' fees should be subject to the withholding tax. In principle, I agree with this; in practice, however, these payments are now made to the insured persons so that there is not a direct link between VHI and the doctors. I will look at the present arrangements to see what can be done.

I would now like to move on to Chapters IV and V of the Bill and to draw specific attention to the principal items under these headings. Section 25 provides that the restriction whereby capital allowances are determined on a "net of grant" basis will not apply to companies in the food processing sector which purchase their own plant and machinery. This reflects the special priority which the Government attach to investment in the food processing sector. This is an area where, for export purposes especially, we have significant potential to achieve a higher added value content and large scale investment is necessary for this purpose. Already there has been an announcement of a major development in meat processing and we look forward to further progress in this very important sector.

There is provision in section 27 empowering the Minister for Finance to extend by order the definiton of designated areas for urban renewal. It is essential to provide attractive tax incentives to promote the proper redevelopment of inner urban areas. The response to the provisions incorporated in last year's Finance Act is most encouraging.

I referred earlier to the extension of the 10 per cent rate of corporation tax to shipping and this provision is incorporated in section 28. This concession is being accompanied by measures designed to curtail certain tax avoidance activities in the sector. These measures impose restrictions on relief for trading losses of shipping companies and capital allowances in respect of ships used in a 10 per cent shipping trade.

The intention underlying the anti-avoidance measures is to confine the tax benefit of capital allowances on ships and any accumulated trading losses within the shipping trade. It has been possible up to now to set these allowances and losses against income other than shipping income by means of group relief and, in the case of capital allowances only, leasing arrangements. The result is that other companies or individuals can reduce their tax liability artificially and the profits of shipping companies for tax purposes have been artificially increased.

The extension of the 10 per cent of corporation tax to the income of trading houses is proposed in section 29. Trading houses are defined as companies carrying on a trade which consists exclusively of the sale by wholesale on the export market of Irish manufactured goods. It is envisaged that these will be private sector companies with no State participation.

The aim of the Government in promoting the establishment of trading houses is to develop a co-ordinated export marketing function for Irish manufacturing companies. Many such companies, although their products have strong export potential, lack the resources and often the capability to exploit this potential. This is largely a function of size, but the result is that smaller companies are put at a serious competitive disadvantage. Trading houses will act as conduits for goods manufactured by such companies.

Section 30 relates to the establishment of an International Financial Services Centre in the Customs House Docks site. This development has already received considerable publicity. The special needs of the Custom House Docks site were recognised and provided for in the package of tax incentives contained in the Finance Act, 1986, for the physical redevelopment of the site. In order to promote this redevelopment, however, it has been necessary to identify and target a specific economic activity which can be attracted into a portion at least of the accommodation being provided on the site. It is obviously desirable that this activity should be new rather than that the site should attract operations already established elsewhere in Dublin or elsewhere in Ireland which might be willing to relocate. The Government believe that the establishment of an International Financial Services Centre offers the best potential for development of the site.

A low rate of corporation tax is recognised to be a necessary precondition for the successful operation of such a development. Accordingly, provision is being made for the extension of the 10 per cent rate of corporation tax to income derived from certified international financial services to be carried on in the Custom House Docks site. In defining the services to be permitted, certain services for Irish residents and certain dealings in Irish currency are not included. To qualify for the 10 per cent tax rate companies will require a certificate from the Minister for Finance and, in addition to the legal requirements, companies will have to satisfy certain criteria before a certificate will be given.

Furthermore, in so far as banking functions may be located in the Custom House Docks site, they will be subject to the licensing and regulatory authority of the Central Bank on the same basis as banks located elsewhere in the State. The requirements of the relevant European Communities Banking Directives will be fully met. The Government have notified the European Commission of the initiatives contained in sections 28, 29 and 30 and the normal procedures involved in such notification are being applied.

Section 33 proposes a new rate of taxation of 45 per cent on the income of banks from home loan business granted after the publication of this Bill. Income from existing home loan business will continue to be taxed at 35 per cent as heretofore and costs on all home loan business will continue to be available to be offset against income from other banking activities subject to the normal corporation tax rate of 50 per cent. There is, therefore, no reason why those who already have home loans from banks should pay more, and a tax concession is still available in regard to new loans.

The existing arrangements result from section 28 of the Finance Act, 1976, which was introduced to encourage the banks to provide home loans at competitive rates. At the time the banks considered that it would not be prudent or profitable for them to engage in this lending. Over the years, however, the banks have expanded their share of this market and this year both AIB and Bank of Ireland have substantially increased their allocation for home loan schemes. Continuation of a concession, devised when home loans were not looked on favourably by banks, is simply not justified in the present situation where the banks are setting out to be the major lenders in the home loan market and can use the favourable tax arrangement resulting from this concession to achieve this objective.

I introduced an amendment in the course of the Dáil discussion on the Bill to provide a special incentive for investment in film making. This is contained in section 35. Film making is an expensive and high risk business and it is difficult to raise adequate financing. The business expansion scheme has already proven itself a valuable vehicle for providing film finance and now we want to encourage investment from the business sector in film projects with commercial potential. This is the thinking behind the new incentive. We have the basic talents for development of a successful film industry but, without adequate financing, there can be no success. In conjunction with the introduction of the tax incentive scheme the Government are reviewing the existing range of support and encouragement for film-making, including the work of Bord Scannan na hÉireann and An Chomhairle Ealaíon.

Under the heading of customs and excise some relief is provided from excise duty on imported waste oil which is subject to processing to make it suitable for use as industrial fuel oil. This change corrects an anomaly and it also encourages processing of oil which would otherwise be dumped. The Bill also confirms excise duty increases on tobacco and certain fuels which were imposed by order last January.

Part III of the Bill deals with value-added tax. As well as giving effect to the changes announced in the budget, the Bill contains a number of technical provisions. There is a reduction from 25 per cent to 10 per cent in the rate on photographic services, waste disposal services and driving instruction as announced in the budget. In addition, I am extending the benefit of the reduction to admissions to cultural, historical, artistic and scientific exhibitions and tour guiding services. These reductions will have effect from 1 July and are intended as a further stimulus to the important services sector of the economy where I believe there is significant potential for job creation. I am confident that this will improve the competitiveness of this sector and help combat black economy activity as well as contribute to employment growth in the economy.

The Bill also confirms the reduction in the farmers' flat-rate VAT addition to prices from 2.4 per cent to 1.7 per cent which I announced in the budget. This change, which has had effect from 1 May is intended to compensate the Exchequer for the revenue foregone on the abolition of the farm tax. As I indicated in the Budget Statement, farmers retain the right to register for VAT and recover in full any VAT paid by them on their farm inputs. I also mentioned in the Budget Statement that greater use will be made of the farm profile form in assessing smaller farmers for income tax. The existing form has now been revised and the new arrangements will be put into operation shortly.

The intention is that all farmers likely to have a taxable income should be assessed. The profile form will enable an inspector of taxes to determine in many cases that no tax liability will arise. For most other smaller farmers, the inspector will be in a position to assess the amount of tax due without the need for accounts. This simplification of procedures should remove the need for smaller farmers generally to seek specialist accounting advice in relation to their tax affairs.

I have already indicated my concern that farmers should pay arrears of health contributions and levies. I served notice in Dáil Éireann that I will have to reduce the VAT refund still further if farmers do not meet their obligations.

Under the heading of stamp duties, provision is made for the continuation of the bank levy to yield £25 million and for an increase in the levy on life assurance premiums from 1? per cent to 3 per cent. The contribution from the financial institutions to corporation tax yield is decidedly small and, while this situation prevails, there is no room for any diminution of levies. It is reasonable to look to the financial sector for a bigger contribution to tax revenue.

This Bill contains some major changes in taxation. In bringing it before the House I have sought to present these changes in the context of the general Government policy on the public finances and taxation. I also have to emphasise again, before concluding, the developmental aspect of a number of the provisions in this legislation. The Government recognise that prudent management of the public finances is not sufficient on its own and that there must be a positive effort at the same time to promote development and employment opportunities.

I commend the Bill to the House.

Mrs. Bulbulia

I welcome the Minister for Finance to the House and wish him well in the discharge of his duties. We last met in July 1982 when he similarly presented his Finance Bill to the House. At that time we had a constructive engagement. I dare say the tenor will be similar this time round although there are, of course, critical things which one must say.

Normally, the debate on the Finance Bill is the high point in the political year of any Administration. Members of this House will, naturally, be keen to comment on the finances of the country and on the measures which the Government have initiated and brought forward in the budget and the Finance Bill for dealing with the very complex and difficult problems which we are confronting. These worrying problems are indebtedness, extraordinarily high unemployment — particularly given our unusual demographic structure — and the crushing burden of taxation. I look forward to the debate and to hearing the contributions from other Members of the Seanad.

The Second Stage of the Finance Bill allows us all some latitude in the debate and the Cathaoirleach customarily recognises that fact, both in relation to the Finance Bill and, indeed, in relation to all other legislation receiving its Second Stage hearing in this House. I am concerned, though, that the Committee Stage of this Bill should receive a very full exposé of every facet of the Bill. Unfortunately, in the other House such a comprehensive and detailed examination was not conducted. We should supplement that deficiency on Committee Stage. Although on the Finance Bill we are not permitted in this House to put down amendments, nevertheless, we have an effective and important role to play. I hope Senators will avail of that opportunity to tease out every aspect of the Bill and to question the Minister in detail.

The attitude of Fine Gael towards the Second Stage of the Finance Bill, 1987, is that we will not oppose it, although we are opposed to certain sections of the Bill, notably the withholding tax. I noticed the Minister's soothing words but, nevertheless, when we come to a detailed discussion on that, my words will not be particularly soothing. Of course, we can debate this at length on Committee Stage.

We now have in the Oireachtas and, indeed, I think it is true to say, in the country in general, a broad consensus on the economic problems of the State, what the problems are and the steps needed to be taken to bring about solutions. I welcome this consensus. I am glad to see it. It took a long time to get to this point. I regret the length of time it has taken to bring it about. In the interim period there has been a scandalous waste of energy on the part of the Fianna Fáil Party in particular, who spent the past four years blatantly obstructing or slowing down the emergence of this consensus. I am sure thinking members of that party bitterly regret the posturing and macho-type Opposition which really went over the top. They are being forced to climb down now, with a lot of discomfiture.

Playing the game of Opposition has had a tragic result. I hold the party now in Government responsible for the unnecessary delay in the process of adjusting our economy. As a result of this, many people who had jobs now have no jobs. Many people who desperately seek work are unable to find work. By peddling a sham message of false hope and by proclaiming that there was another way — a better way or a magic way — the party now in Government deceived the people of this country shamefully. They have now compounded that deception by executing a dizzying U-turn on the economy, one in a number of U-turns which have left the electorate disenchanted, enraged and frustrated. They are protesting, yet again, today.

In the national interest I welcome this dramatic Pauline-style conversion on the part of Fianna Fáil. I want to place on record the fact that I despise and reject totally the dishonesty which has further damaged the credibility of politicians and has debased politics. It has dragged this country and its people down to an all-time low of despair and despondency. Given the outrageous Fianna Fáil election manifesto, with its far from promising raw material and the time constraints involved, it is hardly surprising that what has emerged as the Government's finance policy in the budget and, of course, in the Finance Bill, is by and large an adaptation or a modification of the policies upon which Fine Gael fought the last general election. The question must still be asked: what is the Government's underlying economic policy? I fail to discern this on reading the Bill and on studying it in depth.

The most disappointing feature of this Finance Bill is that it again increases taxation. I object to the reduction of the mortgage interest relief. Mortgage holders will now be able to claim only 90 per cent of their interest. The dismantling of tax reliefs, in itself, is disquieting. I fear, as do many others, that this reduction is only the start of a wholesale decimation of reliefs in general. If the Government did not have the financial scope to reduce tax this year, why at least did they not signal a willingness to introduce a meaningful tax reform, instead of tinkering with the system, which we all recognise to be outdated, inefficient and manifestly unfair? The curtailment of mortgage interest relief, coupled with the scrapping of three out of four housing grant schemes, is seen as a form of treachery by the building trade, who had been confidently led to expect a VAT cut from 10 per cent to 5 per cent and a major capital injection via the public capital programme. They have been betrayed very badly by those who always proclaim themselves to be friends of the building industry.

I find the abolition of farm tax objectionable as, despite a well-orchestrated campaign to decry it, it was a fair tax which helped farmers in intensive activity. The last Minister for Finance, Deputy John Bruton, in November 1986 announced a relief for farmers who were hardpressed and liable for tax, particularly in the wake of two very bad summers. The present Minister for Finance, Deputy MacSharry, has omitted this measure and would appear to have dropped it. Since the cost involved is minimal, I ask the Minister to restore it. I hope the Minister will refer to that, in responding to the Second Stage debate, because it was a significant relief and welcomed by farmers who could avail of it.

The farmers' VAT refund system has been reduced from 2.4 per cent to 1.7 per cent, that is, a saving of £9 million. This has been done to fund the £9 million loss in revenue from the land tax. This is unjust, because that money is now going to be taken directly out of the pockets of farmers, whether they are big or small or whether they are earning or losing money. Levies and contributions under the TB eradication scheme are to be increased and charges are to be introduced for ACOT services. By and large, while farmers bought the promise of the abolition of the land tax, they were duped with a whole new range of charges. I would like to state my wish to see farmers taxed as fairly and equitably as everybody else in this country; however, I feel the land tax was fair, equitable and could have worked, but an election promise had to be held to in this instance.

I am opposed to the 35 per cent withholding tax on professional fees, as are my party. I find it inequitable and potentially damaging to employment prospects. It will impose a severe strain upon, for example, consulting engineers, particularly when working for Government or quasi-Government bodies under a fee scale which was introduced in 1964 and which was increased in 1978 by a mere 5 per cent, and that following upon a great deal of lobbying from those affected.

The present lack of work in the construction industry and the prospects of an even gloomier situation ahead, when the building boom brought about by the grants for home improvements has finally dried up, means that sector of the economy is experiencing intense competition for the little amount of business now available and likely to be available. To learn that 35 per cent retention tax is now to be applied to professional fees is really giving the coup de grâce to the entire profession and to the industry. With delays in fee payments caused by the increased detail now required to be submitted on final accounts, there is already in existence a form of retention. To compound this with a 35 per cent additional retention is most undesirable and probably dangerous. In my view, it is a recipe for disaster from an employment point of view.

Obviously, the measure was designed to catch some tax evaders and has been presented in this light as a sop to the hard-pressed PAYE worker, but this is just not so. I have had numerous representations from firms who will be severely affected by this measure and indeed from individuals who will find this curtailment of their cash flow particularly difficult to cope with. All make the point — I am referring to the firms — that all the staff of these firms pay tax. PAYE, PRSI and VAT are paid out at regular and frequent intervals and, so, money which should be and is paid to the Government is never accumulated. This tax is an acceleration measure and the Minister indicated this afternoon that that is what it is. I contend that it is a form of double taxation. It brings forward by one year tax payments that would not be due until October 1988. It is a once-off tax and is estimated to raise £25 million. This will hit professionals very hard and, while there are provisions to help hardship cases, it is a most unfair tax and by far the most controversial element in the entire Bill. It may be proved in time to have been unconstitutional. I note that a group of people are contemplating bringing an action to the courts to contest the constitutionality of this provision. I await the outcome with some interest.

Returning to the proposal to increase the tax on bank profits and their home loan business from 35 per cent to 45 per cent, with consequent increases in mortgage interest rates, I must declare that I am opposed to this. This measure has been introduced to help the building societies and, interestingly, was not a feature of the budget. From that fact one infers that it was a result of pressure from the building societies and was not included in the Bill for revenue reasons as it was not part of the calculations of the budget. The net effect of all of this is that the banks will pass on their disadvantage to the mortgage holder. The Bank of Ireland have already increased their rates by three-quarters of 1 per cent. On the other hand, they may hold their rates on the basis of falling interest rates, which is as good as an increase to them. As usual, the ordinary man or woman in the street gets caught in this ongoing battle between the building societies and the banks for deposits and this time the Government have come down on the side of the building societies.

There is in the budget, and therefore in the Finance Bill, a thinly disguised drive against tax evasion in a number of key areas. In general one cannot cavil or argue with the notion of curbing tax evasion and putting in some restraints. There is to be a redeployment of 25 public servants in the collection of tax arrears on behalf of the Revenue Commissioners. It is estimated that this "hit squad" can bring in an additional £10 million per annum in unpaid taxes. Simple arthmetic indicates that each of these needs to net a haul of £1,600 per day every working day for a full year. I may be accused of cynicism, but I await the outcome with interest. The facts are that the entire system of tax collection has fallen into disarray and the fact that it is centralised is a recipe for delay and inefficiency. Our tax collection system should be decentralised and collection should be at local level with a certain percentage retained at local level to assist the local authorities who were starved of cash following reductions in the rate support grant and now they, too, will be subject to the 35 per cent retention tax.

At a news conference in Dublin yesterday an announcement was made that Government tax officials had put forward a 40-point plan designed to deal effectively with outstanding taxes. The Minister, in his speech here this afternoon, indicated that wild figures were in circulation about the actual amount of arrears outstanding. At this press conference yesterday the figure of £664 million was brought forward as the figure. I would be interested to hear the Minister's comment, in his reply on Second Stage, as to whether he felt that figure was wildly exaggerated or was on target. The Irish Tax Officials Association set up this press conference, I understand, and it is reasonable to assume that they would have some inside knowledge of what the actual situation is.

I look forward to reading this plan. My immediate reaction to it is: let us take it seriously, let us study it, let us debate it, and let us implement it, because so many plans, so many studies, the fruits of so much collective wisdom in this country all seem to end up gathering dust on shelves. This is too crucial a point to be neglected or to be subjected to the kind of delay and prevarication which have been attached to so many other reports of merit and value.

The officials want more power given to the Revenue Commissioners, which would result in total control over the collection of taxes. Radical new powers are urged, including power to seize goods and property from tax dodgers. Power to debit the bank accounts of offenders is suggested. The Revenue Commissioners want similar rights as the banks when it comes to defaulters. They want the right to appoint nominees to the boards of companies to protect the interests of the Revenue Commissioners. The Irish Tax Officials Association's general secretary, Paddy Keating, has stated that the problems in Ireland do not arise in Britain and that the level of unpaid taxes here is six times higher than in New Zealand. He has claimed that 70,000 farmers brought into the tax net in 1983 have not been asked to fill in a tax form. I would like verification from the Minister, in his reply on Second Stage, on whether he is privy to this kind of information, if this is in fact so and, if it is, what is he going to do about it; and, if it is not so, could we have a clearly couched and strongly enunciated denial. It is this kind of information that drives, and understandably drives, the PAYE taxpayer around the bend. It is not acceptable. While I agree that there are facile arguments that our debt problems and our difficult financial situation could be eradicated and changed overnight if we managed to bring in all our arrears, nevertheless there is enormous scope for action and quick incisive sharp action in this area. I hope we will speedily see the kind of action that I talk about.

Claims for expense allowances in respect of repairs and maintenance of cars and other vehicles will have to be accompanied by a VAT invoice showing that the work was performed by a registered trader. This is to be welcomed and is part of the tax avoidance measures being dealt with in this Finance Bill. The motor industry, heading towards the lowest car sales in 20 years, has got nothing else in this Bill. Granted that the room for manoeuvre is severely restricted, but I would like to know how it was decided to favour one sector over another, which is a marked feature of this Bill. The Minister in his speech indicated that food processing, the financial services sector and various elements which he felt were wealth producing were the criteria for inclusion, but I think that point is not being clearly explained. There is an understandable feeling of resentment and irritation on the part of industries such as the motor industry, and indeed the construction industry, that their problems are not being understood and that there are no particular accommodations, reliefs or assistances given to them.

Those involved in the construction industry will be asking that same question as those involved in the motor industry, because the construction sector is experiencing six consecutive years of decline. I note that shipping has been helped out and that food processing has also been given assistance, and this I welcome. I know that my colleague, Senator Daly, when he speaks on the Finance Bill, will grill the Minister on the matter of the motor industry, as it is an area which he feels keenly about. I will leave it to him to develop the points in connection with that area.

The purchase of duty free goods by day trippers to Northern Ireland and Britain is to be curtailed. Superficially, this appears to be effective; but my fear is that it will be virtually impossible to police. On the credit side, I welcome the provisions for expatriate workers. It is a recognition of the reality of emigration which is so badly affecting this country. It is a way in which we can ensure that we do not further alienate these people, who very often through no choice of their own must work outside this country. As matters stood, Irish people working abroad were liable to Irish tax on money which was sent home, if they owned a house here and visited this country for even a few days during the tax year. This discouraged investment and it caused unnecessary family problems as, understandably, expatriate workers were reluctant to visit relations in Ireland while on assignments abroad. It is also a tangible and practical recognition of the fact that so many skilled Irish people are forced or choose to work outside this country. They should not be further alienated by our tax code and should be actively encouraged to invest at home. I welcome this measure. I am pleased, too, that the Minister is reviewing corporation tax. This is timely.

There is good news for the Irish film industry in this Bill. At last there is a recognition that some kind of financial climate which could encourage investment in film making here needs to be created if the advances of recent years and the signs of emerging talent are not to be smothered. Under the new scheme put forward in this Finance Bill companies may invest up to £100,000 a year in Irish film production companies. In return these corporate investors will be able to get a tax write-off against profits for annual investments in the film companies, which must be incorporated here and not tax resident elsewhere. Equally sensibly, at least 75 per cent of the production work on the films must be done here. Again, inherent in that, is a recognition that there will be a certain spin-off advantage to the locations where films are being made. Places like Dingle, for example, will long be remembered for "Ryan's Daughter" and "Barry Lyndon" made by Stanley Kubrick in Waterford and the spin-off and the general activity engendered by the presence of film making in an area is significant and is obviously considered when it comes to putting this particular measure together.

There are other strings attached — of course, there are always strings attached. For instance, the film company can raise only a maximum of 60 per cent of a film's budget under this scheme. There are other advantages for investors, among them additional relief on capital gains tax after the investment has been left in for three years. The scheme takes on board much of what the Irish Film Board have been championing for quite some time; and, even if it does not eliminate the risk element for investors, this is now significantly reduced. It is not a panacea for the financial ills of the Irish film maker but, compared to the official neglect and misjudgment of decades past, it marks a considerable move in the right direction and at a time when we are suffering severe financial constraints.

I recognise the fact that there is enormous visual and artistic talent present in this country and only ready to be translated into film of artistic merit. I hope those people will see these benefits and will run with them to the advantage of the film industry in particular and the country as a whole because such films made on location in Ireland will have a spin-off effect in terms of enhancing the status and image of this country abroad, in being part and parcel of the tourism package and in attracting more and more visitors to the country.

In general it is true to say that the Finance Bill, like the budget to which it gives legislative effect, will do nothing in the short term to achieve economic growth. The whole thrust of the Bill is to bring about a climate for interest rates to fall, through lower Government borrowing, which in turn, it is hoped, will eventually stimulate the economy. There is a risk in this strategy in that all the eggs are in one basket. For the case to hold, two conditions must be met. Interest rates must decline sharply. They are declining at present, and a report from the stockbroking company, Goodbody, this morning indicated the prospect of further decline. But it must be remembered that there is a pendulum effect in interest rates and that they have been low before and they can rise.

The second condition which must be met is that industrial investment must increase on foot of the lower interest rates. There is no magic formula here. One hopes this will happen. One puts in a series of measures which will encourage the growth and will stimulate it. There is no absolute domino effect that this will happen. Would that it were so, and I wish it well. The markets and investors need to be convinced that the Government mean business and that they will stick to their targets. We will have some idea of the lie of the land on June 30, when the half-yearly returns are published. We will then see if revenue and expenditure are on target. If they are not, immediate corrective action will be required, despite inevitable political unpopularity.

The track record of the previous Fianna Fáil Administration is not encouraging in this respect. Fine Gael faced reality by choice. Fianna Fáil in Government have been compelled to do so. Fianna Fáil are reluctant converts; but like all converts, they have set about the business of indicating their zeal with an unbridled enthusiasm; in many instances their touch has been more of the bludgeon and less of the scalpel, and they are unnecessarily incurring displeasure — not that I should be too unhappy about that, I suppose. It is true to say that the Irish people over the last four years were brought to a realisation of the nature of the problems in this country and that, in order to achieve anything, you must bring people along with you. Fianna Fáil have only woken up to the reality of the problem and are only now beginning to implement the policies which the country badly needs to have implemented. In the national interest we will support realistic policies and we will not seek political advantage at all costs. That is novel in Irish political history.

Much is missing in this Finance Bill. No attempt is made to confront the situation of industrial spending. At present 3,400 people are employed full time by 20 State agencies involved in job creation, or management training, or manpower training. Over the past four years they have spent about £400 million annually on grants and on administration, yet the manufacturing workforce has fallen by 33,000. That situation needs urgent attention and remedial action. I hope that, if it is not part of this Finance Bill, we will quickly see signs that it is being addressed.

The collapse of Hyster has highlighted another area crying out for attention. The number of people employed in foreign-owned industry has fallen by 10,000 since the start of the eighties. There is an obvious need for a review of the effectiveness of this spending.

Tax breaks for industry are costing a fortune. A recent study suggests that the concessions are costing £240 million per annum in foregone taxes which would otherwise be payable by Irish-owned firms and institutions alone. Tentative estimates suggest that the cost of tax breaks for foreign firms could be another £400 million per annum. These are items which are missing from the Bill but which urgently need attention.

All in all, then, I would say we recognise that the Government have at last focused on the reality of the picture facing the country, having evaded confronting that reality for the past four years. When we see realistic, helpful policies being implemented in the national interest, acting responsibily as a responsible Opposition, we will not oppose such policies. In that tenor I welcome the Finance Bill and look forward to a detailed examination of its various component parts on Committee Stage.

Mr. Fallon

At the outset I would like to welcome the Minister for Finance, Deputy MacSharry, to the House and to congratulate him on what I regard as a very practical, no-nonsense speech to us here this evening, setting out the problems that he and his Government have inherited and setting out the manner in which he and his Government intend to tackle many of those problems.

I did not intend to comment on other speakers but I cannot but comment in some way on some of the remarks of the previous speaker. I would have to suggest to Senator Bulbulia that it was Fine Gael and Labour who were in Government for the past four and a half years, that they had a majority in the House for four and a half years and that, in fact they had the majority in the House for ten out of 14 years. Therefore, it is unreal for Senator Bulbulia to blame the present Government, who have been in office now for little more than two months. What happened during the past four and a half years was that the previous Government simply asked us to tighten our belts, which we all did in the national interest. The result was that we were far worse off after those four and a half years. I know, as a result of the measures this Government are now implementing, that at the end of the four and a half years which the Government will last the economic scene will have been dramatically improved.

Coming back to the Finance Bill, we know that it gives a legal effect to the budget, and we all know that this year's budget was severe. It was severe because it had to be severe. This Government had to start getting the public finances under control or else they would have gotten completely out of hand. In a few short years we would simply not be able to borrow what would be needed to keep us ticking over. This Government had to endeavour to reduce the gap between Government income and expenditure so that Government borrowing could be reduced. This is recognised in the first part of the Minister's speech, where he makes the point that there is no possibility of short term solutions to these problems. Equally, it was of critical importance that we should take immediate steps, however unpopular, to arrest this decline.

The Minister referred to "focusing special attention on development areas to generate more economic activity and to open up new employment opportunities." That is something I will refer to later on, because that whole area is vital to the survival and economic life of this country. The social welfare bill for this year is something like £2.6 billion. In fact, it represents £100 million over last year, a staggering figure indeed. Much of this bill must be related to the unemployment figures. Obviously, if we can reduce unemployment we will reduce the size of this huge £2.6 billion social welfare bill. Throughout the Finance Bill and throughout the budget the Government clearly had this in mind.

As we all know, Government Departments have been carefully restructured to respond better to the development potential that is obviously there in our economy. For example, there is the creation of the new Department of the Marine which will now deal with all matters relating to the seas around us. This is important for us as an island people. I firmly believe that we have not yet fully realised a fraction of the potential of the seas around us — fishing, fish farming, mariculture, shipbuilding and so on. There is great potential there which, I believe, will give much employment in the future.

Tourism also can be improved. Everyone knows that tourism is vitally important in the area of new employment. We have fallen behind in terms of growth in this area. World tourism is a fast expanding area. It is suggested that in 20 or 25 years time tourism could well be the world's largest industry. The Government are correct in endeavouring to increase our revenue from tourism which will, in effect, mean extra jobs. Of course the taxation incentives in the Finance Bill from the business expansion scheme will obviously be a big help here.

The horticulture industry, where again I believe there is great potential, has been neglected over the years, so much so that at the moment we import £37 million worth of vegetables and fruit every year which we could produce ourselves. Having set up an office of horticulture with the Minister of State in charge, his main objective obviously will be to establish, promote and develop the horticulture industry and the employment potential it has. I know Deputy Seamus Kirk will be very active in this promotion. I can recall some years ago in the Seanad in a debate on agriculture querying as an urban person why we do not have some form of compulsory tillage. I know that it is not as easy as one might expect. The new horticultural board will be examining this.

We have developed forestries. There is great potential for the development of the forestry industry. We have a Minister of State in charge, Deputy Michael Smith, to promote and develop this sector. The vast natural potential we have for sales in Europe, which is short of timber, will be realised with a further significant contribution of growth and employment in this area too.

The development of the food industry is important. Its potential is obvious. Employment is wide open in this area and new jobs can be created. I have referred to the restructuring of Departments. Unemployment in the context of the budget and in the context of the Finance Bill, which gives legal effect to the budget, is paramount. It is as important in any section of the Bill as anything dealing with customs and excise, or VAT, or any of the other matters that normally form part and parcel of Finance Bills.

Another area where we are looking for development is in the section which enables the Government to develop the Custom House Docks site and to provide a financial services centre. We all know that this international financial services industry is one of the fastest growing areas of the world economy. Financial transactions far exceed in value the total of world trade in goods. They are, indeed, a major source of employment. The Government are to be congratulated on having set up this central committee with a mandate to establish as quickly as possible a new centre in the Dublin Custom House Docks site for international services. I am convinced there is great potential for the development of international financial services in this country based on the availability of people with the necessary skills. I know we have this type of person in abundance. In fact, many of them are leaving our shores to enter into the same type of business in other parts of the world.

The fact that we have the necessary professional structures, the fact that our geographic location is right, and the fact that our highly advanced telecommunications system will be of huge benefit, are all factors in our favour plus, and including very positively, an attractive taxation incentive for the proper running of this type of enterprise. The objective of the Government is to ensure that we share in this expanding service industry and share in the first-class type of employment it provides. I have a great deal of confidence that this project will be a success.

Again, there is the question of attractive tax incentives. It comes into play in other areas where we can have further growth in the economy, where we can have further employment. I am aware, as we all are, of the move of the Government towards decentralisation, that is, the building of Government offices and Departments in different locations throughout the country, and that private funds will be sought rather than Government funds to finance these projects. This is something I welcome. For the Government it would have to be, and would be seen to be, a no-loss and a free gain situation. I do not know how the Government intend to pursue this line. I would like an extension of it so that not just for Government buildings but for libraries, Garda stations, other Government requirements, a proper statutory consortium would be set up to look at this whole area. If the proper tax incentives are there this type of funding will be available. If it is done in this way with no hassle, or as little hassle as possible for potential investors in that type of scheme, it could have a great future.

The question of the change in the tax on bank income from interest on home loans will no doubt be mentioned as it has already been mentioned by the first speaker, Senator Bulbulia. We all know that for the past couple of years the two main banks, Bank of Ireland and Allied Irish Banks, have moved into the home loan market with a vengeance. For the first quarter of 1987 these two banks alone lent twice as much money as the building societies. I think this development is recognised. At the moment my understanding is that between them they have lent a figure in excess of £330 million in home mortgages. The Finance Bill, 1987, essentially reduces the tax subsidy that was extended to the banks in 1976 to encourage them to provide mortgage finance at a time when there was a scarcity of housing finance. The present move has, predictably, caused some anger in banking circles and, in the main, their reaction is unjustified. The fact is that the conditions which applied when the subsidy was first introduced in 1976 are no longer there. There is simply no way any Government could justify continuing to boost bank profits with taxpayers' money. So, perhaps Senator Bulbulia has got it wrong. Certainly, that is my stand. If she thinks the taxpayer should continue to boost the economy and the profits of banks, that is her business but I think the Government are right in looking at that matter.

Section 6 of the Finance Bill refers to the mortgage interest relief. It is probably true to say that Department of Finance officials have long been suggesting an abolition in some way of mortgage interest relief. The Minister has given the figures for this year and even after the 10 per cent that it will cost, millions will be saved to the Exchequer. The relief scheme was originally introduced to encourage people to house themselves rather than to depend on the local authorities. As we all know, we now have a home ownership rate of 74 per cent. It could be and is being argued that the scheme has very nearly achieved its objectives and that it should be scrapped.

The Commission on Taxation also suggested in their report that the mortgage interest relief be axed but the Commission's formula was perhaps different from what many people fear is now being considered. They suggested that the relief should be ended as part of a package of tax reforms which would include the elimination of all allowances and the replacement of the various marginal rates with a single rate for all. If that was being contemplated then, there is little cause for the concern that is being shown but the fear is that the mortgage interest relief may be abolished not as part of a general taxation reform package but in isolation and that, in itself, would pose many problems for many householders. Many of them paying marginal rates of tax at 45 per cent and over have taken out large mortgages in the belief that the relief scheme would continue to operate and if it were suddenly to be totally ended it would become impossible for many to sustain their mortgage repayments. This would trigger off a price slump in housing.

The question of taxation is paramount in this debate and has been referred to by the Minister. The aim of the Minister and the Government is that all should eventually pay equally. The whole question of tax reform must be tackled. The Minister made this point but he said it could not be done in the short term for the very obvious reasons that he spelled out. We all accept and agree that the pay-as-you-earn taxpayer is paying a substantially higher figure of tax than any other sector of the community.

Measures to improve the collection of tax must also be uppermost in the mind of the Government. Outstanding tax is not a new phenomenon in this country and it was referred to by the previous speaker as something of great importance. She referred to recent meetings of tax officials but her own Minister for Finance — I think it was Deputy Alan Dukes, the present Leader — said at one stage that there was no crock of gold in this area of tax evasion. So, it is not something new. Tax evasion and its associated problems have been hardy annuals in Finance Bills for years. If it is clearly established that it is a huge problem, it ought to be tackled but there are conflicting figures. We were informed that the figure concerned is £350 million and then we were told it was another figure of £664 million. It is a regrettable fact of life that this is the present state of tax collection. Nonetheless, while it is there and has been there for years, I know it is something the Government will continue to counteract and they will endeavour to get in as much of the money as they can.

May I refer briefly to a point I made on the Companies (No. 2) Bill in regard to tax collection? It is a point which I feel is of concern to a number of companies who found themselves in trouble over the past few years and eventually going into liquidation. I refer to the fact that the Collector General enjoys preferential treatment in this kind of situation. That is something that might be considered and perhaps reviewed. Perhaps this is to some extent contributing to the general tardiness — if you like — in the collection of taxes. In other words, the Revenue Commissioners and the Collector General's staff are aware that they have preferential treatment in respect of any sums owing by any company within 12 months of its going into liquidation. I am sure the Minister for Finance will not agree with me but I have to suggest that it might be reviewed.

The Minister referred to the trading houses. The decision to set up trading houses to encourage more small companies to get into exports is one of the very significant new proposals in the Bill and is certainly one that I welcome.

The question of DIRT tax or retention tax has been referred to. It is a problem which the Minister inherited together with the anomalies and problems it brought with it. DIRT tax, as we know, was introduced by the previous Government. I well remember the controversy at the time and now, one and a half years further on, there is still an element of controversy about it. At the time bank managers smiled at the figure the then Minister suggested would be brought into the coffers of the Government knowing, as they did, that the figures would be dramatically increased and knowing that the figures the then Minister for Finance was suggesting were dramatically understated. The flight of the £1.5 billion from the economy was partially due to the DIRT tax. There is no doubt about that. There were other factors as well, the general air of unease with regard to accounts of residents and of non-residents, doubts about confidentiality and lack of confidentiality. It all tended to make people with money invested uneasy and, in my opinion, they withdrew it for that reason. We all know that the Isle of Man bank deposits increased in 12 months. From 29 January 1986 until Christmas Isle of Man deposits increased from £1.5 billion to £2.3 billion. I suggest that 90 per cent of that was Irish money, if not more, money from Irish banks, building societies and so on. This leakage was a new phenomenon in our economy. We must get that money back because the return of these funds would bring significant benefit and would have a major impact on our interest rates.

The anomalies and problems which exist in relation to the DIRT tax are something the Minister might examine. I am sure the Minister of State, Deputy Treacy, will take note of that. I would like to refer to two points. The first is the case of a person, Mr. X, over 65 years of age. He has a contributory pension and he has a small — perhaps employer's — pension, giving him a nil tax liability. The second is the case of Mr. Y, with a similar contributory pension and with an amount equal to Mr. X's employer's pension by way of an investment income. He is treated totally differently from Mr. X. In other words, income from investment is treated differently from all other forms of income. To encourage people to save I think this must be examined and I ask the Minister to do so.

Persons over 65 years and incapacitated persons who are exempt from paying income tax can claim a refund of the DIRT tax. They go to their bank, or their post office, or building society, and they get a certificate of interest on request. Then they are asked to contact their nearest tax office. This is fine if you live in a town which has a tax office but if you live in a remote area it can be a problem. Unfortunately — I would ask for clarification on this point — the Revenue Commissioners may reserve the right to take account of the depositor's tax liability for previous years. This will almost certainly cause problems and delay the refund. I know it is causing problems. I know many pensioners who are not even bothering to look for their refund because they find the procedure cumbersome and awkward.

I have an example here of a famous or infamous local authority member for over 40 years, former Councillor Waters from Athlone, who knows better than anyone how to beat the system legally. It took him almost three months to get his refund of £61 from the Revenue Commissioners — and he lives in a town where there is a tax office. I ask the Minister to have his officials prepare an easy, simple formula for old age pensioners and people who have a nil tax liability to enable them to get their 35 per cent retention tax back in the easiest possible manner. They are our senior citizens. They have paid thousands of pounds to the State over the years in taxes of all kinds. They were rightly advised to put their money into a building society, or a post office, or a bank rather than keep it at home because of the danger of robbery. Now, while they are not penalised — the system is there for them but it is cumbersome — they find the filling in of forms and so on an awkward business. I ask the Minister to prepare a simple, no hassle arrangement which would be of benefit to this type of person.

I would like to refer to the increase in stamp duty on life assurance premiums. Wearing my insurance hat, I have to indicate an interest. The rationale behind considering a lower rate of stamp duty on single premiums paid to life assurance offices in respect of pension is basically as follows. In practice, many self-employed people make a series of occasional lump sum payments of varying amounts to retirement annuities, to suit their own particular cash flow. A charge of 3 per cent on each contribution is far higher than was ever intended or felt to be reasonable. Single premium payments are generally made to accelerate the state of funding of an arrangement so as to enhance its security and reduce potential increases in cost at a later stage. This 3 per cent charge is a deterrent to such form of prudence which is being encouraged by various current initiatives from the National Pensions Board and from accountancy and actuarial bodies.

We all have a duty to get the finances of this country in order. We need only to look at countries not so far from us to see what they have done. Government expenditure and the amount of Government borrowing must be reduced as a condition of stimulating growth, investment and employment. Firm action in controlling Government expenditure and borrowing is vitally necessary — not very popular but necessary — if we are to create a general climate of initiative, enterprise and to inspire confidence in our ability to overcome our economic difficulties. Of course there will always be people who will object, criticise and have a differing view from the Government of the day but the vast majority of the Irish public at this point in time have accepted this kind of budget. They are genuinely concerned about the future and they want the finances of the country put on a proper, secure basis. Whatever their own preference might be, they recognise that the approach this Government have taken is the only possible way to deal with this situation in which we find ourselves.

We are a small country with over 19 per cent of our population unemployed, and with a national output per head of population only 70 per cent that of the EC average. The main focus of all our efforts should be to ensure the creation of a climate which will attract more people to establish enterprises. That is what the budget and the Finance Bill, which gives legal effect to the budget, are about. I hope, for all of our sakes, we will be successful.

Mr. Doyle

Listening to some of the speeches from the opposite side of the House I often wonder whether this is reality or a make-believe society.

Mr. Fallon

It is reality all right.

Mr. Doyle

It is a reality which has come very late.

(Interruptions.)

An Cathaoirleach

Senator Doyle to continue without interruption.

Mr. Doyle

I was in another House for four and a half years. During that time, while the then Government tried to act in a responsible fashion, it was said repeatedly by the Opposition that we were supporting Thatcherite policies, monetary policies, that we were an uncaring Government, interested only in book-keeping exercises. How many times have we heard that? We were a book-keeping Government, we were told by the Taoiseach. During the election Fianna Fáil totally rejected the budget proposals of the outgoing Government and told the people there was a better way. Now the Minister tells us people realise that we have to change direction. If the Government were responsible in Opposition things would be different.

I did not think Senator Fallen would touch on the retention tax but he devoted a substantial part of his speech to it. It was the policy of the present Administration in Opposition to abolish retention tax. Then we were told just after the election: "We have changed our minds on that". If Senator Fallon wants to solve the problems he mentioned in his speech he should get the Government to support the policies they had in Opposition.

I welcome the opportunity to make a number of points on the Finance Bill. I welcome the provisions contained in section 4, which enable Irish people working abroad to repatriate savings without being liable to Irish tax. Some Irish emigrants are in the happy position, through their skills and hard work, of being able to earn substantial sums abroad which, hopefully, they will use to start a business and create employment and wealth in their own country at some future date. In the meantime this section will make it attractive for these people to maintain their savings in Irish pounds and help the beleaguered Irish balance of payments under the time honoured and not to be sneered heading of emigrant remittances.

I am also glad that the Minister in extending the relief in respect of dividends received out of 10 per cent of corporation tax profits from £7,000 to £9,000 relief has accepted that this was one of the far-sighted provisions included in the 1986 Act by the former Administration. Another measure introduced by the Minister for Finance, Deputy John Bruton, in the 1986 Finance Act was income tax relief for investment in corporate trades also known as the business expansion scheme.

I particularly welcome the amendment in section 8 (b) which provides for the right of election for tax relief in the year in which a person makes an investment in a designated fund rather than in the year the qualifying shares are purchased by the fund. I am informed that this removes a significant administrative obstacle to the efficient management of such funds. I am a strong believer in the use by the public of a designated fund as a vehicle for investing in the business expansion scheme. It not only spreads the risk for the investor in what is invariably a high risk investment but also provides a convenient and efficient administrative vehicle for both the investor and the qualifying company. Most important, reputable designated funds can provide vital management of financial skills to young companies which increases their chances of success.

As envisaged by Deputy John Bruton, when he introduced this provision, only the fusion of capital and managerial and entrepreneurial skills carried on in a sufficient volume in all the productive sectors of the economy and accompanied by a stable economic environment can bring the economy back to the path of economic growth from which it was so wantonly derailed by the reckless policies of the Fianna Fáil Government in the years 1977-81. Such a painstaking process cannot be replaced by hype or by the announcement of large flashy and costly ventures which if past experience is any guide, often fail at great cost to the Exchequer and the national morale. I emphasise this because I am not satisfied that the Government have learned anything in this regard from past experience. Judging by the recent press reports in relation to a project recently announced in the meat industry this is a very expensive project which may do little except replace employment in one factory as against another, massively financed by State and EC subsidies.

I deeply resent also the way the recipients of such State largesse ridiculed the work of a distinguished politician of my party. It is a case in my view of sneering all the way to the bank. I also strenuously object to the introduction, particularly in such an obvious, selective and ad hoc fashion, of section 25 of this Bill, which is obviously designed to facilitate the same project. Such short term and expensive measures, combined with political pressure on industrial development authorities, for someone who played a political role for Fianna Fáil prior to the last election, are symptoms of Fianna Fáil's political policy. This country has a sad future under Fianna Fáil Government and the prevailing cynicism with regard to politicians will be more deeply entrenched forever in people's minds.

I believe that section 12 of the Bill, the withholding tax on professional services, is a grave mistake. If the Government and Revenue Commissioners felt that the collection of income tax from certain professional groups was a cause of concern they should have addressed the problem directly by taking strong measures in relation to the collection of that tax. I would support such measures.

I will not restate the point often made in relation to the need to distinguish between a firm's revenue and taxable revenue. I believe, however, that for many professionals and their firms this provision will result in grievous loss of cashflow causing unemployment and hardship. Many professional firms are already badly affected by their inability to collect fees for work done due to the general recession and the lack of money in the economy. For many professional firms, particularly those in the building industry, the gravy train stopped a long time ago but the Minister seems to be unaware of it.

I welcome the introduction of a tax provision in sections 11 and 27 in relation to export trading houses. I caution however, that the development of deeds and titles will be a relatively slow process and I urge the Government to accept this and encourage their development with sound, long term measures rather than fly-by-night ventures, failure of which would only discredit what would be a worthwhile concept.

Mr. B. Ryan

Senator Doyle's remarks are a model of expedition, so much so that they have caught me on the hop. It is always interesting to speak on a Finance Bill if for no other reason that that I find myself consistently over the year having to reiterate certain misconceptions which most of my colleagues in this House and the other House have about the nature of Irish taxation, the scale of Irish taxation, the equity of Irish taxation and, indeed, the relative burden of taxation that we carry in this country.

It needs to be said because people — particularly new right economists of the Paul Tansey variety — are beginning to challenge many of the assumptions which most members of political parties in this country still hold that taxation is, of itself, both a necessary and a good thing in a society because of the objectives it achieves, the first objective being that it finances the necessary services of the State whether they be in the area of security, infrastructure, investment or in the area of services and that public expenditure via taxation does a lot of good in our society. The same individual I just mentioned — it is invidious to mention individuals but journalists perhaps have to live with this and when they feel free to do it about us I feel free to do it about journalists — questioned the inherent value of public expenditure.

Let me give one specific example to this House about the inherent value of public expenditure. I will quote from the OECD Observer of April-May 1987. They produce a fascinating set of statistics. One of the favourite targets of the new right economists of the ilk of the same individual has been to suggest that we have spent more and more on our health services and we are no healthier than we were before. That statement made by a considerable number of economists is either a deliberate untruth or reflects a level of professional incompetence on their part which, if politicians showed it the electorate would deal with very effectively at the next election. I repeat, they are either totally incompetent or they are telling lies.

Let me give a very specific example of how our quite substantial, and painful to pay for very often expenditure on the health services has worked to our advantage. We have an infant mortality rate — I keep on reiterating this because it needs to be said in this country — of 8.9 deaths per 1,000 live births. That infant mortality rate rates with the best in the world. When you consider that we quite rightly do not allow abortion and therefore pregnancies that are liable to be difficult, that are liable to produce unhealthy or seriously-malformed infants are not terminated and, therefore, all confirmed pregnancies are allowed to go the full term and when you consider that we are comparing statistics with countries which do approve of termination of pregnancy, that figure is even more impressive. When you add on to that the fact that that figure is a clear 1.6 per thousand lower than that of the United States, it proves that our health expenditure was worthwhile. The infant mortality rate in the United States of America is 10.6 per thousand. The infant mortality rate in this country that has about one quarter of the GNP of the United States is 8.9 per thousand. I defy any economist to tell me money spent to do that is money wasted by the Irish State and the Irish people.

The problem with infant mortality is that it does not rate as a measure of lost production, it does not rate as a measure of lost value and, therefore, as far as an economist is concerned, the infant mortality rate is not measured in economic statistics. It is a very important human statistic and one that justifies high levels of expenditure in the health services. I do not believe any country with a large privatised health service, the United States being a classic example, can produce those sort of figures. They are four times as rich and they still have a higher infant mortality rate than we have.

I say that, a Chathaoirligh, not because I want to go off onto a long tangent about the health cutbacks — and whatever my own inclination is I am aware at this stage that you would not let me anyway — but because I want to reiterate the principle that public expenditure is a good thing. It seems to be in question now that the idea of using the resources of the State to provide necessary services for people is a good thing, that the idea of using taxation to raise revenue to pay for things that people would otherwise not be able to afford is a good thing. It seems astonishing that in Seanad Éireann one has to say these things. There is such an assault on the very principle of redistributive public expenditure that they need to be said again.

I want to look very briefly at the problem of the public finances. It has characterised a lot of the rhetoric as distinct from the talk, or the argument, or the logic of the Irish left, that they try to pretend that they can talk their way out of the country's indebtedness crisis. One of the very valuable things contributed by the NESC report last year on the national debt was that it forced various interest groups to look at facts that might have been unpalatable to them.

The trade union movement were forced to acknowledge the fact that the level of national debt was in danger of spiralling out of control and would, therefore, have to be brought under control. The industrialists and the employers on the same body had to acknowledge that if you are going to deal with public expenditure you cannot pick on what employers would regard as easy or soft targets; it must be based on fundamental principles of equity in our society. What precisely the farming community acknowledge I am not quite certain yet, because they never acknowledge that they owe anybody a living, a debt, or anything. I must say I cannot say on that issue. I have heard trade unionists frequently accept the need to accept restraints in public finances, to accept economies, changes, cutbacks. I have yet to hear similar acceptances by the farming community. The farming community's view seems to be: "Everybody else should cut back but we are different. We need more. Everybody else must have less." The trade union movement have been remarkably responsible in this, though I think the limits of their responsibility and their tolerance are rapidly being reached.

I accept that the public finances have to be restored to order. Anybody who read the NESC report last year will recognise that we are very close to a dangerous spiral of interest and indebtedness which could fundamentally undermine our public finances. I want to say that the fact that it could happen, and possibly might happen if matters continue uncontrolled, is a long way from the Brazil, Mexico, Poland scenario those same right wing commentators have quite unjustifiably used to describe this country. We are not in the position Poland is in; we are not in the position Brazil is in; we are not in the position Mexico is in. We are not in that league and it is downright unpatriotic for Irish Government Ministers, including one former Minister for Finance, from Fine Gael, Deputy Bruton, to say we were as badly off and as publicly indebted as Brazil, Mexico, or Poland. That is unpatriotic. It was also damned bad politics by a senior politician.

An Cathaoirleach

I would prefer that you did not criticise either former or present Ministers because they are not in the House to defend themselves in fairness to them.

Mr. B. Ryan

If the public has its way with some of them they might end up in this House.

An Cathaoirleach

Let the public decide that. We will not.

(Interruptions.)

Mr. B. Ryan

University graduates are far too clever for that, Senator Fallon. Witness the quality sitting on the benches here. The fundamental fact I want to reiterate is that we have a crisis. It has to be tackled and it needs to be tackled and, in the process of tackling it, all of us would have our various vested interests or various precious little projects threatened. There is no doubt about that, but such an attack has to be based on a perception of justice in society. It has to be based on a perception that people have that everybody is carrying a fair share of the burden.

That is not something people have seen. Part of the reason for that is that the final political willingness to deal with this crisis only really emerged some time around last November when the financial institutions passed a vote of no confidence in the state of the public finances and funds began to flow out of the country in enormous sums. There are two questions that need to be asked about that. The first is: did these huge outflows flow out legally or illegally? I thought we had exchange control regulations in this country. Yet we had a flight of funds in two or three weeks on a scale that suggests it could not have gone via any exchange control regulations and that a large part of it was done without that.

The extraordinary thing is that bankers and people like that are much given to giving lectures about public spirit, public service, patriotism etc. So are many of their political allies, but the same people have absolutely no compunction about breaking the law in the defence of their own little financial interests. So the money flew out; interest rates flew up; the £ was under pressure and certain commitments were made by the previous Government which are now being fulfilled by this Government.

One of the unfortunate political consequences of the diktats of the financial markets is that the cutbacks must be made in the areas approved of and, dealing with the national debt, must be in the manner approved of by the financial markets. That means, of course, that those areas that have been targeted for cutbacks are the ones which must be cut. We have had dictated to us a mythology, the same right wing mythology, that the real crisis in the public finances is a crisis based on providing services for ourselves that we could not afford. We have been told that we are living beyond our means, that we have given ourselves services in the areas of social services, health and education that are beyond what we could legitimately afford. That might have been true some years ago. There is an argument that the Fianna Fáil Government from 1977 to 1981 were ringing up health boards and hospitals saying: "Please take on more people. We have promises to keep and a long way to go before we sleep", and so on. There is considerable evidence to that effect. That was ten years ago.

The position is that, at the present level of public expenditure, if debt service costs were removed from the total burden of current public expenditure, public finances would be in surplus. The last figure the previous Minister for Finance mentioned was £700 million or £800 million. In other words, if we did not have to pay off those debts, we would have a surplus to the tune of £700 million or £800 million in the public finances, equivalent roughly to 40 per cent of income tax. We could pay for everything we have at present and reduce income tax by 40 per cent, or we could improve the services and also have a substantial reduction in income tax. If debt service is removed it is quite clear that what we are spending on health, education, welfare, security and so on is not such an enormous proportion of our total resources.

The problem is debt servicing. That may well necessitate cutbacks in some of those areas. We are not providing excessively high quality services for the State in terms of what the country can afford. At the core of that fact is the shock that politicians in various parties have suffered when they discovered what cutbacks in health really mean. The truth is that we have minimal standards of welfare, health care, education, etc. When you start to cut them, believing, as many people do because the right wing economists have had a field day for the past four years, that there is a whole lot of wasteful expenditure, they bite so deeply because there are no spare services, no fat which can be cut back. The basic facts of public expenditure demonstrate that. We do not spend excessively large amounts of money on health, education, or welfare.

The fundamental flaw in the strategy of this Government and the previous Government is to assume that there is a large area of public expenditure which is excessive to our needs and that we can provide basic health and welfare services and cut at the same time. The truth is that, if we take debt service out of what the Government are spending, we spend quite a small proportion of our GNP on public services. People do not like those figures.

Let me give another example of the sort of distortions that are foisted upon us. We are told, for instance, that we are burdened down with a huge Civil Service. The same economists would have us believe that the Garda, the Army, teachers, doctors and nurses in public service are all civil servants. This is another untruth. I heard a prominent economist use public service pay as a measure of the cost of administering the health services, whereas public service pay involves the salaries of teachers, doctors, nurses, gardaí, the Army and so on. The truth is that the real Civil Service, the white collar Civil Service, as a percentage of the total population in Ireland is 2.2 per cent, in Germany is 4 per cent, in the Netherlands is 2.4 per cent. I am quoting from the document produced by the Irish Tax Officials Union and the Union of Professional and Technical Civil Servants. Unfortunately the pages are not numbered so I cannot give a page number. Our Civil Service is proportionately quite small. If you begin to cut lumps out of our Civil Service by embargoes on recruitment, inevitably you end up with large gaping holes in the service, the most obvious being in the area of revenue collection.

It is quite astonishing that Margaret Thatcher's Government, in spite of everything else they did, increased recruitment, employment and numbers in the area of revenue collection in order to improve the quality of revenue collection in Britain. Irish Governments successfully have reduced the workforce in the area of revenue collection. How we can have an equitable, fair and efficient tax system if we keep on reducing the numbers of people working there and at the same time increase the complexity of the revenue collection service is beyond me to figure out. It is getting close to the position where one has to believe that large sections of both the Fine Gael and Fianna Fáil Parties are by a process of nods and winks giving covert approval to tax evasion on a grand scale. If they did not, they would have guaranteed the recruitment of large numbers of people into the Revenue Commissioners to ensure that certain things were meant.

Let me give an example of the sort of things that need to be dealt with. I am quoting from the document produced by the Union of Professional and Technical Civil Servants and the Irish Tax Officials Union. It stated:

Three times as many traders in the United Kingdom pay their tax on time as in Ireland. Ninety-five per cent of UK employers pay their PAYE liabilities on time, whereas only 33.5 per cent of Irish employers do. Sixty per cent of UK traders pay their VAT liabilities on time whereas only 24 per cent of Irish traders do.

This is not the trader's money. This is the money that his customer paid when the service or goods were being provided by the trader. It is not a question of money coming out of his pocket.

Those are the sort of figures that demonstrate how inept the quality of our tax collection is. That springs directly from the unwillingness to put the staff into it. I defy somebody in Fianna Fáil or Fine Gael to explain to me how they can justify reducing employment in the area of revenue collection at a stage when the country desperately needs every single penny of revenue that can be generated.

The second area in terms of revenue collection that needs to be dealt with and that comes back similarly to the paucity of revenue collectors, of staff in the Revenue Commissioners, is the area of the black economy. I do not know how big the black economy is or how small it is, but I have here a range of estimates from a variety of sources, the Irish Banking Review, an economist for the ESRI, an article in Business and Finance, and so on. They all vary between £500 million and £1,500 million. That is lost revenue of between £200 million and £600 million. Six hundred million pounds is about half the current budget deficit. By simply ensuring that those who are gainfully employed in this country and not paying tax were required to pay their taxes, we could halve the budget deficit. What do we do? We reduce employment in the area of the State which could do something about that. It suggests a deliberate decision by those in Fianna Fáil and Fine Gael who have dominated this area in our society for the past 60 years to look after their friends in business, trade and agriculture by simply not putting the resources in to make sure that those friends paid up on time and in full.

That brings me onto another area of potential revenue gathering, that is, agriculture. I have frequently stood up here and talked about earnings from agriculture and been contradicted by various people who, while they would not accept the term, seemed to be nothing more than a lobby to guarantee that their farming friends would never pay income tax. I have decided that something I found well over a year ago should be put on the record. This is an article from Irish Farmers Monthly of January 1986. It is to do with farm incomes, and so on. These are not the sort of figures that are normally published. We normally get the old average farm income of £3,000. That is an average income distributed over 215,000 people who classify themselves as farmers.

You get the total agricultural income and you divide it by 215,000 and you get an average income of £3,000 a year. You get the impression that the IFA are vigorously and with great purpose defending the rights of these poor people earning on average £3,000 per annum. The truth is, of course, that there are not much more than about 70,000 or 80,000 full time farmers. Of the 215,000, between 100,000 and 140,000 have other employment. They are only part time farmers. Therefore, to look on their income from farming as their entire income is a total distortion. These figures are directly taken from the figures of the Agricultural Institute, though the author of the article, Willie Ryan, said that the Agricultural Institute does not highlight these matters when it publishes farm income statistics. The top 30,000 Irish farmers in 1984 had annual incomes averaging £18,500. The remaining 185,000 farmers had incomes averaging just over £3,000. The top 30,000 — about 14 per cent of farmers — account for just half the total income coming from farming. These are large figures. This is big money. Crudely, 30,000 multiplied by £20,000 gives a little less than £600 million being earned by the top 14 per cent of farmers.

Because I was curious I did a little exercise on this last year which is relevant today. I made a few comparisons. The top 15,500 farmers earn on average £24,000 per annum according to the Agricultural Institute. If they were paying PAYE, presuming that all of those farmers had three children, with only one spouse earning and therefore were entitled to all allowances accruing to the earner, those 15,500 farmers should pay £131 million in income tax. I am using the figures supplied by the Department of Finance for last year's budget concerning the percentage of total income of a PAYE earner on £24,000 per annum that goes on income tax. The next 13,500 farmers, who on average earn £12,500 per annum, should have paid £34½ million in income tax. I worked through the various categories simply taking the income figures produced by the Agricultural Institute, using Department of Finance figures on percentages deducted for income tax.

If farmers earning £6,200 and above were to pay the same proportion of their income as PAYE earners the total revenue from farming in income tax should be about £190 million — crudely £200 million. That is precisely six times the amount which farmers pay in income tax. I defy any member of Fianna Fáil or Fine Gael to explain those figures away. I know — and everybody knows — that there is a considerable amount of affluence in certain sections of farming. Part of that affluence is because they know, and have known for a long time, that they will never have to pay the same proportion of their income in income tax as other sections of society. They are the figures: £200 million accounted for, six times as much as the amount collected.

An Cathaoirleach

May I interrupt? There is a vote on the Gas (Amendment) Bill in the other House.

Mr. B. Ryan

I will continue because I have said most of what I want to say.

This is what has to be done to create a sense of equity. There is ample evidence of a lack of equity. In Britain, for instance, in Margaret Thatcher's enterprise economy, the corporate sector contributes about 9 per cent of State revenue. In this country — allegedly over-taxed, penalised, disincentives, a non-enterprise economy — the corporate sector pays 3 per cent of total revenue to the State. A three times greater proportion of the State's revenue in Britain comes from the corporate sector than comes from the corporate sector in this country.

It is also interesting that the proportion of the State's revenue that came from capital taxation in the "hungry Thirties", when allegedly there was nothing in this country, was about two and a half or three times as much as it is today. That would mean about £200 million in capital taxation instead of £50 million or £60 million which is currently derived from capital taxation.

When you add up the amounts due from the black economy, the uncollected taxes, the delayed taxes, farming tax, and from capital taxation, you reduce a deficit of about £1,400 million or £1,500 million to around £200 million or £300 million. When you have convinced people that you will make everybody pay for the services they enjoy, then you can talk about cutbacks to balance the books. That comes after you have created a perception of justice in society. A perception of injustice exists, not because people are fooled, but because people are right. The statistical evidence is there. The trouble is that those who should be informing the people, in particular financial journalists, have their own view about how society should be organised. That view is committed to a low tax, low public expenditure and a highly individualistic society. I believe in a high tax society with a sense of collective responsibility and a sense of moral responsibility. That is where the two views of society differ. My view of society is that everyone who earns an income should pay the same proportion of that income in tax, irrespective of where the income comes from. That is a very simple view.

It is interesting that many people want to tax short term social welfare benefits. If those proposals about equitable taxation were to be introduced, I would support enthusiastically the idea that income from welfare should be subject to taxation but I am damned if I will tolerate targeting social welfare recipients for further penalties while those who have surplus income, whether in farming or in business, are allowed apparently to sail whatever way they wish with virtually no prospect of being caught. According to the Commission on Taxation, the chances of being caught for fiddling your taxes are about one in 100. You have 99 chances out of 100 of getting away with fiddling your taxes. Even if I did not understand free market economics that would be regarded as an acceptable risk. That is at the core of our country's problems.

Finally, as there is so much talk about the state of the economy, I want again to put an average figure on the record. It needs to be said yet again that this country has a quite remarkable record in a number of areas. We have been told consistently — and it is true — that the only way we will turn our economy into a successful modern economy is by successfully selling goods and services on the international markets. We must remember that a small businessman who sets up a small garage or a service industry which operates entirely within the economy may be helping local people but he is contributing nothing extra to the economy. He is simply moving other people's money around. The only ways in which we can increase the total sum of wealth are by selling goods outside the country, or by creating goods that can be sold within this country or outside it, or by selling services on the international market. We have been told frequently — and quite rightly — that we must export to do this.

We have also been told frequently that one of the problems about exporting from this country is that we must retain our competitiveness. I would not disagree with our competitiveness being retained. That is a very sensible idea. I would disagree with the definition of competitiveness and the argument that it was lost. We were told frequently by the previous Government — and with increasing frequency by this Government — that we must hold wages down in order to hold prices down, in order not to lose our competitiveness. In the early years of the previous Government, we were told frequently that wage increases were eating away at our competitiveness and we were rapidly losing markets. That is why I want to quote a couple of statistics here.

First, we must remember that within the entirety of the OECD, with the exception of the Belgium-Luxembourg economic union which I do not want to get tangled in we have one of the highest exports as a percentage of our gross domestic product. Irish export represents about 57 per cent of our gross domestic product, which is a huge percentage. We are a trading nation. We depend on international trade for our success. The astonishing thing is that between 1980 and 1985, exports from Ireland increased by an average of 8.8 per cent by volume, not by price. The volume of our exports increased by almost 9 per cent per annum on average between 1980 and 1985. That is a good record.

The astonishing thing is that it was happening at a time when we were being told by successive Government Ministers that we were undermining our competitiveness. The truth is we were not. I want to know why is it that our exports increased faster between 1980 and 1985 than those of the United States, where exports actually reduced by 3.2 per cent per annum on average between 1980 and 1985. At the height of the Reagan regime American exports were going down. In the same period in Japan, for instance, exports increased by 7.3 per cent on average. Between 1980 and 1985 Irish exports increased faster than those of Japan. Let me take another model country. In the United Kingdom they increased by 3.6 per cent.

If you go through the entirety of the countries of the OECD — approximately 22 countries — the country with the higherst average annual growth in exports between 1980 and 1985 was Ireland. That part of our economy which contributes 57 per cent of our total gross domestic product increased by 9 per cent. Since our total gross domestic product increased by only about 1 per cent, the extraordinary contraction that was taking place in our domestic market at the same time is underlined by that. Fifty-seven per cent of our gross domestic product, averaging an increase of 9 per cent suggests an annual contraction of domestic growth of the order of 7 per cent or 8 per cent. That contraction of gross domestic product in the home market was contributed to by wage deflation, by high taxes, by a reluctance to recruit people into the public service as well as by a number of other factors. I invite either a spokesman for Fine Gael or Fianna Fáil — because they agree about everything as we discovered this afternoon — they do not have any fundamental differences anymore, other than who started what and who finished it and they are more like schoolboy or schoolgirl games than they are real politics——

Mrs. Bulbulia

I think the Senator was not in the House for the entire debate this afternoon.

Mr. B. Ryan

I have been present in this country for the past 15 years and that confirms my opinion of Fianna Fáil and Fine Gael. It was not in this House that I heard the information which confirmed to me that there is no difference between Fianna Fáil and Fine Gael. It was outside this House. There is no difference. One of them might explain to me what percentage of annual average growth in exports they expect or hope for in order to develop this country. Are we actually going to go further ahead of the Japanese, or is there a problem about the kind of exports we are generating? Is there a problem about the fact that many of these exports are paper exports and, if they are, should we not rewrite the figures and tell ourselves the truth?

A large part of that figure is fiction. It is fiction which is justified because of the extraordinary tax concessions we offer to multinationals. If it is not fiction, then we should be seeing the benefits of it. If it is fiction we should not be producing spurious statistics. The truth is that it appears that what we are doing is creating an industrial base via multinationals which create a very limited number of jobs and a considerable amount of wealth. The price we pay for that considerable amount of wealth is to allow it to leave the country untrammelled by taxation restrictions. It is time those who have thrown their eggs into the basket of attracting in large multinationals should tell the Irish people what price they are expected to pay to continue this. There are alternative strategies which I will give in another context another day.

I would like to reiterate that the crisis we face is real and should be dealt with. There is no movement towards equity in taxation either in the areas of agriculture, or in the areas of how those in the non-PAYE sector are dealt with, or in the area of capital taxation. We do not have excessive levels of expenditure in the areas of health and social services. We cannot afford to cut back seriously. Therefore, we need to look at the strategy which creates equity, first of all. Once equity has been established in terms of contribution to the national revenue, we can talk about dealing with the small budget deficit that would remain when equity has been introduced.

Mr. Mooney

The overall strategy of this year's Finance Bill is developmental in many of its aspects. It comes at a period in this country's history when our people are reeling from the effects of a recession of monumental proportions. As has been referred to earlier in the debate, Fianna Fáil were not in Government for much of the period since our entry into the Common Market in 1973. Since then many of the economic problems which have faced this country have arisen. I am not suggesting that they arose as a direct result of our entry into the Common Market but, since we got more involved at international level industrially, I remember hearing Government spokesmen bemoaning the fact that, but for the international recession, Ireland would have a better economic record. In the last few months I have been reading that the international boom is about to be lowered after several years of growth. To paraphrase the television commercial; "Where is the boom gone"?

People living in this country must have been amazed and very angry to learn, particularly in the past five years of belt tightening, that they have very little to show for it. Therefore, I welcome the thrust of this Bill and must also applaud the Fine Gael Party — I am sure Senator Brendan Ryan will be delighted to hear me saying this — for recognising that there is a need for a genuine consensus on the economy and the direction we should take if we are to get ourselves out of our present difficulties. Listening to Senator Ryan, one would think that he has a monopoly on expressing care and concern about the less well off. Personally, I resent the implication in Senator Ryan's remarks and suggest to him that there are many people on this side of the House who are as concerned as he is about the less well off and about aspects of our economy, in particular in the tax collection area. On this side of the House we have what I would call responsible compassion for the vulnerable sections of our society. People have been crying out for strong Government, together with an acknowledgement that the mistakes of the past decade cannot be rectified all at once.

I believe that the people of this country have, in this Administration, people who are showing a strong and resolute determination to root out the underlying causes of our economic difficulties. The Finance Bill is a good start to this process. We have been living beyond our means for a long period of time. It was inevitable that there had to be a day of reckoning. The time had to come when a Government had to say in relation to a high degree of public expenditure: "Thus far and no further". That day has dawned, and in this year of Our Lord 1987 the cutbacks, particularly in public expenditure, will cause a certain amount of reaction from people who perhaps thought that they were getting services free. The reality was that there never were any free services as such because ultimately the taxpayer was paying for them. With public expenditure going out of control over a period of years it was inevitable that the day of reckoning would come.

I compliment the Government on recognising their responsibility in this area to start to put things right. Apart from the inevitable cutbacks in public expenditure they have also adopted a developmental approach to the thrust of their economic policy. They have proved a certain impetus to the economy in key areas, specifically tourism. For many years we have been hearing that tourism was the second most important industry in Ireland. Yet there did not seem to be the same emphasis or importance attached to developing our vast tourism potential as there had been, for example, in the area of agriculture or of industrial development.

A proper, balanced and imaginative proposal or series of proposals in the area of tourism is to be welcomed. The tourism proposals were announced in the Bill, or subsequent to the Bill's publication, in order to attract more people here from Britain. In reading some of the Irish newspapers that circulate in Britain I noticed that a number of Irish people, I am sad to say, referred to some of these proposals as being nothing other than cosmetic. That is rather sad. There is a genuine attempt being made by this Government — and it has been recognised by all sides of the House and, indeed, outside this House — for the first time in many decades, or certainly since tourism became such a growth area, to try to generate more income through tourism and at the same time claw back a great deal of tourist traffic which was lost to this country over the past ten to 15 years because of a perceived and a real recognition and acknowledgement that this country was pricing itself out of the tourist market.

I regret that the proposals in relation to petrol vouchers, where £10 is being given to the first 20,000 potential travellers from the London area to visit Ireland, is being criticised in some of the Irish newspapers in Britain and that the overall thrust of the Government's policy towards tourism is also being criticised. The benefits on the ground of the introduction of such items as the petrol vouchers scheme, and the change in the attitudes of various international airlines flying in and out of this country have produced very beneficial effects. I have no doubt that the tourism figures this year will show a substantial increase. They are already, over the first number of months of this year, beginning to show a substantial increase, particularly from the British market. Britain is our nearest neighbour. There has been a long, happy and traditional relationship between the British tourist and ourselves, not just from the ethnic market but also from the traditional British holidaymaker. Sadly, due to historical circumstances as they affect Northern Ireland and this part of the island, we have lost a great deal of that market. I hope it will return. In fact, that is already happening. That aspect of the Finance Bill is to be welcomed.

Tax reform is the great catch cry. Everybody would like to see tax reform. They would like to see tax reform which would satisfy all aspects and all sides of society. They would like to see tax reform that would please those who are earning great sums of money and do not wish to have to pay and tax reform that would help the less well off and the lower paid. I hate to use a term such as "the growing middle classes" in a consensus society such as Ireland is. I do not think we are a class society. I would hate to think that we will ever become a class society. There is a vast body of people who are referred to generally as being the middle class. They are young married people or those who have small families on fixed incomes who, because of spiralling costs over the last number of years, have found themselves caught in this trap and are looking to the Government to help them out of their difficulties. In that context the proposal to which the Government is committed — and, indeed, it was mentioned in the Fianna Fáil manifesto before the election and subsequently reiterated in Government — that ultimately two-thirds of the income taxpayers will be paying the standard rate of tax is an aspiration that one hopes will very quickly become a reality, whenever budgetary provisions allow.

There has been a great deal of publicity surrounding the amounts of outstanding tax. Indeed, the Minister earlier referred to what he called exaggerated claims in some instances where it was suggested that there were such huge amounts of tax outstanding. It was suggested that if all of it were to be collected and if everybody was to go about his business in the Revenue Commissioners Office to the best of his ability — all of this money could be brought in and, at the end of the day, we would have so much money that we would have solved all our problems. The Minister said that this is an exaggeration. We must look at the way tax is collected, particularly among the self-employed, the non-PAYE sector where the Revenue Commissioners operate on an assessment basis and decide how much they think one owes. The procedure is that unless one responds within a given time and tells them that that amount is not owed then that figure stays on the statistics book. I am not in any way underestimating the problems of tax evasion and tax collection. The Minister said there has been considerable misunderstanding about the scale of arrears, and that some of the figures mentioned are wild exaggerations. He admits that uncollected tax is a serious problem and any tax reform package must incorporate measures to improve collection. He also notes that significant progress has been made in recent years and that there must be further improvement. This is a priority with the Government.

I suggest that statements being made about the amounts of tax outstanding make good headlines. It is a headline for the hard-pressed PAYE sector. They look at a national newspaper or watch television, or listen to the radio, and see that £600 million is outstanding in tax, but the real figure is considerably less than that. That figure is based on an assessment. That assessment is the initial process where somebody in the non-PAYE sector is involved leading to an agreement where they pay their taxes. That sort of publicity is not in the public interest. All it does is stir up envy. It creates a situation where the PAYE taxpayer genuinely believes, as is the case now, that those in the self-employed area are getting away with murder.

I accept that there are abuses of tax in this country as there are in every country where a tax collection system exists. I am not so sure that it is in the public interest that there should be further divisiveness in what is essentially a small country. We are a tightly-knit society. We need to be pulling together and not against each other. I might add that when it comes to the question of tax reform one wonders who should benefit. We have seen, over the last few years in Britain, where those who are the rich and famous have benefited by reductions in the higher rate of income tax. We have also seen where the vast majority of those who are on low salaries seem to be paying more. It goes without saying that this party — and I would like to think that most responsible politicians—would be committed, in any area of tax reform, to initially helping those who are the most vulnerable — the lower paid and the less well off.

It is rather interesting that the British Treasury commissioned a survey which has not yet been published. This survey was commissioned from Professor C.V. Browne. He concluded that the extra incentive to work harder as a result of a tax cut was offset by the fact that a tax cut offered more cash for the same amount of work. He made the point that after all we are all human. It is just a small point in relation to those who talk in terms of tax cuts. The whole area of tax reform is a complex one and is one that, obviously, will not be dealt with in any great detail today or, indeed, in the context of this Finance Bill. Perhaps the time will come —and I hope it is not too far off — when there will be a very serious look at how to bring about equitable tax reform.

Another aspect of the Finance Bill is the question of the transfer of moneys from people living abroad into this country. I welcome the proposal whereby this money from overseas residents will not be subject to tax. It is amazing that over the past number of years, perhaps since the introduction of the DIRT tax last year, perhaps as a result of a distorted interpretation, or perhaps because of the fact that, sadly, in Britain not a great deal of news about Ireland or Irish affairs percolates through the British media, there has grown up a misunderstanding about this new tax regime and about the whole question of deposits of money in this country by non-residents.

I suggest to the Minister that, when the Finance Bill eventually becomes law, this aspect of it might be looked at in the context of better information. All of us would agree that the more money that comes into this country the better this economy and this country will be as a result. We have, sadly in one respect, a substantial number of Irish people living in Britain — I refer to Britain primarily — who have done well for themselves. I say "sadly" because they are doing well for themselves over there and not doing well for themselves over here. Equally, it should be a cause for great joy in another respect, particularly where it comes to surplus funds. Having been a former emigrant, I know there is an underlying affection for this country, despite the circumstances in which some people might have had to leave it. Those who have done well and who have surplus funds are willing, and indeed are anxious, that this money should be deposited in Ireland and used for the benefit of the economy, as well, of course, as getting them a prime interest rate. I would not want to give the impression that these people are only concerned about a good prime interest rate: they do have the interest of this country at heart.

Over the past six months I have been making some inquiries and, as a result of representations that have been made to me on my frequent trips to England, it is clear that there is a doubt about the status of these funds. I suggest to the Minister that perhaps there should be a better publicity campaign, through, for example, a newspaper such as the Irish Post in Britain, which has a very high readership, which is the newspaper of the Irish in Britain and is read by all sections of the Irish in Britain right across England, Scotland and Wales. Perhaps there should be an information campaign specifically directed at people who have surplus funds and who would like to invest them in this country but who have an idea that in doing so they are open to all sorts of tax restrictions: (a) that they are going to be taxed on their money; and (b), that if they leave their money in here they will not get it out again. That sort of doubt and rumour should be dispelled in the interests of the country generally. In welcoming that section, I feel it is not enough for it just to be in the legislation. As I said earlier, since a great deal of news about this country does not percolate down to the average Irish person living in Britain, I suggest that there is a responsibility on the Department of Finance to publicise that aspect of their proposals in more detail.

The proposals in the Finance Bill which claw back 10 per cent of mortgage tax relief have not met with universal acceptance. Opponents of it have been particularly vociferous, naturally enough, among those who have only taken on mortgages over the last couple of years. Their attitude has been that the Government have accommodated them as potential home owners by saying that, if they took out a mortgage, the Government would give them tax relief on it. They have gone through that process. They have committed themselves to mortgages of 15, 20, 25 years at very substantial rates of interest, and they are now being told that 10 per cent of that tax relief will be taken back. It is not so much that they are annoyed or worried about the 10 per cent. The concern that has been expressed to me is that it is the thin edge of the wedge, that this Government have succumbed to the Civil Service mandarins, whoever these faceless people we hear about may be; that it is a proposal that has been on the table in the Department of Finance and has been looked at by successive Finance Ministers over the past ten years and they shied away from it, but that this Government have now decided to go ahead with it.

I can understand the reasons, because we need money and we need to get money from sources such as tax relief being given. The argument goes that 10 per cent is not very much. After all, there is a move afoot and a proposal from various sectors of the society that this mortgage tax relief should be done away with altogether, that it is unfair. Indeed, I have heard this expressed by members of the Labour Party. I hope the 10 per cent will be all that we will hear about in terms of a clawback in that area until such time as the engine of the economy gets fully oiled and working again, when more money and more wealth are being created.

As things stand at the moment, the vast majority of people who are on mortgages are the people I referred to earlier on fixed incomes; and any changes in their monthly financial commitments — and 10 per cent may seem like a small amount — are significant. One had only to hear the sigh of relief that went around over the past few weeks when the building societies and the banks announced that they were reducing mortgage rates by 1 per cent. To some people who are not on mortgages 1 per cent may not seem a lot. But it is quite a considerable amount to a family who are budgeting on a pounds shillings and pence basis. I would not want to give the impression that I would be against the idea in principle, but I would find it difficult to sit down without expressing the concern of many people who feel that this is the thin edge of the wedge.

The business expansion scheme is to be welcomed. It gives an opportunity to people — entrepreneurs, banks, insurance companies, those with money — to invest in schemes which will ultimately be of benefit to the country, the incentive being that the investment is tax free.

I must welcome the imaginative initiative taken by the Minister for Finance in the past few days in extending the business expansion scheme to the film industry. The film industry has been in a sense a Cinderella industry in this country for the past number of years. It has amazed me that successive Governments — and here I am talking about both Fianna Fáil and Fine Gael-Labour Administrations — have not looked at this area in more detail until now. Basically the Government are attempting to create an investment climate for an indigenous film industry. We have all applauded down through the years the wonderful beneficial publicity this country has received from, for example, films such as "Ryan's Daughter", which I heard Senator Bulbulia refer to earlier. While that in itself was a marvellous achievement, consider the one movie which has had the most beneficial effect in terms of bringing people into this country — perhaps for the wrong reasons in that at the time, and subsequently it created a distortion of the real Ireland.

"The Quiet Man", was filmed in the West of Ireland in some of the most beautiful countryside around Maam Cross in Connemara and in parts of Mayo. While at the time it was filmed in the early fifties perhaps it distorted the reality of a growing, developing Ireland, yet it still had a truth about it in regard to parts of the country. But, certainly, to look at "The Quiet Man" today and compare the Ireland of 30 years ago with the Ireland of today, it certainly is a distortion. However, the reality is that that one single film, that one piece of celluloid, attracted more American people to this country than any one single promotional act by Bord Fáilte since they were first set up.

I only use that as an illustration of the vital importance of the film industry to this country. It is not only what the film itself can generate in terms of income by being distributed around the world, but the spin-off advantages to this country can be immense. For example, the Australian film industry, which was practically non-existent ten years ago, is now looked on as one of the premier industries in Australia. Those of you who remember going to the cinema when you were growing up and sitting in the sixpenny forms will, if you cast your minds back, remember the opening credits on many shorts and cartoons which had "National Film Board of Canada". Often, as a young fellow, I sat in the darkness of the Roxy Cinema in Drumshanbo and said to myself, "Why is there no National Film Board of Ireland?" Why not, indeed? Now there is.

This Government have given tangible evidence of their commitment to the development of the film industry by proposing what they have in the Finance Bill. To quote the Minister — and it does need to be repeated because it is an imaginative and innovative scheme — he says, "Film making is an expensive and high risk business and it is difficult to raise adequate financing." Indeed, criticisms were levelled at this country — and not just at the Government but at financial institutions — in the last five to six years because, as the film industry worldwide was burgeoning, there seemed to be a perception — at least from what one read in the newspapers — that financial houses in this country were releuctant to finance Irish film makers. The only reason appeared to be that they were afraid of the risk. Bankers by nature are very conservative people and they will not put in a buck or a pound unless they think they can get two back. It is a sad reality of the market place but that is the way it has been in relation to the film industry. The Minister continued:

The business expansion scheme has already proven itself a valuable vehicle for providing film finance and now we want to encourage investment from the business sector in film projects with commercial potential.

I am pleased that the emphasis is on films of commercial potential. However, I would hope that, in the mad, headlong rush to finance all of these wonderful films we are now hopefully going to see coming out of Ireland, there would also be, perhaps from the business sector, a contribution to films of a cultural and aesthetic nature. We have the most beautiful scenery in the world in this country. We do not broadcast that often enough. I would like to think, looking at the history of some of the films down through the years which have show-cased Ireland and shown us in our best light — not in a patronising, Paddy Whackery sort of way but in a very positive way — that as a result of this new scheme there will also be room for films of an aesthetic nature so that people can enjoy Ireland as we enjoy it.

The Minister says further, in relation to this particular provision, that the thinking behind the new incentive was to encourage films with commercial potential. He then goes on:

We have the basic talents for development of a successful film industry, but without adequate financing there can be no success. In conjunction with the introduction of the tax incentive scheme the Government are reviewing the existing range of support and encouragement for film-making, including the work of Bord Scannán na hÉireann and An Chomhairle Ealaíon.

In that context I would hope that this is the start of a new dawn for the Irish film industry. The people who are on the Irish Film Board and the people who over the last number of years have been making submissions to Government to help the film industry are people of the highest calibre. We are very fortunate in a way, when you think about some of the individuals who have been involved in film making in this country against the most difficult of odds and who have still maintained their commitment to this country and to the idea of a film industry. I am thinking, for example, of John Boorman. Indeed, I was pleased to read in the last few days that Mr. Boorman, who has returned to this country, where he lives, following yet another one of his successes, says that he is immediately starting work on a script for a new film which he hopes to make in Ireland directly as a result of this particular incentive. In this context also I would refer to the development of the Ardmore Studios by one of our more astute and business-minded film entrepreneurs, Mr. Morgan O'Sullivan, and his good offices in attracting one of the largest television film and video production companies in the world to Ireland — MTM Productions. For those who may not be too familiar with the American production companies, if I were to mention such a successful television series as "Lou Grant" and "Hill Street Blues" perhaps it might give some idea of the importance that one should attach to this. I know many people do attach great importance to the introduction of MTM to Ireland.

In the same way, there is the development of an animation studio in Conyngham Road, a new and exciting development, so much so that the most successful cartoon animation film in 30 years was partly produced in this country. The film, "An American Tale", which opens shortly in Dublin, was partly produced in this country by animators who formerly worked with Walt Disney Studios and who have stated that their reason for coming to Ireland was because of the availability of a high technical workforce and the hoped for tax concessions. The mighty dollar rears its head again. But, if it means in the end that this country is going to benefit across a wide spectrum in the financial area as well as in the aesthetic and cultural areas, then the development of the film industry is to be welcomed.

There is a reference in the Bill to incentives to shipping — I see where the Bill is encouraging the purchase of new ships by giving tax incentives — but I would not like to let the occasion pass without making some reference to the demise of Irish Shipping. I would hope that the situation would never arise again in which the employees of this company, who long served this country and, indeed heroically saved it during World War II, with loss of life and with personal injury and inconvenience to themselves, would ever again have to experience, not only the demise, but the manner of the demise of a company like Irish Shipping. I have a brother who lives in Marseilles where the Irish Spruce was held by the port authorities for some 18 months. I received regular reports from my brother, who visited the personnel on board ship. As he said himself, it was a very sad situation to have to witness the port authorities coming on board and sticking notices on the masthead next to the Tricolour telling the master of the ship that he could not take it out of port because of default. I only make the comment in passing. It was a sad episode in the affairs of this country. I would hope that we will never ever see a repeat of it.

The withholding tax has received a great deal of comment. It is interesting that whenever a Government, irrespective of the colour of the Government, decide that they are going to introduce tax in a particular area, it is the strength of the lobby which ultimately decides whether the Government of the day concede in that area, or whether the tax proposals go ahead in a watered down version, or whether they eventually go ahead as originally proposed. Those are the three options which face all Governments in attempting to levy tax. I have to say that it is an indication of this Government's determination to try to get the nation's finances right that the Minister for Finance has held out against what has been an extraordinary lobby, the professional lobby against the introduction of the withholding tax.

Without going into the merits or otherwise of it — it is a budgetary provision designed to bring in something of the order of £25 million — all I would say is this. Perhaps I have better preface my argument by saying I can understand the difficulties that would face some companies in the short term with regard to cash flow. I want to make that point and I sympathise with people who will have a cash flow problem.

I would also ask the question: do all of those companies work exclusively in the public area? Are we to be led to believe, in regard to the companies and the various professions who are criticising this tax, that their entire income for the year is based on public service fees? I think not. While, as I say, it will obviously cause some problems in the short term, the Minister has outlined the manner in which he will lend a sympathetic ear to people who find themselves or their company with that sort of problem. He says there will be no additional tax liability whatsoever, that it is no more than an accelerated payment of tax. It is tax which would ultimately be owed which is now being paid in the short term and it will bring in an estimated £25 million in 1987. He says there are adequate safeguards to ensure that there will be no hardship and that, for the large majority of those liable, the withholding tax is not a significant imposition that will in any sense disrupt their business. He says that the tax is not inequitable, that it is not disruptive, that it will not affect employment and that he will monitor its operation closely.

Listening to the Minister earlier, when he said the new system is estimated to yield £25 million in 1987, I could not help but think that £25 million is Monopoly money to most of us. However, compare it with the figure which the IDA propose to inject into the Larry Goodman deal, which is the largest investment in this country since the foundation of the State, something of the order of £25 million, which is going to result in about 1,500 to 2,000 jobs over a period of four to five years. Consider that £25 million, which is the IDA's contribution but which ultimately is the money which you and I, as taxpayers, are contributing to the national coffers. Say, for example — of course the Government Exchequer does not work this way — that the £25 million which is coming from the professional bodies was to be transferred the following day to the IDA, who, in turn, are injecting it into this massive undertaking, this massive development, and it resulted in not only continuing and increasing amounts of money for the State over a period of time, but also meant employment for a considerable number of people, would the professional bodies not be able to say to themselves it is, indeed, a small price to pay for contributing to the well-being of this country and its economy?

Urban renewal is tackled in the Bill. The only question I would like to raise in the area of the urban renewal proposal is this. I have read from time to time that Dublin Corporation hold a great deal of property in the inner city. The impression is given — I speak open to correction, and no doubt the highly active and vocal PRO for Dublin Corporation will be very quick to correct any wrong impressions about his corporation, and rightly so — that Dublin Corporation are in ownership of large sections of dilapidated property in the area being designated for urban renewal. I know that costs are a factor and that there is difficulty about the development of such buildings, but they are an eyesore. I remember up to about two or three years ago coming in from Dublin Airport, having travelled abroad to various European cities, getting the immediate feeling of an anti-climax coming in the north side of Dublin and seeing what was on show. I was Irish and I was a little embarrassed by it. I often used to think: what do our visitors and tourists think about that side of Dublin as they come into the inner city, the area which is now being designated for urban renewal? In that context, the work being carried out by Dublin County Council and the corporation in developing the two-lane highway to Dublin Airport and back has been a marvellous improvement of the image of that whole area of north County Dublin. It is a pleasure to drive from Dublin Airport into the centre of the city now on what is an extremely modern highway. It is yet another example of the new modern Ireland which we want to project to our visitors. But, on the question of urban renewal, I would hope that the proposals inherent in the Finance Bill will be taken up by those people who, up to now, have been reluctant to invest in inner city properties.

The idea of trading houses dealt with in the Bill is a new concept for Ireland. It is a concept which has been extremely successful in Japan and, indeed, has led to that country's remarkable economic growth since the period of the ending of the Second World War. The concept of trading houses, in effect, is to harness the marketing expertise of individuals or companies by giving them tax breaks to buy from Irish manufacturers and then sell abroad. The concept is an excellent one and it is surprising that it has not been thought about or tried in this country before. I was listening to the Minister explaining this concept of trading houses in another forum some days ago.

While he is obviously concerned that there should be no abuses of the concept, I would hope that at the same time he would not discourage individuals who have entrepreneurial flair, who have the marketing expertise and a good track record, but who are perhaps short of funds. I hope he will not discourage those people because in the long term they are the sort of individuals we need to encourage in this country. I accept that the concept of the trading houses is being directed more towards existing companies whom we would wish to get more involved in the marketing of products abroad. Individuals who have the same sort of marketing expertise and a good track record, but may not have the finance, should be encouraged rather than discouraged by the financial institutions. The Government should perhaps act as a go-between if such a difficulty were to arise with someone who has the sort of expertise those trading houses are being catered for.

In the further context of the trading houses, there is no doubt that there is a wealth of goods, particularly in this country, that are not being sold and marketed properly abroad. The comment has been made that we have here many people who, for example, are good at arts and crafts. One has only to go to the-various craft fairs around the country, or indeed to the various craft villages that are set up, to see the remarkable range of Irish arts and crafts. But the point is being made time and again that, while the people who are producing these arts and crafts are excellent and very creative, when it comes to actually selling their goods they have difficulty. They are good manufacturers, but bad sellers. I hope this trading house concept will get us away from the parochial image that many of our local manufacturers have. They manufacture for the local, regional or indeed the national market, but do not touch the international market on the basis that: "Well, we are doing all right and, anyway, I do not know anything about the international market. I might get my fingers burned, so I will not get involved in it". Hopefully, the idea of the trading houses will eliminate a great deal of that, and it should realise considerable revenue for the Exchequer.

The financial services sector which it is proposed to establish in the Custom House Docks site is yet another innovative and imaginative proposal in this year's Finance Bill. The international finances services have been defined. The Minister said:

In defining the services to be permitted, certain services for Irish residents and certain dealings in Irish currency are not included. To qualify for the 10 per cent tax rate companies will require a certificate from the Minister for Finance, and, in addition to the legal requirements, companies will have to satisfy certain criteria before a certificate will be given.

When this proposal was being formulated some months ago, I read somewhere that it would not involve deposit taking, that there would not be a provision or an accommodation for deposit taking. I only raise the question, because in any of the other offshore financial services sectors, such as those in the Isle of Man and the Channel Islands, on which, I presume, this financial services sector is based to a large degree, there are provisions for deposit taking by non-residents in those financial services sectors.

Obviously, they must be doing it in the Isle of Man and the Channel Islands because it is generating a great deal of revenue and I am wondering why the Minister is not including deposit taking as a service in the financial services sector. It has not been adequately explained to me and it would be interesting to know why the Government at this stage feel that they cannot or should not introduce it, because, as I say, if the Channel Islands and the Isle of Man and other financial services sectors are doing it, they must be doing it in order to raise money. I presume the idea behind an international financial services area in Dublin is to raise money.

The Minister referred to Part III of the Bill which deals with value added tax. He said:

As well as giving effect to the changes announced in the budget the Bill contains a number of technical provisions. There is a reduction from 25 per cent to 10 per cent in the rate on photographic services, waste disposal services and driving instruction as announced in the budget...

In addition the Minister said he is extending the benefit of the reduction to admissions to cultural, historical, artistic and scientific exhibitions and tour guiding services and that these reductions will have effect from 1 July and are intended as a further stimulus to the important services sector of the economy where, he believes, there is significant potential for job creation. Might I bend the ear of the Minister in relation to some aspects of that provision, which I welcome and I think is long overdue? I do not think there should be too high a price put on access to cultural, historical, artistic and scientific exhibitions and tour guiding services. We need to encourage more and more of our people — particularly our young people — to go into these institutions. Any proposal to reduce the cost of access is to be welcomed. Any reduction in tax in the service area, including photographic services, waste disposal services and driving instruction, is to be welcomed.

I spoke earlier about the film industry. Is the Minister aware of the position if a company wish to involve themselves in stage productions? It is a very popular pastime with theatre companies, amateur drama, the Tops of the Town and various other things: a number of outlets are providing costumes and stage lighting to these companies. It has come to my notice that, increasingly, Irish-based theatre and stage production companies, whether permanent or freelancing for a short time, are importing stage costumes and stage lighting from Britain, simply because the VAT is too high here and the price is not competitive. A number of the companies — one which springs to mind is Burkes' Costumiers in Dublin who are a long standing family concern, an institution as Senator Cassidy quite correctly says — are in severe danger and are already losing a considerable amount of business because of unfair competition coming from outside.

I ask the Minister to consider the area of imports and perhaps but a tax on it. We have an import tax on records; we have an import tax on cars; why not on stage costumes and stage lighting, if it will protect jobs? I know there are companies other than the Burkes involved. There are lighting and stage people also. Perhaps the Minister could look at that as something which could be incorporated, if not in this year's Finance Bill, certainly in next year's.

Farm tax has been talked about. I do not intend to try to answer the amazing statistics Senator Ryan went into over a period of time. Suffice to say that, coming as I do from County Leitrim, we do not have too many rich farmers. In fact, we do not have too many farmers at all because of the nature of the land and the geography. I suggest that a similar situation prevails throughout the West. I am sure Senator Daly would agree with me that there are very few ranch farmers who would be liable for tax in County Kerry. At the same time I can understand Senator Ryan's frustration. He wants to have a go at somebody and the farmers are as good as anybody to have a go at. He comes from a part of the country where there might be more of the type of farmers he is talking about — those liable for income tax. Whenever I read about more tax on farmers I feel that I am reflecting the views of the vast majority of the people from my part of the country in saying: "Not that red herring again!"

Farmers need support and encouragement. I am talking about the vast majority of people who are in farming in this country, the small farmer, the family-based farmer, the farmer who wants to stay on the land, who wants to raise his family on the land, who has a commitment to this country and who is paying his or her way — there are women farmers as well, God bless them. I hope Senator Ryan's contribution in relation to farmers will fall, to some extent, on deaf ears. While there are ranch farmers and those in the farming community who are abusing the tax system by not paying their fair share, the vast majority of people involved in agriculture are those with the small to medium sized farms who need encouragement and do not need to be belted around the head with more tax.

I should like to take this opportunity to refer to another aspect of Part III of the Bill, that is, the area of the reductions in admissions to cultural, historical, artistic and scientific exhibitions. The Minister said that he is confident that this will improve the competitiveness of the sector and help to combat black economy activity as well as contribute to employment growth in the economy. I suggest that these institutions now getting this tax concession might look at the marketing of their products which are identified with a particular institution. For example, I know the National Museum and the National Gallery have postcards of various paintings and artefacts. Why not go a stage further, as is happening particularly in many of the museums and public buildings in America where there are exhibitions of one sort or another? The management of those institutions looked at the products and artefacts they have on display which are attracting people into the institutions in the first place. They went to various manufacturers and had copies made of those artefacts.

For example, if the famous statue of the death of Cuchulainn, which is in the GPO, were to be marketed in the form of a copy and sold through the various institutions it might increase the wealth of those institutions and it might generate more income for them. This point should be directed more at the institutions themselves, at the National Museum, the National Gallery and the various heritage centres around the country. I presume the Minister had in mind any area or institution where there was a cultural, historical, artistic or scientific aspect to it when he introduced this reduction. Perhaps, at some stage in the future the Minister's Department might consider amplifying this section of the Bill dealing with value added tax. Perhaps he could suggest to the various institutions such as the National Museum and the National Gallery that they should look at the artefacts within their establishments, go to people involved in merchandising such as Carrigaline Pottery or Textprint and say to them: "We have some things many people are coming in to see — particularly overseas visitors — and if we had copies of them we know people would buy them." In that way they could generate more wealth.

In relation to the levy on insurance premiums a number of people in the financial sector have asked me during the last six months — perhaps they are Fianna Fáil supporters — why the Government do not consider privatising part of Irish Life. The Government are sitting on a gold mine; it is a Government-owned institution. If they are looking at ways of raising more revenue, part privatisation of Irish Life, which is probably the most successful company in the insurance sector in this country and abroad, might be a way of involving more people in public share ownership, as is happening to a degree in Britain — although there are question marks about that development. It might be a way of generating income for the economy and, at the same time, keeping the company within the public sector. I do not mean that it should be privatised completely but some aspect of it should be.

Finally, I would just like to say that the various points which I have raised have been raised by many other people but are raised in the context of the overall thrust of the Finance Bill which is developmental in its aspects. In that sense it must be one of the most revolutionary of Finance Bills ever, apart from the tax provisions which are part and parcel of every Finance Bill, but there is an underlying thrust to this Bill which is a reflection of the Government's determination and commitment to get the situation right. I am not exaggerating when I say that if we do not start to get our economy right this year, start getting our costs down, start developing more export-led industry, this country will not get out of the morass that it has been in over the last number of years. I have no doubt, having gone through the Finance Bill and listened to the contributions from all sides of the House and, indeed, in the other House, but mostly because of the stature and because of the type of stuff that the Minister for Finance is made of—coming as he does from good Leitrim stock — that when he sets his mind to doing something and says he is going to do something, he is not only going to do it but he believes in it and I know that the Government believe that the proposals contained in this Finance Bill are in the best interests of the country and I wholeheartedly welcome and endorse it.

Mr. Cassidy

I will be very brief and I want to thank Senator Daly for letting me in to make my few short comments. I welcome this Finance Bill and I look forward to its implementation with confidence. As the Minister pointed out here today, tough decisions had to be taken to correct the finances of the State and if these decisions were not taken now it would be very bad for us down the road in a few years' time. I want to congratulate the Government on their determination to tackle the problem and not alone tackle it but to stand up to their commitment and to yield not an inch to any particular pressure group that may have thought they were the Government and not those elected by the people to represent them in Parliament. I know that in showing great determination and example they are also leading us back on the road to recovery, something very badly needed. I say that with confidence, having looked at the performance of this Government over their first three months in office and at the encouraging signs of interest rates in particular starting to come down and the effort to stop this black hole economy which we had become so accustomed to, having unfortunately been sucked into it over the previous couple of years.

It is heartening, to say the least of it, when you see people re-investing in our economy and when you see money flowing back into the country as it has been in the last two to three weeks. That is the only way we are going to come to grips with our problems — by getting our interest rates down. If we do that we all know the business person will be tempted to invest. There are so many encouraging incentives coming the way of businessmen — in industry particularly — that they realise that interest rates are down to suit their level of borrowing, and the impetus will just snowball in the opposite direction.

At the end of the day it is the job factor that matters most of all. We do not really realise, until we go abroad how many Irish people have left this country. They are going out of it in far greater numbers than most people realise and far in excess of the official figures that are available for emigration as a whole. After the doom and gloom that we were used to over the past years we can look forward now with confidence and say to our young people and those of the older generation who are losing jobs that there is a future and there is something that we can offer them in the long term. It is going to take a little longer than anticipated but at least this Finance Bill is the start of the recovery. I suggest that as a by-line to sell this Finance Bill. "This is the start of the recovery".

There are a few sections in the Bill that I want to welcome but bearing in mind that Senator Daly very kindly let me in to speak before he was due to make his contribution I will be very brief. I think it was a great idea to extend for farmers who are in extreme difficulties the date of payment to 30 June. By then they may be able to in some way to pay part of the money that they owe. They may not be able to pay it all but at least it will give them the opportunity and encouragement to make an effort. That is all anyone can do in the middle of this massive recession. I know that if anyone is making an effort at all and showing a sense of responsibility — because it boils down to responsibility at the end of the day — no one expects more than that.

I also welcome the section of the Bill referring to special measures to promote tourism, food processing and the development of the financial services. These should be welcomed. I believe that focusing attention on these items will pay us dividends in the very near future, particularly in the case of the tourist industry. That is the greatest possibility of all for us here in Ireland. The Minister did say that tourism was one of our three major goals.

I know this Government had to accept many Estimates already prepared before they became the Government but I would like them to have a look in the next Estimates at the family-run hotels which are the backbone of the tourist industry in any country. There is an enormously high percentage of family-run hotels in Ireland which have not got the very basic necessities of toilet and bathroom or shower facilities in their bedrooms. In fact I believe that more than half of the family-run hotels here have not got that very basic requirement and speaking with wide experience of that particular industry, it is very important that if we are offering a service to tourists — and this is one of the three big planks of the Government's recovery plan — we should meet the basic requirements of tourists when they arrive here. This applies particularly to the Americans from whom money can really be made in accommodation, because while we are all aware of the various comforts that tourists look for, the Americans look for the very best in accommodation. Indeed, most other Western tourists make the same demands nowadays. If you have not got the basic requirements it will speak badly for the country and speak badly for the efforts of Bord Fáilte and everyone involved. We must not go out and market something for which we have not provided the basic essentials.

The greatest thing we have going for us here is our hospitality and the hospitality is found mostly in the family-run hotels. It is that personal service and that welcome that can be given in a family-run hotel that counts. Attention to detail is so very important to make everybody feel at home and comfortable. The easiest business of all to get is the repeat business. We have the best chance of getting that in our family-run hotels compared to the multinational hotels. I say that from experience of visiting these places myself. One area the Minister for Tourism in conjunction with the Minister for Finance could look at — maybe also with the EC — is providing basic requirements in our family run hotels. The multinational hotels have everything that they require. That is one point. This would create employment in the building industry. Everyone knows the building industry could do with a boost. That is one area where we could give the building industry a boost.

I also welcome section 4 which abolishes in relation to Irish people working abroad the place of abode test for residents of the State for tax purposes. This change will enable people working abroad to visit their homes and transfer savings without being subject to Irish tax simply because they maintain a place of abode abroad and make a short visit home. That is to be welcomed in this Finance Bill. There is enormous potential for money to come into Ireland from people abroad who have a house in Ireland or a very small holding of ten or 20 acres or whatever it is. Their hearts are in Ireland and as the poem says "Where is the man who does not love the land where he was born?" I never met an emigrant who did not say at some stage in his life he would like to come back home and finish his life in Ireland. This is a great link, apart from being a great opportunity to bring finances back to Ireland. I welcome it in the Bill.

I also welcome the business expansion scheme which is being extended to trading houses and to export tourism. I want to welcome in particular the trading house idea because two-thirds of Irish manufacturing at present is done by the multinationals. Only 40 per cent of Irish-made goods come from Irish companies and 60 per cent of Irish companies do not export. That speaks for itself.

This trading house idea has to be recommended and I can see that it could be an enormous success. I do not know how many trading licences are proposed: I presume somewhere in the region of 20 to 50. If you are an expert at your craft it is impossible to be an expert in marketing because the two are completely different. You may have the talent but you will find quite often that they are two different fields and they are time-consuming things. Businesses that have very good ideas sometimes fail because they have not got the marketing expertise. We have only three million people in Ireland and 60 per cent of our Irish companies manufacturing only for that three million market. When you look at Europe with 320 million people and America with 240 million people you can see the vast potential there is in Ireland for the manufacturing industry. The idea that Ireland is the world is one we must get rid of; we just cannot expand; we cannot create more jobs, we cannot do anything. The world is outside of Ireland. Ireland is only the base. There are 500 million people outside. That is where the whole secret lies. The vision of this Government in implementing this concept in the Finance Bill shows they recognise that the export potential is there in an enormous way.

Those trading houses have enormous potential also because they have a 10 per cent rate of corporation tax. That is another great incentive for people who have the expertise in marketing to get up off their behinds, knowing that at the end of the day their corporation tax will be only 10 per cent. I welcome that in the Bill.

I also welcome the incentives for the film industry. The film industry here does not exist, as we all know. It is a high-risk business and perhaps two, three or four films are tried out here every year. Take Australia five years ago. Australia has 15 million people and we have three million people. The film business did not then exist in Australia. The Government gave it all the incentives and all the encouragement possible and this year the film of the year was "Crocodile Dundee." It was made in Australia, financed in Australia and it has been the greatest success story of the Australian film industry.

We have our world leaders in actors and actresses. They must go abroad to display their talents. I know that in their hearts, while they go away and become international celebrities and international stars and box office attractions, which is the most important thing in the film industry, they would love to come back and make at least one film a year here. As any actor or any actress will make five or six films in the year so, to come here and play a part and to become a box office attraction would also be an incentive for any film company to come here and make this their base. We have beautiful scenery here. John Houston finished his life here, one of the greatest world celebrities in the film industry. We have the natural beauty, the hospitality and everything else. There is enormous potential and an enormous number of jobs to be gained out of this industry. Enormous amounts are spent on films. Any type of a decent film costs £2 million to £3 million. In some cases the greater part of these films is made in places outside of the capital cities because that is where they have this beautiful scenery which they require. A lot of money could be spent in the west, in the south or anywhere else in Ireland that would give a lot of employment in those areas.

Finally, I want to thank the Minister for reducing VAT from 25 per cent to 10 per cent on exhibitions, museums, cultural, historical, artistic and scientific institutions. That is very essential to their survival. I say "survival" because they are all going through a difficult time. There may be a hope that in the near future, the Minister for the Environment or the Minister for Finance may have a look at the rates situation concerning those attractions, because with our weather and our hard-pressed tourism, we shall have to encourage investment in indoor exhibitions, indoor activities and indoor sport. If people have incentives the Minister will get the investment required. I congratulate the Minister and the Government on their courage and wish them luck in the coming 12 months with a very courageous Finance Bill.

An Cathaoirleach

Senator Daly, there are only two minutes to go on the Finance Bill because on the Order of Business today we decided to adjourn the Finance Bill at 6.30 p.m. Am I correct? If you like to commence and then move the Adjournment you would at least have your foot in the door.

Mr. Daly

Thank you. I welcome the Minister to the Seanad and I am glad it is the same Minister we had when I was in the Seanad about three or four years ago. He was very receptive then; he listened a lot; he did not give me much, but at least he listened. I am glad he is here as the Minister for Finance. I mean that. I will do battle with him later on when the niceties are over.

Debate adjourned.

Seanad Éireann debate - Wednesday, 24 Jun 1987

Finance Bill, 1987 [Certified Money Bill]: Second Stage.

Seanad Éireann debate -
Wednesday, 24 Jun 1987