Finance Bill, 1991 [Certified Money Bill]: Second Stage.

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

The objective of this Finance Bill is to provide a legislative basis for the taxation measures which I announced, or foreshadowed, in my Financial Statement on 30 January. It also provides for a number of other important changes which I have drawn up since the budget. These are all within the philosophy of balanced economic and social development underlying the Programme for Economic and Social Progress. This year's Bill is again a lengthy and complex one. Unfortunately, there is no way of avoiding this, given the complexity of the matters with which the Bill is dealing. I hope, however, that this House's discussion on the Bill will be facilitated by the revised explanatory memorandum which I have now circulated and which reflects the changes made during the passage of the Bill through Dáil Éireann.

Despite the constraints imposed by difficult external conditions, the Government are making further significant steps in taxation reform again in 1991. The provisions of this Bill, taken with those of the 1990 Finance Act, represent major progress towards gearing our tax system to the needs of the economy and to the requirements of the EC Single Market. In a little more than one year, we will have achieved: a reduction of 3 percentage points in the standard and top rates of income tax; a cut of 4 percentage points in the standard VAT rate; a considerable narrowing of the difference in excises between this country and the UK; a reduction in the standard rate of corporation tax to 40 per cent from 1 April this year, and significant reductions in the top rates of capital taxes.

This progress in reducing rates does not, however, represent the full extent of the Government's commitment to tax reform. It has to be seen in conjunction with: our determination to improve tax collection and enforcement, so that taxes due are paid promptly and fairly; our commitment to broadening the tax base generally, to making the tax system more equitable, and to ensuring that special reliefs and incentives are better targeted; our firm intention to build on the progress already made, especially in relation to personal income tax, which is so important for the attainment of our employment goals; our commitment to disciplined management of the public finances which, in the final analysis, is crucial to sustainable lower tax rates.

Before turning to the specific provisions of this Bill, I will outline our broad economic and budgetary strategy and comment briefly on the immediate prospects for the economy and on budgetary developments.

A key consideration in framing the 1991 budget was, of course, to maintain, despite the uncertainties in the international situation, the consistent and disciplined fiscal stance which has contributed so much to the improvement in our economy over the past few years. Through firm management of the public finances the EBR has been brought down to a level which compares very favourably with the EC average, and conforms with the general level in the other narrow band EMS countries. This progress gave us the sound base we needed to develop a stable exchange rate and a low inflation economy. On account of the reduction in annual borrowing, the heavy burden of debt and debt-service costs has begun to shrink; the debt-GNP ratio has already fallen from 131 per cent at end-1988 to 111 per cent last year. The target EBR, of 1.9 per cent of GNP, and the overall thrust of the budget, were directed at achieving a further significant reduction in this key ratio in 1991 and at facilitating the attainment of our medium-term objective in that regard.

The budgetary and taxation progress of the past few years has helped improve our competitiveness in the broadest sense. It has enabled us to face into this more testing year with a confidence that could not have been envisaged two or three years ago. We are well placed, on this account, to compete in export markets and to take advantage of the expected upturn in the world economy. My confident view on our economic progress is mirrored in articles which appeared only this week in both the Financial Times and The Guardian. These are not sources where one would normally expect to read complimentary features on Ireland's economic progress.

Let me now turn to the overall economic situation. The budget, as I indicated last January, was framed against a particularly clouded international background. Some of the uncertainties have since resolved themselves, in particular the then ongoing conflict in the Gulf, but others remain. When will the anticipated upturn in the UK and US economies materialise? More important, to what extent will that resurgence — still expected to begin later this year — underpin growth here during 1991? How will the path of interest rates evolve in Germany, given the continuing heavy budgetary costs of transforming the former East German economy? How quickly will domestic confidence react to an international recovery?

These considerations clearly leave considerable doubt about the pace of economic progress later this year here in Ireland but they should not obscure the improvements which have been achieved. Those remain to our credit. We face into the future with the benefits of:

improved competitiveness achieved under the Programme for National Recovery, and the ability, through the Programme for Economic and Social Progress, to retain this. A measure of our success in this area can be seen from the fact that compared with its main trading partners, Ireland's labour cost competitiveness improved by 18 per cent in common currency terms. Also, OECD forecasts expect Ireland to have the lowest unit wage cost increases in the business sector of all OECD countries over the 1991-92 period;

a falling ratio of debt to GNP and a consequently declining burden of debt-service costs;

domestic and international conviction in our firm commitment to maintaining the exchange rate value of the Irish pound;

major reductions, relative to key European rates, in our domestic interest rates;

a structure of taxation which is more favourable to initiative and effort;

and a major programme of infrastructural improvement aimed at enhancing our capacity to capture market share in a rapidly-integrating Community economy.

These features are all standing to us now in the midst of an international slowdown which, in the UK, is much deeper than had been anticipated and is prompting steep employment losses there. They are limiting its impact on Ireland and they will help us still more as recovery gets under way abroad.

This is the background against which we should consider what the various economic indicators tell us. Of course, they indicate a parallel slowing of activity here. There is no denying that. Indeed, I had foreshadowed a pattern of weaker activity as recession abroad flowed over to affect us; and an expectation of gathering strength as international conditions improved.

The retail sales indices to end-February show clearly that there has been a major fall-off in garage sales; but also that there was significant growth in demand for other goods at the consumer level even at the height of the Gulf crisis and in advance of the further 2 per cent reduction in VAT which I introduced this year. It would be premature to infer a bleak 1991 for consumption growth but it would be wrong, too, to suggest that the ground lost during the crisis period will be fully made up in the event that the mooted international recovery is delayed.

As to investment, I understand that the IDA are holding firmly to their target for 13,000 new jobs in 1991. This is encouraging. Nonetheless, the slowing trend of imports of capital goods through 1990 would point to some weakening in plant and equipment investment and available motor vehicle registration data — including goods and other vehicles as well as cars — tend to confirm this. Of course, there are unknowns: to what extent might special factors — the uncertainty prevailing in the latter months of 1990, the threat to tourism posed by actual hostilities in the Gulf — have caused deferral of investment rather than cancellation? I have no doubt that we can anticipate renewed momentum as international activity quickens. The improved fundamentals which I have already mentioned will stand to us.

As to construction activity, the domestic effects of high interest rates in Europe are scarcely helpful. However, the limited indicators available seem somewhat divergent. On the one hand there are estimates of a 10 per cent-plus fall-off in total cement sales during the first quarter but the trend in numbers employed in the larger construction firms, while less buoyant than I would have hoped at a year-on-year increase of about 1 per cent over the quarter, scarcely points in the same direction. It would be wrong not to acknowledge that the sector is facing a more difficult climate but, taking account of higher public outlays on construction, I remain of the view that the sector can grow this year.

As to unemployment, there is no doubt in my mind that the increases we have witnessed this year in large measure reflect altered migration patterns — for the most part a consequence of the UK recession. Income tax and related receipts to date would not support a contention that aggregate earnings are out of line with expectations; and, since it seems clear that there is continued adherence to pay moderation, neither would they support a view that net employment losses are the culprit.

Taken together, the various indicators point to a slowing-down from the very rapid growth we achieved over the past few years. The recent OECD and ESRI reports forecast a slowdown but not the drastic slowdown forecast by certain commentators. We should be temperate in our interpretation of the slowdown.

It is not a sign of failure of domestic policies. It is not a signal for a change in course. Instead, it confirms our dependence on international trade for economic progress and underlines the need to continue with policies which are designed to enable Ireland to succeed on international markets.

The weakened pace of advance raises two key questions. First, will the anticipated recovery on the international scene get underway to a worthwhile extent before the end of this year? And, second, will we here in Ireland continue to act in a fashion which enables the country to take full advantage of the upturn when it comes? We cannot, as a small country, make an international recovery "happen" but we can through our behaviour over coming months determine in large measure how much benefit Ireland can gain from that recovery.

We can continue to work together in accord with the spirit of the PESP, and reap the gains it was designed to deliver, as the UK and US economies turn the corner but we must keep to its spirit in full. If we are to merit, and obtain, its rewards we must all exercise the restraint it demands, chiefly in terms of pay developments, of contributing to industrial peace and of supporting a responsible evolution of the budgetary balance. Failure in any key respect would threaten progress; and with it, the employment prospects of many and the aspiration to higher living standards of all.

Any such failure would magnify the adverse effects of the current international sluggishness. It would hinder already damaged investment confidence. It would undermine the prospect that later economic strength could compensate for initially weaker activity in 1991. It would contribute to a slowing of tax yields and would add to budgetary outlays and in the longer term it would both undermine prospects for employment growth and make reduction in unemployment that much more difficult.

I would like to turn at this point to the speculation about whether the budget is on course or not. There is nothing new in that, nor nothing harmful in itself; the reality is that no forecast can claim infallibility. But the matter must be kept in perspective. Charting a disciplined course and sticking to it is the real test of budgetary management. What is far more important than any figures is whether the policy thrust defined in the budget is adhered to. The Government have not been found wanting in this respect. We have over the past few years kept our sights consistently on where we were going, resisting the temptation to exploit the apparent latitude given by more favourable economic trends and their repercussions in the headline budget figures.

I made clear in presenting this year's budget that the prospective economic environment in 1991 was both less favourable than had been the case in earlier years and subject to an unusual degree of uncertainty because of events on the wider international stage. I made no secret of the fact that the budgetary arithmetic was based in the premise that growth would slow significantly, albeit for reasons outside our control.

The indicators I quoted earlier broadly accord with that expectation — though it must be borne in mind that, even adding everything together, there is not a great deal of hard information at this stage. In some cases they suggest a more pronounced weakening than postulated at budget time: this is certainly the position for car sales and for activity in the secondhand housing market, both of which are significant for revenue, though not for economic growth. In other cases, however, the picture is quite positive: mainstream consumer spending, leaving cars aside, and total employment seem well in line with expectations. To the extent that revenues in the overall are running a little behind what I might have hoped for, this does not support the view that there is general weakness. A few specific cyclical influences are the primary cause and, to an extent, the same can be said of the pressure on social spending arising from the unexpected migratory pattern.

While it will be difficult to retrieve the losses in these areas, a conclusion that the budget targets are beyond reach would be quite premature, given the exceptional circumstances of the first few months of this year and the fact that the figures are still reflecting the major tax reliefs in the budget of 1990. To infer that revenue slippage, especially of the kind emerging so far — or, even more so, the impact on the welfare cost of unemployment of external conditions — represents a relaxation of policy let alone a loss of control over the public finances, is simply untenable. If such unavoidable shortfalls in revenue or overruns in expenditure do threaten, these do not mean that the central thrust of the Government's fiscal discipline has been impaired, the important thing, I would repeat, is that we remain well placed to achieve our medium-term budgetary objectives and that underlying slippage is contained. As I stressed in my budget speech, the emerging evidence will be carefully evaluated. If action is considered necessary to safeguard our hard-won budgetary stability and our medium-term goals, we will do what we believe to be appropriate.

As the House will be aware, improvements in domestic liquidity conditions and reductions in interbank interest rates resulted in a reduction of one-half per cent in retail interest rates earlier this year, providing a welcome boost for mortgage holders, business, farmers and other borrowers. Further progress on interest rates this year will, of course, be heavily dependent on the international interest rate environment. However, the continuing strength of our economic fundamentals should leave us in good position to take advantage of favourable international developments as they occur. Such favourable developments would be more than welcome.

Since the Seanad does not have a debate on the budget, I might take this opportunity to say a few words about the Government's policy in regard to public expenditure. We have since 1987 pursued a policy of controlling and reducing public expenditure. Expenditure had to be constrained because its growth was leading to unsustainable levels of both borrowing and taxation but this difficult task had to be approached in a socially acceptable manner. While all spending areas were obliged to contribute to the reductions, we took great care to ensure that there was no serious deterioration in the quality or quantity of essential public services. This involved rigorous scrutiny of all spending programmes and making them more efficient and cost effective.

Such virtue in regard to the careful management of the public finances got its due reward in greater economic growth, which allowed us to make some modest improvements in services and ease the tax burden, while still ensuring an ongoing improvement in the Exchequer's position. I might put some figures on all those words and quantify the progress we have made. In 1987, for example, the Exchequer borrowing requirement amounted to 9.9 per cent of GNP; by 1990 it had been reduced to 2 per cent and, as I said earlier, the debt to GNP ratio, which reached a high of 131 per cent in 1987, had been brought down to 111 per cent by the end of 1990.

Much still remains to be done. If deficits must continue to decline and there are constraints both internal and external on increasing the tax burden, then we cannot avoid continuing firm control of the public finances if the Government's medium-term budgetary targets are to be achieved. The recently-concluded Programme for Economic and Social Progress has established a social consensus for an integrated medium-term strategy which should see continuing growth while still firmly underpinning the process of adjustment.

I would now like to deal with the more significant elements of the Bill. The first three sections of the Bill contain the necessary legislative provisions for the budget package of income tax reliefs. These reliefs follow the pattern set over recent years in making special provision for the low-paid and extending the standard band while continuing to reduce income tax rates. This year I am also increasing the personal allowance.

To begin with the exemption limits, the Bill provides for an increase of £150 for a single person and £300 for a married couple in the general and age exemption limits. This brings the general exemption limit to £3,400 for a single person and £6,800 for a married couple. In addition, I have increased the child addition to the exemption limits from £300 to £500 in respect of third and subsequent children. I introduced the child addition in 1989, at a figure of £200 per child; last year I increased it to £300 per child, and this year it is increased to £500 for the third and subsequent children. This child addition, and indeed the exemption limit increases of recent years, were introduced to provide cost-effective and targeted help for a group which has been identified as being in special need, low-paid taxpayers with family responsibilities.

The increase for such taxpayers have been very substantial. In 1988 the exemption limit for a married couple, regardless of whether they had children, was £5,500. It is now £6,800 for a married couple with no children, an increase of nearly 24 per cent. For a married couple with two children, the increase is to £7,400, or nearly 35 per cent; for a married couple with four children, the increase is to £7,900, or nearly 44 per cent higher than the 1988 figure. When one considers the low rate of inflation which has been obtained in recent years one can see just how substantial these increases have been. In fact, the cost of living over that period was just 10 per cent, whereas there were increases in the tax exemption and child limits ranging from 24 per cent to 77 per cent, against a cost of living increase of 10 per cent, in the same period. I am also increasing the personal allowance this year by £50 for a single person and £100 for a married couple, with consequential increases in the widowed, widowed parent and single parent allowances.

The second area on which income tax policy had focused in recent years is on extending the standard band. This year I am extending this band by £200 for a single person and £400 for a married couple. This brings the £2,000 for a single person, and £4,000 for a married couple, the total extension of the standard rate band which has been implemented since 1987 — an increase of over 40 per cent.

The third area on which I have concentrated is on reducing income tax rates. The top rate of tax has already been reduced from 58 per cent to 53 per cent, and this year I am reducing it to 52 per cent. The standard rate, which stood unchanged at 35 per cent for over 20 years until I cut it in 1989, is being reduced to 29 per cent. This reduction will also apply to the withholding tax on professional fees and the deposit interest retention tax.

Of course, the Government are committed to reducing tax rates still further as budgetary circumstances allow. Our objective, social progess, is to further reduce the standard rate, to 25 per cent by 1993, and to move to a single higher rate. As I said in my budget speech, our aim is to reduce both the standard and top rates by 2 per cent in each of the next two years.

The opening sections of the Bill also contain other provisions of benefit to taxpayers. For example, section 4 provides for a new allowance I introduced this year to help widowed parents in the difficult years following the death of their spouse. The allowance applies in the three tax years following the year of bereavement, and is £1,500 in the first such year, £1,000 in the second and £500 in the third. The allowance applies with effect from the current tax year, and I introduced an amendment in the Dáil to ensure that widowed parents bereaved in 1988-89 and 1989-90 — who are still within the three-year cycle, so to speak, following bereavement-will be able to benefit this year. I am very pleased to have been able to introduce this new post-bereavement allowance for widowed parents.

Another provision I am glad to be associated with is section 8, which increases the ceilings on rent relief available to taxpayers aged 55 years and over. The ceilings are being increased from £750 to £1,000 for single persons and from £1,500 to £2,000 for married couples. In addition, I am introducing a special ceiling of £1,500 for widowed taxpayers.

Two new sections stand at the end of Chapter I. The first provides that the superannuation arrangements agreed for doctors participating in the revised general medical services scheme contract will have the same status for tax purposes as an occupational pension scheme. This was recommended by the chairman of the negotiations which led to the conclusion of the revised contract. The second exempts from income tax the income of the Great Book of Ireland Trust arising from the sale of the Great Book of Ireland, and establishes that payments made by the Trust to Clashganna Mills Trust Limited and Poetry Ireland Limited will not be subject to deduction of tax at the standard rate.

Finally in this area, I would draw Senators' attention particularly to section 126. I introduced this section as an amendment in the Dáil, to give some help to the parents of incapacitated children. As Senators may be aware, at present the £600 incapacitated child tax allowance is reduced pound for pound with any income of the child in excess of £720 a year. Section 126 increases this £720 figure to £2,100 a year. I am very pleased to be able to implement this improvement.

Section 27 deals with a new form of the tax avoidance practice known as bondwashing. Essentially, bondwashing means converting taxable interest income into a tax-free capital gain. Section 29 of the Finance Act, 1984, countered the device then being employed under which securities were sold "cum-dividend" so that, effectively, the accured interest on the security was received by the vendor in the form of a tax-exempt capital gain rather than as income which would be taxable. Section 29 dealt with this practice by deeming interest to accure on a day-to-day basis and charging the seller to tax on the interest accrued from the last interest payment date or, if later, the date on which he acquired the security, up to the date of sale. However, the 1984 Act does not deal with the ex-dividend period, normally about a month long, between the date on which a security goes ex-dividend and the date on which the dividend is paid. It has recently come to my attention that bondwashing is being engaged in in respect of this period, resulting effectively in tax-free interest income. Basically what happens is that there is an ex-dividend period of about a month when people get interest tax-free because it is translated into capital gains and, of course, Government bonds do not incur capital gains tax. Section 27 deals with these transactions based on the ex-dividend period. The section applies to transactions which take place on or after 18 May 1991.

Chapter II of the Bill deals with the business expansion scheme. It provides for the changes set out in the budget day Financial Resolution on the scheme, and for the transitional arrangements and other measures relating to it which I announced in my statement of 12 March.

The changes are as follows. The scheme itself is being extended for two years, until 5 April 1993. Secondly, shipping, hotels, guesthouses and self-catering accommodation are being excluded. Thirdly, the amount of BES funding an individual company can raise under the scheme is being reduced from £2.5 million to £500,000. Fourthly, a lifetime cap of £75,000 is being imposed on the amount on which an individual taxpayer can claim relief. Subject to transitional arrangements which I will describe in a moment, these measures relate to shares issued on or after 30 January.

On 12 March I issued a statement setting out transitional arrangements to apply to companies which, in the period between 1 January 1990 and 30 January 1991, had entered into binding contracts in writing to purchase or lease land or buildings, or plant or machinery, or to construct or refurbish a building, in the case of manufacturing, international services, or tourism companies; or to purchase a ship in the case of shipping companies. Companies which had entered into such contractual commitments by that date would, subject to meeting certain conditions, be permitted to raise up to £1 million in BES funding — less, of course, any BES funding already raised. To qualify under those arrangements, shares must be issued by 31 August, 1991. Section 16 of the Bill provides accordingly. My 12 March statement also dealt with multiple companies and loans to subsidiaries, and section 17 includes provision for those. Section 17 also ends the facility for a company to on-lend to a qualifying subsidiary funds raised under the BES; such funds can, in future, only be used to acquire shares in rather than on-lend to the subsidiary.

These two provisions will apply in respect of eligible shares issued on or after 12 March, except for companies qualifying under the transitional arrangements, or where a company had applied to Revenue for outline BES approval, or issued a BES prospectus, before that date.

I should like at this point to make some general remarks about the business expansion scheme and the purpose of the changes I am making to it. The first thing I want to say is that the intention is to refocus the BES on its proper course of generating capital for smaller, riskier companies. Hence the exclusion of asset-backed sectors and the reduction of the company limit from £2.5 million to £500,000. Without these changes, the cost of renewing the scheme would have been prohibitive and small operators who are seeking allocations from the limited funds available for BES would most likely miss out.

The second thing I want to do is to nail the accusation that the BES is dead as far as tourism is concerned. It is not. There is still a large number of non-accommodation tourist facilities which qualify for investment under the scheme; for example, marina services, cruiser hire, equestrian centre services and tour coach services. In fact, the exclusion of asset-backed sectors should improve the chances that such ventures will, in fact, be able to raise funds under the scheme.

The third point concerns the transitional arrangements I made in March. They were a recognition that there were cases where binding contracts in writing had been entered into on or before budget day in anticipation of BES funds. It was to deal with the difficulties that would arise for companies, especially smaller companies, where such contracts existed that I announced these transitional arrangements. They are, however, transitional only; only a limited number of companies will be able to benefit from them, and only to the extent of £1 million per company less any BES funds already raised, and only where the shares are issued by 31 August. The Government do not wish to put small operators out of business, which is why I introduced these transitional arrangements on 12 March. However, the budget measures remain; a lifetime cap has been imposed on investors, the company limit has been reduced from £2.5 million to £500,000, and shipping, hotels, guesthouses and self-catering accommodation are excluded. So it will remain.

I also want to mention the review of the scheme carried out by my Department, in conjunction with the Departments of Industry and Commerce, Tourism and Transport, and the Marine and the Office of the Revenue Commissioners. This review makes clear that whatever the cause and effect, additional jobs were arising in companies which raised BES funds. It also threw light on the question of where the BES was most cost-effective which, in the final analysis, is the key question about any incentive scheme.

The review covered 347 companies and identified some 4,250 additional jobs in those companies. It identified State aid in respect of those companies of some £74 million, between tax foregone under the BES and direct State aid in the form of IDA grants. Of course, it is not possible to establish objectively and to the exclusion of the element of judgment, that State support — including low-cost finance under the BES — was directly the cause of the additional jobs identified. Employment growth is very likely to have reflected other influences as well, not least the favourable economic climate which has existed in recent years. In addition, account was not taken of possible effects on non-BES companies, in the relevant sectors or otherwise. Nevertheless, it is reasonable to assume that BES funding played some part. It will also be noted that there were significant variations across sectors in the level of additional jobs identified. These considerations underpinned, although were not the only factors in, the budget decisions on the BES.

There are three sections in the Bill with particular reference to income tax on farming. The existing income tax exemption for certain lessors of farmland is being increased from £2,000 to £3,000 where leases are for at least five years, and to £4,000 where leases are for seven or more years. This is provided for in section 10. Stock relief, which is confined to the farming sector, is being renewed for a further two-year period in section 18.

As a measure to assist in the control of farmyard pollution, section 25 extends accelerated capital allowances to farmers at a rate of 50 per cent for capital expenditure incurred on works which have been grant-aided under either the farm improvement programme or the scheme of investment aid for the control of farmyard pollution. I introduced a technical amendment on Committee Stage in the Dáil in order to clarify that only expenditure on grant-aided works can qualify, on the usual net-of-grant basis. This will target the relief on anti-pollution works which are satisfactorily undertaken to technical specifications.

To date, some 160 projects have been approved for the International Financial Services Centre and companies there have entered into definite employment commitments for almost 2,600 new jobs. The centre has been a great success and the Bill contains a number of provisions which will help ensure that it will continue to thrive.

In the case of investment companies which have been designated by the Central Bank, section 19 provides for "tax transparency", that is foreign investors will only be liable in their home countries for any tax due in respect of their shares in the income or gains of the company, this brings them into line with similar investment vehicles such as UCITS. Undertakings for Collective Investment in Transferable Securities, and Unit Trusts.

Although insurance was one of the financial services listed for the IFSC in the Finance Act, 1987, life assurance business has not yet been attracted into the centre. I have included provisions in section 30 which will, I hope, ease the way for the entry of life assurance business, which has very significant employment potential, to the IFSC. The 10 per cent rate of corporation tax is a vital part of the package which has been designed to attract business to the IFSC. Originally, that incentive was due to expire on 31 December 2000. Following agreement with the EC Commission, that date is now being extended under section 34 to 31 December 2005. The period during which new projects may be approved for the IFSC has also been extended, from 31 December 1990 to 31 December 1994. This is a major boost to the centre and will, I hope, help to attract many more companies to it. There is no doubt in my mind that the centre has an important part to play in the worldwide financial services industry and it is the Government's intention to ensure that it can continue to do so.

As with the IFSC, the Bill also extends the expiry date for the Shannon 10 per cent tax rate from 31 December 2000 to 31 December 2005. In addition, the provisions in sections 19 and 110, in relation to investment companies, will apply to the Shannon Zone.

The Bill contains a series of measures which will assist business and promote investment. I should like to draw particular attention to Chapter VIII of Part I which will facilitate non-quoted companies to buy back their own shares-a concept introduced by the Companies Act, 1990. Subject to certain anti-avoidance safeguards the shareholder's gain on the buy back of shares of unquoted companies will now be liable to capital gains tax rather than income tax. This will result in a substantial reduction in the shareholder's tax liability in such situations. The new tax treatment will facilitate shareholders in non-quoted companies who wish to sell their shares and end their association with the company. Effectively, up to now there has been no market in unquoted shares and the changes will greatly increase the liquidity of these shares.

The 1989 Insurance Act allowed the amalgamation of ordinary and industrial branch funds of life assurance companies into a common fund for life assurance policies, and section 30 brings the tax legislation into line with this assurance law change.

Section 29 permits a life assurance company to purchase the shares of their quoted parent company without incurring an advance corporation tax charge. This section is being introduced as a result of section 9 of the 1990 Insurance Act which specifically provided for such a transaction under assurance company law. It is considered desirable that a life assurance company be allowed to invest in the shares of their quoted parent so that they can offer their policyholders a comprehensive Irish equity portfolio. For example, if after the flotation of Irish Life, the existing company were not allowed to purchase shares in the new holding company, this would deprive policyholders of Irish Life of a share in their new equity portfolio.

Taxation provisions aimed at facilitating the securitisation of mortgages are contained in section 31. Securitisation is an arrangement whereby a bank or a building society, with the consent of the borrower, sells off a package of its mortgages through an intermediary to investors such as pension funds and life assurance companies. Securitisation will create a new investment outlet in the State for pension funds and life assurance companies as well as providing the scope for extra mortgage finance for the banks and building societies.

Under section 35 the termination date for the special 10 per cent rate of corporation tax is being extended from 2000 to 2010 for certain limited activities.

The EC directive on a common system of taxation for the distribution of profits from a subsidiary company in one EC country to its parent located in another member state is converted into domestic tax law in section 36. This directive is part of a package of three measures on which agreement was achieved during Ireland's EC Presidency after a delay of 21 years. The other two measures deal with mergers, divisions, transfers of assets and exchanges of shares involving companies in different member states and with an arbitration procedure where there is disagreement between the Revenue authorities in different EC countries on a particular double taxation question. Due to technical difficulties at EC level, the provisions in the Mergers Directive will not be enacted until next year with retrospective effect to 1 January 1992. The new arbitration convention will be dealt with by way of a Government order in accordance with the normal practice for double taxation treaties.

Section 39 extends until 31 March 1992 the tax relief for corporate donations to the Trust for Community Initiatives. This trust was established by the business community as a result of my invitation to them in the 1989 budget for an initiative to promote a wide range of community development projects throughout the country aimed at alleviating poverty and increasing employment.

In section 23 I have relaxed the present condition that buildings must be unused when acquired in order for initial capital allowances to be available to the purchaser. As current commercial practice is usually to sell tenanted buildings, this section will assist property developments, especially in designated areas.

I mentioned on Committee Stage in the Dáil that there is to be a review of the annual wear and tear allowances for plant and machinery. The Finance Acts of 1988 and 1990 reduced the standard rate of corporation tax from 50 per cent to 40 per cent in three stages. To fund the rate reduction, the accelerated capital allowances, which were available for plant and machinery other than motor vehicles, where phased-out progressively. From 1 April this year, from when the 40 per cent tax rate applies, the accelerated allowances are limited to 25 per cent, and they will terminate altogether from 1 April 1992. Consequently, from 1 April next year, the tax depreciation rules that will apply to plant and machinery generally will be the annual wear and tear capital allowances. They involve depreciation rates ranging from 10 per cent to 25 per cent, calculated on a reducing balance basis, with a rate of 20 per cent for motor vehicles to which accelerated allowances never applied.

In view of the greater significance that will attach to the annual allowances in the absence of accelerated write-offs, it has been decided that they should now be reviewed. The review will examine whether, in the light of developments since the present structure was put in place, changes are warranted, either in the various rates or in their scope. Obviously, an important consideration must be the implications for the Exchequer, bearing in mind that the standard rate of corporation tax has already been reduced, and that the Government have reaffirmed, in the Programme for Economic and Social Progress, the objective of an increased yield from the corporate sector. Since it is desirable that the business community should be able to plan on the basis of certainty, I intend to announce the Government's response to the findings of the review before the end of the summer. Legislative provision for any changes that the Government may decide to make will be contained in the 1992 Finance Bill.

Section 28 is concerned with domestic-sourced section 84 loans and it reduces the cost to the Exchequer of these loans by the implementation of two measures. First, the ceiling for new loans is being lowered from 75 per cent to 40 per cent of the loan volume of each lender as at 12 April 1989. This reduction will take general effect from 31 December next, which is the date that about £500 million in loans to Shannon financial service companies will be repaid.

The second measure is aimed at high coupon loans. These are section 84 loans in certain foreign currencies which have high interest rates and which consequently are much more costly to the Exchequer than IR£ section 84 loans. With effect from budget day 1991, the section 84 loan interest will be taxed in the hands of the lender where the interest rate involved exceeds 80 per cent of the three month IR£ DIBOR rate. Sterling loans are being specifically excluded from the scope of this measure in view of the fact that the UK is still our major trading partner. In the case of both the above measures, transitional arrangements will apply in the case of loans for certain new manufacturing projects.

Section 21 and 24 are designed to combat abuses of certain tax reliefs for property investment. Section 21 ensures that lessees in the urban renewal designated areas obtain the double rent allowance for no more than ten years on the same property. Section 24 is directed against the unacceptable and unintended use of capital allowances on buildings in the designated areas in the case of certain property investment schemes. This would have led to a substantial front-loading tax losses to the Exchequer in 1991 and subsequent years. I announced in the budget that the scope of the capital allowances in question would be restricted in the case of such schemes and, accordingly, section 24 implements my budget announcement.

Over the last few years, I have been gradually introducing self-assessment for various taxes. Income tax, corporation tax and capital acquisitions tax have already been changed to a self-assessment system. This year, as announced in the budget, I am introducing self-assessment for capital gains tax. The provisions which give effect to this decision are in Chapter VI. Capital gains tax will continue to be due in the year following that in which the disposal of the assets occurs. An explanatory booklet has been produced by the Revenue Commissioners to help taxpayers and their agents in the changeover to the new system. This has been posted to taxpayers and their agents and is available on request from tax offices.

Chapter VI also contains special provision relieving capital gains tax under certain circumstances. In order to make it easier for a person to retire from a family business or farm, two changes in the operation of capital gains tax are made. The first increases the threshold for relief on disposal of a business or farm outside the family from £50,000 to £200,000. The second eases the working requirement for a director of a family firm on retirement. The requirement that the director have worked full-time for ten years with the firm is eased to ten years working with the firm, of which five years must have been full-time. In addition, to relieve hardship, particularly in cases where a person was ill prior to retirement, the ten years will no longer have to be immediately before the disposal of the shares. These measures will facilitate those who wish to retire from a family business or farm and enable businesses and farms pass on to younger management.

Due to the high cost of arts works, it has become more difficult for Irish galleries to acquire significant works of art. I have introduced a special provision to encourage private owners of art works to lend them to galleries for display to the public. Any work of art, worth over £25,000, which is on loan to an approved gallery for a six year period, will be exempt from capital gains tax on its subsequent disposal.

Certain general urban renewal measures are contained in Chapter VII, together with a specific set of incentives for the Temple Bar area. The renewal and refurbishment of this area is intended as the Government's flagship project to market the choice of Dublin as European City of Culture in 1991. The unique streetscape and fabric of buildings in the area required the devising of special tax reliefs which would encourage their sensitive refurbishment and conservation, and also that the activities associated with them should be in keeping with the character of the area. An important supervisory role will be exercised by Temple Bar Renewal Limited in ensuring that appropriate standards are maintained in refurbishment and construction works. These works will only qualify for the special tax reliefs if they have the approval of that company. The reliefs themselves, which will be available for a five year period to 5 April 1996 are inclusive of those available in designated areas but with an emphasis on a new broad definition of "refurbishment" which will also cover the cost or value of refurbished buildings.

The definition of the Temple Bar area is set out in the Second Schedule to the Bill. The details of the tax reliefs for the area are in section 55. Broadly, these relate to expenditure on two categories of building — existing and new. A 100 per cent allowance is being given to owner-occupiers for capital expenditure on refurbishment of their premises, whether commercial or industrial. "Expenditure" will be taken to include the cost of the building or its value as at 1 January 1991, provided that the amount spent on refurbishment is at least equal to the cost or value. In the case of a lessor, a 50 per cent initial and 4 per cent annual allowance will be given. For owner-occupiers who refurbish their residential properties, a 100 per cent allowance will also be available, given as 10 per cent per annum for ten years.

For new commercial or industrial buildings, owner-occupiers can get a 50 per cent capital allowance or, in the case of lessors, a 25 per cent initial and 2 per cent annual allowance. New residential buildings will attract a 50 per cent owner-occupier allowance, at 5 per cent per annum for ten years. Section 23 reliefs will apply to both refurbished and converted existing residential buildings, and to newly-constructed residential premises. Double-rent allowance will be available to lessees of commercial or industrial premises.

Finally, in order to assist the development of multi-storey car parks in the Temple Bar area, a 100 per cent capital allowance will be provided. It will not be necessary that these car parks should be free-standing, as is the usual requirement. They can be integrated with a commercial development in order to blend in sympathetically with the architecture of Temple Bar.

The general urban renewal measures are continued in the remaining sections of Chapter VII. The extension of the section 23 reliefs for construction and conversion for a final year, up until 31 March 1992 in the non-designated areas is provided for in section 56, together with specific extensions in the designated areas up until 31 May 1993 and in the Custom House Docks area until 24 January 1993. In the case of the Temple Bar area, the section 23 reliefs will be available until 5 April 1996. This section also removes the "ring-fence" on conversion expenditure under section 23 which is incurred in the designated areas and in the Temple Bar area, to allow offset against all rental income. Section 57 similarly extends the timescales for section 23 refurbishment expenditure and also similarly removes the "ring-fence" for such expenditure.

Finally, section 58 parallels sections 56 and 57 where expenditure under section 23 in the case of converting a nonresidential building into a single dwelling is concerned.

Part II of the Bill deals with Customs and Excise provisions. In the main, it implements budget changes regarding: tobacco taxation, the concessions for liquified petroleum gas, including that for the horticulture industry, and road tax restructuring and rationalisation. It also provides for special low rates of road tax for veteran and vintage vehicles which will take effect from 1 July 1991.

Section 74, which deals with hydrocarbon oils was amended on its passage through the Dáil in order to provide a basis for the Revenue Commissioners to make regulations prohibiting the importation of kerosene containing a UK marker, once kerosene for consumption in the State is distinctively marked, as has been agreed with the trade. This amendment also has the effect of reinforcing the basis for regulations relating to marked gas oil already made and is another instrument with which Customs and Excise staff may combat smuggling from the North of Ireland.

Section 124 provides for a reduction in the level of adaptation required from 30 per cent to 20 per cent of the tax exclusive cost of the vehicle for qualification under the disabled passenger provisions of the disabled driver scheme. A general review of the scheme of tax concessions available to disabled drivers and passengers is under way at present; as part of this review I will be consulting with Opposition spokespersons in due course. However, I consider it desirable to make this change before completing the review, otherwise, as this particular change requires specific amending legislation it would have to wait until next year's Finance Bill.

Part III of the Bill gives effect to the VAT changes announced in the budget, as well as a number of further measures, some which were adopted on Committee Stage in the Dáil. The budget measures comprise the reduction of two percentage points in the standard rate to 21 per cent, the increase from 10 to 12.5 per cent on certain low-rated goods and services, the placing of all tourist-related accommodation on an equal footing for VAT purposes and the taxation of veterinary services and of certain non-postal services of An Post. As I announced on budget day, the net current year effect of the rates changes, which took effect on 1 March last, is to return £37 million to consumers and represents further progress towards the likely post-1992 completed EC Single Market rating structure. The VAT reductions in the past two years have significantly eased the fiscal incentive for cross-Border shopping and have facilitated the recent liberalisation of the travellers' allowances regime and has reversed the trend in cross-Border shopping for practically all items at this stage except for a small number.

The other VAT measures are mainly technical in nature. The VAT liability at 12.5 per cent attaching to contract cleaning is clarified in section 87 which also provides that, in recognition of their effective movement from exempt to taxable status, jockeys' fees will be made liable to VAT at the 12.5 per cent rate, subject to the usual registration thresholds.

Finally, I propose, in section 131, to defer the commencement date for the extension of VAT to tourist-related accommodation until 1 January 1992. This is in response to representations which said that the new VAT rate could be coming in in the middle of the tourist season when most people had their prices already struck with tour operators. Small operators engaged only in seasonal business where the turnover is less than £15,000 will not be affected by the proposed new arrangements.

The law under which stamp duty operates is out of date; much of it has not been revised since 1891. The main provisions on stamp duty in this Bill are designed to bring this law into line with that pertaining to other taxes. Stamp duty is made compulsory. The Revenue Commissioners are given power to assess stamp duty liability and the penalties for non-payment or under payment are increased to realistic amounts for 1991. A new offence of negligence is introduced, a concept imported from the CAT legislation. These changes are to ensure the proper compliance with stamp duty regulations and enable the Revenue Commissioners to take action in cases of evasion, such as where so called "under-the-counter-payments" are made in property deals. These measures will, therefore, safeguard the £271 million collected each year in stamp duty and ensure that the tax is no longer "avoidable" but falls equally on everyone.

Since the publication of the Bill, a number of issues have been raised concerning the possible liability of certain types of financial transactions to tax. There is considerable uncertainty at present as to whether tax is liable on some documents and, if so, at what rate. To avoid this uncertainty, a practice of executing and stamping documents abroad has become widespread. This practice undermines the growing Irish financial services industry. The competition between countries for this type of business is very intense, and competing countries do not charge stamp duty on financial instruments. Therefore, I propose to exempt the financial services industry from paying duty on financial instruments. The Bill was amended on Committee Stage to allow for this exemption.

Unfortunately, the instruments which I wish to exempt are not neatly defined in the Stamp Act. Indeed, innovation is a major feature of the financial services industry and this means that any list of such instruments would need frequent up-dating. Therefore, to ensure sufficient flexibility to meet the needs of industry, I have included a section to allow the exemption of financial instruments by ministerial order. The orders made under this section may not include any of the major revenue earning items of stamp duty, land and houses, stocks and shares, cheques, mortgages on property, or insurance policies. The instruments which can be subject to ministerial order yielded less than £2 million in 1991. In addition, all ministerial orders will have to be laid before this House. So as to further safeguard the role of the Oireachtas in legislative matters, orders made must be ratified by the Oireachtas — effectively in the next Finance Act. Otherwise they will cease to have effect.

To allow time for consultation with the industry and the drawing up of the orders, the new collection and enforcement provisions of the Bill in the stamp duty area will not take effect until 1 November 1991. In amending the Bill to give this start date, I have also clarified the position of instruments executed before that date. The new provision will not apply to instruments executed and stamped before 1 November 1991. They will apply to all instruments executed and stamped after that date. Instruments executed before that date and stamped after it will pay the old late stamping penalty charges for the period up to that date and the new late penalty charges after that date. The new powers of inquiry will not apply to such instruments except to allow the Revenue Commissioners establish to their satisfaction the actual date of execution. This latter measure is to eliminate the possibility of fraud being perpetrated by back-dating documents to avoid the new law.

In keeping with Government policy to encourage oil exploration, an exemption is also introduced for petroleum exploration licences and leases. This exemption, again, has no cost as up to this any deals in such leases were executed and kept abroad.

The changes in capital acquisitions tax announced in the budget are put into effect by Part VI of the Bill. The top rate of tax is reduced from 55 per cent to 40 per cent. The conditions under which agricultural relief is given are amended in a way which will focus the relief on situations where a farm is being transferred to a working farmer. The relief is also increased to 55 per cent of the market value of the property while the maximum of £200,000 is retained.

Additional relief from inheritance tax is also allowed in two situations where difficulties have arisen for taxpayers as a result of the present law.

The first situation allows for a small number of tragic cases where an inheritance has passed from a child to a parent. This amendment will allow the class A threshold to apply to these cases. To allow the exemption to all known cases, it has been backdated to 1982. Last year, a farmer passed a farm to his son, who was later killed in an accident. When the farm reverted back to the father, he was liable for full taxes. This provision will ensure that this would no longer happen.

The second situation is when an elderly person inherits a house or part of a house in which he has been living from a brother or sister. Section 117 allows that if the successor is aged 55 or over and has lived in the house for at least five years then the value of the house may be reduced by £50,000 or 50 per cent, whichever is the lesser, for tax purposes.

Sections 118 and 119 are to extend to gift tax the type of insurance arrangement which currently apply to inheritance tax. This measure is to encourage people to make provision for the lifetime transfer of a farm or business to the succeeding generation. The tax amnesty for CAT and death duties which was announced in the budget is given effect by sections 120 and 122. The new enforcement measures, including the extension of the Revenue Commissioner's powers of attachment and enabling the Revenue sheriffs collect outstanding CAT liabilities are given effect in sections 128 and 129. These enforcement measures will come into effect after the amnesty.

In this opening address I have concentrated on the key provisions of the Bill as well as outlining general Government policy on the economy and on tax reform. The Bill also contains additional measures to counter tax avoidance as well as other provisions of a mainly technical nature and these items can be discussed on Committee Stage.

I commend the Bill to the House.

I welcome the opportunity to speak on the Bill which the Minister is presenting to us here this morning; this Bill is a culmination of work in relation to the budget and subsequent debates in the Lower House.

The Minister read a speech which was technically competent when dealing with precise provisions and financial requirements but from our point of view it is as notable for what it does not contain and the issues it does not address as it is for the technical issues dealt with.

The Minister, like anybody in public life, will have to agree that the most crucial issue affecting this country at present is unemployment. We must stress that on every relevant occasion. The figures from the live register imply a rate of about 250,000 people unemployed and experts argue that in real terms the figure is closer to 300,000. In a country with such a low population it is a dramatic and unsatisfactory figure.

There are few provisions in this budget to help in this regard and there were many disincentives to employment which the Minister is not addressing. Recently I read an OECD report on Ireland which addressed issues concerning unemployment and contained OECD views on the factors which militate against satisfactory employment levels. I will illustrate this point by quoting one or two comments: "Ireland's poor record in creating jobs cannot be attributed solely to weak demand or to inflexible labour markets." The OECD have detected four other relevant factors. One is the weakening of international competitiveness after our entry into the EMS, while another is the substantial increase in taxation which has created a large tax wedge between the after-tax wage of an average employee and the cost of his employment. The report refers to social welfare transfers which have weakened work incentives and to a Government industrial development policy which they state has distorted relative factor prices in favour of capital and against labour and made it tax inefficient for international companies to increase employment.

The OECD report refers to a study carried out in a number of OECD countries which found that no other OECD country had a tax system as biased against the use of labour as Ireland. That comment is an indictment.

The income tax system is unsatisfactory and on the front page of today's Irish Independent we read of a possible rift between the two parties in the present Coalition Government on this issue where the Minister as recently as yesterday had not given a commitment to reducing the top tax rate below what he would argue economic circumstances would permit. The basic problem is that income tax reform which everybody wants has not occurred, and what the Progressive Democrats are seeking in these marginal reductions is only a small aspect of the issue. It may dramatise it but it does not get to the nub of the issue. We know from the tax system that while there is a standard tax rate of 29 per cent and higher tax rates of 48 per cent and 53 per cent, the nub of the issue is that about 40 per cent of our taxpayers are paying taxes at the higher rates. It is an irrelevance to talk globally about a standard rate of 29 per cent or higher rates of 48 per cent and 53 per cent. The question that must be posed is what rates are people paying and about 40 per cent of our taxpayers are paying at 48 per cent and 53 per cent. This contrasts with the situation in Britain, and the difference between what obtains in the United Kingdom and what obtains here is creating substantial imbalances. In recent years the existence of an outlet for Irish people to the United Kingdom may have prevented revolution on the streets. However, as a result of the huge contrast in our taxation policies we are now witnessing, among mobile intelligent young people, an unsatisfactory degree of emigration to Britain. This emigration is not involuntary where people say they would love to work and live in Ireland but is a type of voluntary emigration of people who merit a position in the Irish work-place for their inherited talents and skills and the abilities they have developed through Irish primary, secondary and third level education, subsidised by Irish taxpayers. These people make value judgments on what they should do in their careers and where they should live, and many voluntarily emigrate to the United Kingdom. Many Irish people in Britain at present will continue to decide that it is not in their interest to reinvest their talents in this country and will continue to work and live in Britain and visit here. That is a major disincentive in taxation policy.

The Minister referred to a growth rate of 2.25 per cent. There are indications that that may not be achieved and if not, the estimates of revenue may be incorrect. Later this year there is the possibility of another budget.

The Minister also refers to the business expansion scheme and in his budget speech indicated proposed changes. He then gave a categorical assurance that they would be implemented. However, a shift of position was evident in a speech by the Minister on 12 March which changed what he said in his budget speech. In relation to the business expansion scheme, the Minister referred today to the need for transitional arrangements and said a number of companies and hotels were involved commercially in the process of construction and financial commitments which under existing legislation would be eligible for business expansion scheme relief. Was this knowledge not available on Budget Day? Would he not have been made aware by his colleagues, the Minister for Tourism, Transport and Communications, of movements in the sector, and if the Minister took the view that existing contracts should be exempt from his provision, then why was that not part of his budget speech? It seems obvious that the Minister had the will on budget day to introduce changes regardless of existing commitments by hotels and others, but pressure from many sectors changed the position completely.

In relation to the business expansion scheme remarks were made by the Minister and by the Taoiseach on the budget debate. The Minister said:

The cost of the business expansion scheme relief is high. It has been high in recent years, despite the action taken in successive Finance Acts to curb abuses. It is estimated to have cost around £40 million in tax foregone by the Exchequer in the 1989-90 tax year and it will cost a similar amount in the present tax year if action is not taken.

These subsequent remarks were made by the Minister:

The changes I have made in the BES over the past few years have sought to curb abuses and focus the scheme more clearly on what it is supposed to be doing. It was never the intention that it should provide income tax relief for investment in secure, asset-backed ventures involving little risk, but the reality is that this is frequently how it is operating...

The Minister went on to state that he was going to introduce changes so that the scheme would no longer apply to ships, hotels, etc. It is interesting that in the same debate the Taoiseach when pressed on these issues emphasised the difference between tax relief to multinationals coming into Ireland who might not otherwise have come in and tax relief to individual Irish taxpayers on the basis that tax due from individual taxpayers is a debt to the State. The Taoiseach correctly stated:

This is real tax. This is real income which people have and because of this scheme they do not have to pay tax on it that they would otherwise pay to the Exchequer. Therefore, there is a real loss to the Exchequer of tax foregone.

When questioned by Deputy McCreevy the Taoiseach said:

If an industry comes in here and gets the 10 per cent tax benefit it would be true to say that there would be no real loss to the Exchequer by the 10 per cent concession because the industry would not have been here otherwise, but that is not the case here. This is real tax foregone. This real income which people have and because of this scheme they do not have to pay tax on it that they would otherwise have to pay to the Exchequer. Therefore, there is a real loss to the Exchequer of tax foregone.

The Minister has come into the House to make necessary amendments to this Bill but it is a case of closing the gate after the horse has bolted because tax relief has already been granted on large sums of Irish taxpayers' money in relation to business expansion ventures which were unworthy of support because of their minimal benefit to the Irish economy. During the first three years of the scheme when there was conventional risk very little investment took place but around that time major accountancy practices began to find loopholes in the provisions and devised schemes under existing legislation which would allow financial entrepreneurs and banks and other such institutes to offer security to investors on their investments. These investments were originally intended as high risk projects and because of that tax incentives were given to create employment that would not otherwise be created. It was not the intention of the scheme to make these investment projects risk free because if they had been risk free they would have attracted capital from conventional sources. Accountants devised what were called put options and schemes under which investors could be told that there would be no loss on their investment after five years; a massive growth in investment resulted because of the security offered which led to the investment of almost £80 million in the 1989-90 tax year, £40 million approximately of which would have been tax written off by the Irish Government.

A further anomaly in the business expansion scheme as operated by the Government for the last couple of years was created when, accountants found loopholes to attract enormous taxpayers funds and punters seeking tax relief went for investments offering security.

The introduction of the business expansion scheme as operated and implemented was a huge disincentive to real high risk projects which could create substantial employment because if schemes offered high security with the blessing of Government and mopped up large amounts of Irish taxpayers' money, then it imposed a limitation on whatever pool of tax relief was available for people with high risk projects. High risk projects deserving of support under these kinds of schemes were not able to raise the funds because of expansion in secure areas. I was surprised when talking to people in the accountancy and business world who might normally welcome loopholes and hedges against taxation at the extent of the view that this scheme was being abused and that it was a profligate policy. A stop must be put to it. I put it to the Minister that this question has been mishandled this year in areas where you are talking about bricks and mortar in the hotel sector with hedges and real security for investors in the future. This could never have been the original intention of this scheme. I hope a better situation will obtain in future.

The Minister announced today that the amount of BES funding for an individual company is now being reduced from £2.5 million to £500,000. As he stated the real intention of the scheme was to aid smaller sized industry. I ask the Minister to review this decision because while £2.5 million is a large sum of money in an Irish context, £500,000 is at the other end of the scale. Given the rate of inflation in recent years and the size of companies, I argue that £500,000 is low and a reduction from £2.5 million to £1 million might be more reasonable.

I note that the Minister is imposing what he calls a life time cap of £75,000 on the amount on which an individual taxpayer can claim relief. What this means is that there is a limit in each Revenue year of £25,000 investment and if a single individual over three years or more achieves tax relief of £75,000, then that individual will not be allowed to invest in business expansion schemes. I have to put to the Minister that this is a negative approach. Major sources of funding for those schemes are high income earners and if that funding dries up for business expansion schemes, it will significantly reduce the number of schemes in operation. I do not see anything wrong with continuing to give such relief to such people, regardless of income, or what they put into those schemes, if on analysis, the projects are self-generating, create employment and add generally to the Irish economy. That matter should also be reviewed. If people on high income put significant sums of money into this area of the economy and it benefits the State, then the drying up of that source of funding for the scheme is a mistake and I question its wisdom.

The Minister in his speech talked about the transitional arrangements he made in March. He stated they were a recognition that there were cases where binding contracts in writing had been entered into on or before budget day in anticipation of BES funds. It seems there has been some mismanagement here. It should have been known within Government circles on budget day that this was the case. If those were to be exempted for certain sensible commercial reasons, because the scheme existed and was not changed, that was the day to make that announcement.

The increase in value-added tax from 10 per cent to 12½ per cent is, in some circles, regarded as unsatisfactory. Are the Government trying to curb inflationary pressures? For example, in Dublin city the Government decided to ban the burning of bituminous coal, but the price of smokeless fuel is about 25 per cent higher than that of regular solid fuels. The Government should have regard to the fact that in the city of Dublin the consumption of solid fuel is highest among the poorest people and that generalisation could apply to the rest of the country. It seems foolhardy to have allowed an increase in value-added tax from 10 per cent to 12½ per cent on such products. This increase will hurt the poorest of the poor and that sector merited exemption from the increase.

Serious representations are being made to the Minister by the tourist sector in relation to the increase in value-added tax from 10 per cent to 12½ per cent on the services sector of hotels, in other words, the food and restaurant sector. The tourist industry point to the most recently expressed view of Mrs. Schrivener, the European Community Commissioner for Taxation, in a speech of 26 February 1991, in which she stated that she would favour an application of a rate of 4 per cent to 9 per cent in the tourist sector, including all hotel services. The tourist lobby, specifically the hotel and restaurant lobbies, are seeking a reversion to 10 per cent or a lesser rate, excluding drinks. There is a good case for this because of our huge dependence on the tourist sector.

In recent years we have seen substantial Government investment, with the assistance of European Community funds, in many aspects of infrastructure, especially in roads and to a degree in airports. As somebody who uses the rail services of Irish Rail — I am probably their best customer on the Westport to Dublin route — I regard that service as the Cinderella of our infrastructure. In saying that I do no wish to be critical of executives or the people who work at all levels within Iarnród Éireann. They do a very good job but they are not employed in what one might call a high flying sector. I understand, from speaking recently to senior executives of Iarnród Éireann, that they are attempting to offer a service to the Irish public, without any input of European Community funds. At the end of the day this should be a function for Government. If the Government, in planning their infrastructural policy, put the emphasis entirely on roads and, to a marginal extent, on some other aspects of infrastructure, and neglects the infrastructural requirements of the rail sector, they will do a huge disservice to this country.

There has been massive investment in rail, rolling stock and so on in other countries. Dramatic improvements are taking place in the rail sector internationally which are not being matched here. The Government should look to the future and make it more attractive for people to use the trains, both for themselves and for freight purposes. That would significantly decrease the volume of traffic on our main roads and major benefits would accrue from the saving of maintenance on those roads. Where I live, the vast majority of people who own motor cars travel in them to Dublin and do not consider using the trains. This is mainly because of the lack of investment in the sector. It is only by investment that we can increase the speed of our trains. For example, the journey from Westport to Dublin takes about three and a half hours by train and that is a seven hour return journey. That return journey is the equivalent of a single journey from Tokyo to Kyoto in Japan and 24 years ago, when I was there, that entire journey was being done in three hours and ten minutes instead of seven hours. That is the dimension of the gap. I am not suggesting we should have train speeds similar to the fastest in the world.

In a European context in recent years, the most dramatic improvements have been made in Britain. Huge improvements have been made in France where there has been massive investment. There is no parallel investment here and there does not seem to be any recognition by Government of the need to develop our rail system. The single exception is the run from Dublin to Cork, which is an excellent high speed service but it is not matched on any other route. Structurally, it is not a question of CIE management being at fault. I have great sympathy for CIE personnel because they take a big hammering and the service has nothing whatever to do with their personal ineffectiveness. I have always found them to be a very efficient company. There is a lack of support at national level in relation to an investment in the necessary infrastructure to give CIE personnel the opportunity to match rail companies in other countries in Europe.

Recently, there were some alarming reports of the possible closing of part of the line from Dublin to Westport. I have been reassured at the highest level within Iarnród Éireann that there is no question whatever of this happening and I hope that there is no question of this happening.

Westport is a major growing tourist region with immense potential, it is the natural stepping off point for Achill, Louisburg, Newport and parts of northern Connemara. There can be no question of anything happening to that line. If the State want more activity on that line let us put the investment into the hardware and the services to encourage people to use it to a greater extent. That would be a much better approach.

I would like to make a few comments on the mining industry to the Minister who has been good enough to come in to talk to us today. This stems from the fact that I live near Croagh Patrick, where mining has been a hugely contentious issue for the last three or four years. It became a major issue locally before the last general election a couple of years ago.

The reason it became a major issue in the west Mayo area was because the mining company got a prospecting licence to prospect on Croagh Patrick for minerals, in particular gold. The mining company claimed after their exploration stage to have found gold in significant quantities and made moves to go ahead with the mining. Meantime in the greater Westport-Louisburg area, public opinion was massively against mining on Croagh Patrick. I am talking about at least 98 per cent of the population of the area. Because of this massive public pressure locally political people fell into line and the Minister for Energy, Deputy Molloy, who has responsibility for mining, made a very welcome announcement that there would not be mining on Croagh Patrick. That decision has major national implications because it involves much more than the Croagh Patrick mountain. What is at issue is national policy in this area where the Minister for Finance is a major player and there are a few observations I would like to put to the Minister on which he might reflect when he is talking to his colleagues in Government on the issue. Not only is public opinion hugely against mining on Croadh Patrick in west Mayo; public opinion is also adamant that mining should not take place close to that mountain in what is locally known as the Doo Lough-Delphi area because it is regarded as an area of high amenity value, one of the most beautiful valleys in this country with none of the traits of modern civilisation. It is argued locally that it would be sacrilegious to have mining in that area.

The reason people are against this mining is not just the spiritual significance of Croagh Patrick, although that was a factor, they also wonder whether we can afford to allow mining processes to occur in which the side-effect is the use of cyanide and and its effluent. This would flow through agricultural land and rivers in which there is fish farming; it would flow into the sea and kill fish. The tourist industry is one of our very few resources. The land is poor and people are dependent to an enormous extent on tourism and they would see many of these types of development as totally in conflict with their future welfare. The mining sector provides very limited employment, and it is generally low skilled employment. It is a very contentious issue.

I have mentioned specifically Croagh Patrick, Doo Lough and Delphi because I live there but in a debate on the Finance Bill the issue simply does not relate to Croagh Patrick, Doo Lough and Delphi. It is a most important national issue and we are getting it wrong. The problem in national mining policy is that within the Department in recent years prospecting licences have been handed out nationally like confetti. There has been no discrimination in national policy in relation to where one should be allowed to mine. I know, for example, that prospecting licences have been issued nationally for Croagh Patrick, Doo Lough, Delphi and for the island of Innisturk and Clare Island. The position is so absurd and so indiscriminate that if one applied in the morning for a licence to prospect under the Rock of Cashel one would probably get it. Nationally politicians must look at this issue because if licences are given out indiscriminately, encouraging mining companies to prospect, they will argue, quite rightly, that they are incurring expenses in time and money and people. The logical extension is that if they find the resources they will mine them and if those resources are in areas of high amenity this will cause major conflicts with local communities. If there are political interventions at that point such as the welcome one by the Minister, Deputy Molloy in relation to Croagh Patrick, then other legal issues arise to which I think the Minister for Finance should give some thought. That is his function in Government.

The legal issues that arise from the mining companies point of view is that they have been encouraged by the State to mine and they want to do so, but if a Minister arbitrarily stops them mining they will argue through their legal advisers that they have a legal case against the Government and against the Minister for Finance. They can go into the courts, Irish or international courts in Europe, seeking huge damages which will potentially bleed this country in any given tax year. I urge the Government, through the Minister for Finance, to urgently examine national mining policy to seek a discriminatory approach. There is no use closing the door after the horse has bolted.

The Department should define areas in which mining is welcome and areas where it is completely off limits for spiritual, tourist, agriculture or fishing reasons. I have been involved in developmental issues all my life; I am in favour of development and in general I am in favour of mining. If we mine resources which will benefit the country there is no question of my being against mining per se. There are parts of this country where I would take no exception whatever to mining taking place, but Croagh Patrick is not one of them. The same applies to Doo Lough-Delphi, the lakes of Killarney and the hills of Donegal. I hope that point is taken up by the Minister and the issue considered.

In relation to our tax system, in 1973 only 1 per cent of taxpayers paid tax at the higher rates. This had escalated in 1986 to the point that 45 per cent of taxpayers were paying tax at the higher rates, this in a brief 13 years. Clearly there have been no allowances against inflation and no indexation, in real terms those on lower incomes were far better off than they are today. The nibbling suggested by the Progressive Democrats of taking a penny or two off the higher rate is not addressing the fundamental issue and there are enourmous anomalies in this sector.

I should like to make a few comments about the Structural Funds from the European Community that are making a major input into our economy although Europe is seeking much more monitoring of Structural Funds than previously. I come from County Mayo and I have a problem with regard to Structural Funds and regional policy. Since we joined the European Community this country has benefited greatly from the Common Agricultural Policy but to a great extent these funds from the CAP have been going to the good farmlands of the country. I am not saying this with any sense of begrudgery to those in Tipperary, North Cork, Meath or Kildare. However, the funds have been going to areas where is good land, where there are huge numbers of milk herds and intensive production of animals. Areas such as west Mayo, west Clare and west Donegal have been getting a very tiny share of that on a per capita basis. While there is an industrial policy which provides for higher levels of grants going to companies in those far west regions, an examination of where industry has actually gone shows that very few companies have set up in those areas. Tax incentives are available in the city of Dublin as well as in Cahirciveen.

The whole basis of the Structural Funds from a European Community perspective was the development of compensation for the rationalisation that had to occur in relation to a common European policy for economic and monetary union for 1992 and all that went with it. It was proposed that with all of that rationalisation, Europe would compensate for people living in difficult circumstances by introducing Structural Funds to go to those areas of the Community in greatest need. I have read a recent Economist Intelligence Unit report on Ireland for the last quarter of 1990 in relation to Structural Funds regions in Europe. This is the only country in the European Community, with the exceptions of Greece and Portugal, in which the entire country is defined as eligible for funds. We now know the state of the Greek and Portuguese economies but we do not regard ours as being altogether in that category, if we exclude those two we are the only other country which is defined as eligible for Structural Funds. For example, within Britain, only Northern Ireland is included and in Spain certain provinces are defined. None of Continental France is included, apart from some overseas Departments and Corsica; in Italy a number of provinces, largely in the southern provinces, are included but nowhere else.

One of the problems for me with this kind of definition of the entire country being eligible is that it is diluting the kind of funds that should be coming to the west from the European Community. In regions such as Belmullet and Erris there is an unemployment rate of 50 per cent. If the sole regional policy for Ireland as proposed by the Government to the European Community is one under which the entire nation is regarded as the same for a scheme such as this and there is no specific designation of the poorest regions then I do not think we will ever see the type of developments necessary in those poor regions. The imbalances to date will continue and will grow apace unless something is done about that matter.

I do not wish to be negative about this. I welcome those funds and I recognise the need for investment in Dublin, Cork and elsewhere. However, most of the agricultural funds go to other regions and industrial development has been taking place, to a large extent, in other regions. Therefore areas in the west will receive only a small proportion of funds if the entire country is to be designated as eligible for Structural Funds. The Economist Intelligence Unit report states:

Ireland remains a major EC beneficiary... defined under "Objective 1" of the EC structural funds. The purpose of Objective 1 aid is to promote the development and structural adjustment of the regions whose development is lagging behind... for a five year period... During a five years 1989-93, the Republic of Ireland is receiving a total of £2.8 billion under the aegis of the Community Support Framework. The main areas... are manpower and training; industry and services i.e., industrial development measures; "peripherality" i.e., transport infrastructure and agriculture.

In that context I spoke earlier about the railway service to Westport and the abysmal lack of infrastructural investment in that sector. There cannot be any specific investment in this because of the dilution of this fund over the entire country.

About one year ago there was major disagreement between the Community and the Government authorities because the European Community sought, in relation to the Structural Funds, to be made aware of the projects being funded so that it could weigh up the direct benefit analysis. The European Community wanted the Government to consult with their regions before plans were developed nationally and submitted to Europe. There was a major row between European Community authorities and the Government here because the European Community, and the Commissioner in charge of regional policy, took the view that the Government had been involved in the most minimal amount of consultation with the regions in the country. There was a little bit of window dressing. One or two local authorities tried to resolve the matter to the satisfaction of the European Community but they did not get to the root of the problem. This is referred to in the Economist Intelligence Unit report, which states:

The largely conventional nature of the proposed industrial spending gives some grounds for suspecting that the Republic of Ireland may utilise EC aid for programmes it might have undertaken anyway, rather than for truly additional activities.

The report goes on:

The Commission is, however, intending to flex its muscles more than in the past regarding how effectively EC funds will be spent. In the Republic of Ireland each "operational programme" will be guided by a monitoring committee including Commission representatives, and funds are being set aside for monitoring and evaluation purposes on a private contract basis.

I welcome the view from Brussels that there should be monitoring and accountability and that funds should be provided for regions like Mayo, west Galway and west Clare. Pressure should be put on the Government to ensure that this is done. For a number of years many people have been saying that the region west of the Shannon is a different part of this country, and therefore, should have different structures and policies in regard to it. In that regard I note the Minister's reference to the special tax incentives for the Shannon Airport zone, and of course, there are special tax incentives for the Dublin Financial Services Centre.

It is past time that a Government would review the position of SFADCo in the mid-west. There is a very simple, pragmatic question I would like to pose in relation to SFADCo. I believe it has been a successful development; the setting up of a fairly effective sub-national regional development group has been very good for the mid-West region. However, after many years of existence the question has to be posed, are SFADCo a success or a failure? If it is argued that SFADCo are successful, we who live in other regions of the country must ask, if that type of sub-national structure is desirable in Ireland, why has the point not been taken by successive Governments in relation to the west or north-west? Why are separate sub-national structures not developing?

In that regard I was very disappointed with the Local Government Bill which was enacted last week and which we discussed in the Seanad with the Minister for the Environment, Deputy Flynn, from my constituency. The background to that Bill was that people had expected fairly fundamental reform in local government and, with a view to such reform being achieved, the Government established an expert committee to issue a report on local government. That expert committee consisted of a number of very formidable, talented people with experience in that sector. It was headed by Mr. Tom Barrington who was the Director of the Institute of Public Administration and who has an international reputation on sub-national and regional development. He has been expressing the view for many years that Ireland is one of the most centralised countries in the world. There were copious statistics in that expert committee's report, pointing out to the Minister for the Environment the minimal extent to which there is local democracy here.

This expert committee recommended much more devolution than is happening at present. They mentioned the principle of subsidiarity, namely, doing as much as possible at a local level. The Minister for the Environment, with considerable power in his Department and an expert report under his hands, if he had the political will to do something, could have translated that excellent report into dramatic reform of local government. Unfortunately, he neglected to do so. The Minister dealt with peripheral issues concerning boundaries and members but unfortunately, he did not grasp the nettle.

I would like to make some remarks about industrial policy in the country. It is unfortunate that, over the years, in comparison to other countries, major industrial development here has been foreign owned. One of the unwelcome facts of development in industry here is that, compared to other countries, we have had a massive decline in home-owned industry in the traditional sectors, such as textiles, and a fairly dramatic increase in new industry. Within the new industry, the dramatic increase has been happening in companies entirely foreign owned mainly American. Statistical evidence is building up that, even though many of these companies make a very useful contribution to this country, we are not getting fundamental developments. There is no spin-off in the service sector. At the least whiff of an international recession, many of these companies with corporate headquarters in the US and elsewhere lift their chattels and leave.

This is also dealt with in a recent Economist Intelligence Unit Report — Ireland, Country Profile, 1990-91. The report speaks of Ireland falling into two categories — new, largely foreign owned, firms, with the emphasis on foreign investment, and the price we are paying for that kind of investment.

We have not done as much as we could have done, as a country, to develop our indigenous resources through the use of the skills, universities and so on. In the Statute Books of countries such as Finland, Sweden and Norway, which are very successful in this modern era, there is legislation which insists that industrial development be carried out by companies with a majority shareholding within the country in question, at a minimum of — and in many cases higher than — 51 per cent. They have done this and have built up their strengths in the universities and technical institutes. It is policy which is working. We should attempt to go a little further in that direction.

In the industrial promotion field, there seems to be a particular weakness in the results we are achieving in Japan. We have been extremely successful in attracting American industry to this country. We have been reasonably successful in attracting industrial investment from continental Europe. The Japanese investment in industry here can only be regarded as extremely disappointing, having regard to Japan's dramatic achievements internationally in the industrial sector. If we compare the extent of Japanese investment in the countries with which we are competing — in Britain and continental Europe — we see that there has been massive investment in Britain by Japan, in the industrial sector, in the last ten years. It is simply not happening here.

I know successive Ministers for Industry and Commerce and Finance have travelled to Japan and that we have representation there but, whatever the reasons we are not achieving the results.

If the infrastructure in the industrial sector here is suitable from the American perspective — launching products from here that have a market-place through the European Communities — the same conditions should apply to Japan. The huge question is, "why are we not getting this Japanese participation?" It is a very important issue because it is a huge source of technology and we should do something about it.

I would like to mention some other points relating to the environment and arts sectors. The Minister in his speech made a very imaginative and welcome statement concerning works of art which he would like to see private art collectors lend to national galleries and he spoke of concessions on capital gains tax. It is a very welcome initiative. There is another matter about which I have two views. We have seen much national investment in the last three to four years in the refurbishment of certain establishments. I am referring, collectively, to Kilmainham Hospital, Dublin Castle, the Department of the Taoiseach and the Custom House. I find them all, aesthetically very beautiful and very pleasing. I have been in those buildings and I can say the architects and the Office of Public Works should be complimented on the very tasteful way they carried out the restoration work.

Having said that, I have to inject a note of criticism. The country needs areas to dramatise its culture and history and international conference venues. I wonder, however, if we are not going a little over the top because, collectively, the cost of work on Kilmainham Hospital, Dublin Castle, the Department of the Taoiseach and the Custom House amounted to about £65 million — I stand to be corrected; I have not looked at the exact details. Kilmainham Hospital cost something of the order of £22 million; Dublin Castle cost £19 million; the Department of the Taoiseach cost about £17 million and the Custom House cost about £6 million, cumulatively coming to about £66 million.

We are a very small country and I wonder if this is the level of investment we can afford. For a number of years, I have been a advocate of private sector investment and contracting. They are specific areas where the State should get into a contract system under which the private sector would be encouraged to do this work on a tendering system. We must look at the costs that were incurred here — not just the ultimate costs, but the escalation of costs. The earlier estimates for Kilmainham Hospital and Dublin Castle were a fraction of ultimate costs. If the Government, as a policy, had been in the contracting system of welcoming tenders from the private sector, we might have got much better value for money.

As I am sure many of my colleagues would like to contribute to this debate, I will finish my remarks on that note.

I welcome the change I have noted in the Fine Gael position, as given to us by Senator Staunton, particularly the wide divergence of claim in his speech and that of Deputy Michael Noonan in the Dáil.

We are a pluralist party.

On that occasion, Deputy Noonan predicted gloom for the economy. He, in association with others, was talking in terms of zero growth rate, 0.5 per cent growth rate, 1.5 per cent growth rate. Now, all of a sudden, these people have faded into the background, conveniently so, I may add. It begs the question, why has this happened? Because, during all this time, there has been only one person who has been consistent in predicting a growth rate, that is the Minister for Finance himself. How heartening it was, yesterday, to find that the ESRI report predicts a 2 per cent growth rate. We are coming to terms with the Minister's prediction. The Minister said 2.25 per cent, but I am only signalling to the House the progress we have made since budget time. We have gone from zero per cent to 2 per cent. Despite the Gulf War, despite recessions everywhere, there is an acknowledgment from the ESRI that it is going to be 2 per cent. Being a betting man, and thinking back over the years, I would put my money on the Minister to deliver on his predictions again this year.

(Interruptions.)

Senator O'Keeffe, without interruption, please.

It is heartening to hear that, yesterday, the President of the Confederation of Irish Industry stated that there has been "a discernible recovery in order books". He is confident that this gradual recovery will continue. This statement was obviously a confirmation of the ESRI predictions. Paddy Wright, as President, went further still when he predicted that manufacturing output this year would match last year's very high level of close on 5 per cent. The Government will look at this with a very benign eye. There is no use in hedging on this issue; it is and has been a difficult year, to date. Before you go forward you should look back. I regret very much that the spokesperson on Finance on the far side of the House, Senator Avril Doyle, is not here today. I wanted to take the opportunity to remind her of a number of statements she made this time last year on the Finance Bill.

If she was here she would still be talking.

Acting Chairman

Senator O'Keeffe, without interruption.

I am just putting it in perspective. Last year we heard from the Opposition benches that there was over-reliance on buoyancy; that there was a reduction in car sales, and that these targets would not be achieved. Each and every one of the targets set by the Minister for Finance last year was achieved. Exchequer borrowing requirement was based at £449 million. It came in at £462 million. That gives me good reason to suspect that the Minister, on this occasion, will again attain the targets he has set himself in a very realistic budget.

I said it was a particularly difficult year and the Minister in his budget acknowledged that. The Minister when he started off, said that it was bedevilled by uncertainty, in terms of the Gulf War, recession in the UK, recession in the US. The UK and US make up practically 50 per cent of our exports. Obviously, if there is a recession in both of those countries, it is bound to have an adverse affect on our economy. We are fortunate that, since 1987, we have been pursuing prudent economic policies. These have cut public expenditure, reduced costs, brought inflation to its lowest levels for 20 years, 2.75, and kept interest rates down.

In spite of all these difficulties, with, as the Minister acknowledged, a reduction in car sales, there are a number of variations. With car sales down, we had a significant increase in demand for other consumer goods, in spite of the fact that the budget had not come on stream, and the 2 per cent reduction in VAT had not been taken into account.

The IDA are sticking rigidly to their job target for 1991 of 13,000 new jobs. The converse then is, that there would appear to be a 10 per cent fall in cement sales in the first quarter. The larger construction firms, however, are showing a 1 per cent increase in employment levels. Before I go on to talk about the Finance Bill, I wish to stress that the sluggishness in the first quarter does not in any way indicate a policy failure. The policies that we have pursued since 1987 have cushioned us through the sluggishness that has occurred. There should be absolutely no question of changing course; we should stick rigidly with what we have been doing; it is in the best interests of the economy. In that regard I refer the House to an article in The Guardian newspaper which states: “The type of economy John Major has dreamed of, the Irish Government has achieved.”

He must have been having a nightmare.

Acting Chairman

Senator O'Keeffe, without interruption.

They must be modelling themselves on the Tories.

Do you not have a fairly close association with the Tories your-selves?——

(Interruptions.)

We do not apologise for that.

Acting Chairman

Senator O'Keeffe, without interruption.

Are you all going to join up in one super happy marriage, along with the Progressive Democrats?——

Labour is charging to the right, as well.

They are moving very much to the right and we welcome that.

Acting Chairman

Will the Senator restrict himself to the Bill?

It is time that realism pervaded that party too.

We have to maintain the discipline this and the previous Government have shown since 1987 because it is in the best interests of this country in the long term.

I congratulate everybody associated with the programme and wish it well over the next ten years.

The Minister has included in the Bill a wide range of measures which, individually and collectively, will prove beneficial in terms of the standard of living and equality of life of the people on this island. A reduction in tax rates will give us the former. Many of the other measures, such as the extension of the capital relief on farmyard pollution control, will produce a better environment.

With regard to changes in income tax, we are well on target to achieve the low basic rate, covering the majority of taxpayers, which was promised by this Government. The soundness of the Minister's strategy of staged reductions has been vindicated by the effects on us of the UK recession. Those politicians who shout loudest for massive immediate cuts which are unaffordable would expose us to very uncertain fiscal returns in a highly uncertain international economic environment. They were prepared to finance such cuts by withdrawing reliefs which make health care and housing affordable for ordinary people. Many taxpayers would have been no better off and many of them would have been worse off. The gradual approach of tax reform is the only realistic way forward. Anything else would be ridiculous. This Government can be very proud of the reform they have achieved in income tax. That will not be accepted by my colleagues across the floor, but I would like to elaborate on the progress of tax reform.

Let us look at what the Government have done since 1988. Pre-1988 the standard rate of tax was 35 per cent and the top rate was 58 per cent, in 1989 the Minister reduced the rates from 35 per cent to 32 per cent and 58 per cent to 56 per cent. He further reduced the lower rate from 32 per cent to 30 per cent and the higher from 56 per cent to 53 per cent in 1990. Finally, this year he reduced it from 30 per cent to 29 per cent and from 53 per cent to 52 per cent. It is always very interesting to contrast what happened during the terms of other Governments with which the people on the other side of the House would be familiar. For instance, in the period 1982-87, the top rate of tax reached 65 per cent and the 1973-77 Government had a top rate of 77 per cent. This gives us an indication of the double talk we have from the benches of Fine Gael and Labour on tax reform.

It has been said that the low paid workers would be better off if they were on the dole. I understood that I covered my Coalition partners or my associations in my remarks earlier about how ridiculous it would be to start lumping off tax on the one hand and on the staged basis. Let that weigh on whatever ear it has to weigh on.

Is the Senator suggesting they are a ridiculous party?

I did not say that.

It was beginning to sound like it.

I will discuss that matter when it is pertinent. We are discussing the Finance Bill and I will stick rigidly to that.

We are all very interested.

Acting Chairman

Senator O'Keeffe, on the Finance Bill.

I was talking about the double-talk we have from the Opposition benches with regard to tax reform and I reminded them of their performance in 1973 and 1982-87.

It has been said that low paid workers are better off on the dole. Let us be realistic and look at what has happened to the lower paid workers through taxation. We can claim justifiably that more and more of the lower paid are being excluded from the tax net. I will give an example of a married couple, under 65, with three children. In 1977-88 they paid tax when they earned more than £5,300. In 1988-89 they had to earn more than £5,500, in 1989-90 they had to earn more than £6,600 and in 1990-91 the figure is £7,900. That is a dramatic increase for the lower paid. The increase in this threshold level in recent years has narrowed and made it much more profitable for people to work rather than to stay at home. Tax reform should not be measured solely by reductions in the top rate of tax. While this is important, tax reform is also about helping those less well-off who are within the tax net.

The people who criticise the low pace of tax reform are saying cut the top rate of tax. The Minister is doing this, but he is right to contend that those on lower incomes who are paying tax, need tax reform more quickly than those on the higher rates and this Minister for Finance is doing exceptionally well for them. The real tax reform which has been achieved by this Government and the previous one, has not been recognised by the media because they measure tax reform by reductions in the top rates. In many ways this is understandable, as many of them would be grouped in the upper middle class and would have an interest in the top rates of tax. The time has come to highlight the significant tax reform which has benefited those on lower incomes by taking them out of the tax net. The reduction in the standard tax rate of 29 per cent is beneficial also for the purpose of the various taxes deducted at source — the deposit interest retention tax, the professional services withholding tax, deeds of covenant and other annual payments — that are conveniently forgotten about.

Government policy in recent times has been to take a rational approach to taxpayers, particularly the elderly, less well off, those who suffer undue hardship through bereavement, single parent families, etc.

In recognition of this policy a number of changes have been proposed in this year's Finance Bill. A new allowance is being introduced for a widowed parent following the death of his or her spouse. This allowance is to be granted for the three tax years following the tax year during which the spouse dies and will amount to £1,500 in the first year, £1,000 in the second year and £500 in the third year. Under the existing law, the surviving spouse is entitled to a full married person's allowance during the year of the spouse's death. I am glad the Minister is going to continue this allowance. The only condition he levies is that such parents must have a qualifying child resident with them for at least part of that year; they must not be living together as man and wife with another person during that year and they must not have remarried before the commencement of the year. All of these conditions are very reasonable. We should not forget that the ceiling on relief for rent paid by persons aged 55 and over in respect of private tenancies is being dramatically reduced as well. For instance, the relief for a single person is being increased from £750 to £1,000; the relief for a widowed person is being increased from £750 to £1,500 and the relief for a married person is being increased from £1,500 to £2,000. We should not forget also the exemption of income from the leasing of land.

I come now to the business expansion scheme. First, I should like to welcome the proposal to extend the scheme for another two years. I believe most right-thinking people would accept that certain schemes which availed of BES relief were in breach of the spirit of that scheme. The original intention of the scheme was to give relief to investors providing equity finance to qualified companies, particularly those which involved risk. The relief was intended to make it attractive to invest by reducing the risk attached to such investment. Schemes which were promoted on the basis of eliminating or reducing this element of risk were, therefore, competing unfavourably for available funds with schemes which could not alter the risk factor involved. The Minister is right to impose restrictions on this scheme. Perhaps we can now look forward to the development of more companies of the type originally intended to benefit from this scheme.

It could be said that the more risky a venture appears initially the more potential there is for gain and growth. If investment results in economic growth and job creation then it must be encouraged. For this reason individual BES projects should be assessed on their merits and not, I would suggest to the Minister, arbitrarily subject to an overall ceiling of £500,000. It is conceivable that a project worth £2 million may be of far more benefit than four schemes of £500,000 each.

I should also like the Minister to look again in the long term at the lifetime ceiling of £75,000 for individuals, so that a person who disposes of a BES investment might be allowed to reinvest in another scheme, subject at all times to the overall £75,000 limit. I contend that the same risk and level of involvement would be there and the instincts of the gambler might be satisfied if he is given a second chance.

I should like to take this opportunity to congratulate the Minister on renewing the schemes which were taken out at budget time and for giving them the go-ahead. It is only right that where a prospectus of a scheme has been issued the person be given the go-ahead. If this was not done, the alternative for such schemes would be catastrophic. There are decent hotels throughout the country whose development was aided under the BES, and it would be clearly wrong to leave unfinished work which had commenced. Commitments were entered into and the Government should not be in the business of creating problems but rather allow people to discharge their bona fide commitments.

I was interested to hear Senator Staunton say that the Minister should have been aware at budget time of the difficulties that would arise in regard to projects which had an open prospectus and where commitments had been given. This begs the question: how could the Minister be aware at budget time that a prospectus had issued? I suggest to Senator Staunton that it would be very foolhardy of the Minister to seek that information from people who are involved in the BES. This would only serve to mark their cards and put them on the alert.

I welcome the extension of the capital relief in relation to farmyard pollution. We are now coming to that time of the year when stories about fish kills appear in the newspapers. However, as a result of the efforts of the Government and the Minister for Finance, thankfully there has been a dramatic reduction in the number of fish kills in recent years. The River Lee in my constituency has not been green for one or two summers. Nevertheless there is a problem in this area which needs to be dealt with. Obviously incentives can help in solving this problem and the Minister, in providing these incentives, is ensuring the eradication of that type of pollution. The Minister has proposed further anti-avoidance provisions in section 85 which deals with lending. Through the BES reforms, the Minister is determined that the tax allowances will be targeted towards desirable and social objectives such as job creation and environmental protection. He is particularly conscious that artificial schemes which make money for tax advisers and their clients by spreading benefits in an unattended way only create jobs for them and nobody else. Thankfully, under this Government that type of activity is on the way out.

The Minister has also introduced a number of welcome changes in regard to the capital acquisitions tax. The extension of the highest class threshold to inheritances taken by parents from their children is very welcome. This will allow parents to transfer assets to a child without fear of substantial cash liability arising in the event of their child dying first. The introduction of relief in respect of policies to pay gift tax is a sensible move and will effectively extend the relief already available to inheritance tax under section 60, a relief which has helped to alleviate many problems in what would otherwise be cases of hardship. The capital acquisitions tax will become more significant in the years ahead and the elimination of the 45 per cent to 50 per cent rate of tax will help to improve its operation. The index linking that has taken place since 1990 has been extremely welcome. However the thresholds have remained at the same level for many years. I know that given the necessary budgetary assets and Government goodwill the Minister would welcome the opportunity of increasing those thresholds. It is important that some effort is made in next year's Finance Bill to try to increase these thresholds as they are causing a problem.

I welcome the amnesty being given in regard to capital acquisitions tax and estate duties. I hope it will prove as successful as the income tax amnesty. Most people are aware that there is a problem with unregistered land where titles have not been changed on the death of a father or mother. It is important that everybody in this position takes advantage of the amnesty so as to avoid even greater problems later.

Up to now stamp duty has more or less been a voluntary tax and people have been able to avoid payment by either executing the documents abroad or simply ignoring the liability on documents executed in the State. Duty has mostly been paid on documents which were needed to obtain registration of title to Irish property and which might have to be produced in court as evidence. The Bill will bring the payment of stamp duty into the compulsory area with effect from 1 November 1991 and will make stamp duty payable within 30 days of the execution of all documents.

I am glad the Minister has decided not to apply this provision to the Custom House Docks site as people had a genuine fear that it would mean huge disinvestment there. The new rules and regulations governing stamp duty are, therefore, to be welcomed in the context of the overall improvement of the administration of the tax system. Severe penalties are being introduced for noncompliance with these rules and regulations. The Revenue Commissioners should widely publicise the changes in order to raise taxpayers' level of awareness of the application of stamp duties and the potential penalties.

I welcome the decision to extend the expiry date for the 10 per cent corporation tax for companies in the IFSC and Shannon to 2005. I know the Minister would not mind me, a Cork man, reminding him that the port in Cork was granted free port status a number of years ago in the hope that it would promote activity or industrial development in the area. As everyone is aware, deregulation has meant that the 10 per cent rate now applies to all manufacturing industry and payment of VAT at the point of entry is no longer the carrot it used to be. Therefore, the term "free port" in its present status could be deemed to be a misnomer. The extension of the 10 per cent rate of corporation tax to the service industry would bring it into line with Shannon and the Dublin International Financial Services Centre. This would be a move in the right direction as the companies in the International Financial Services Centre are involved in finance, Shannon has an airport and Cork is by the sea. Therefore, I ask the Minister to seriously consider extending the 10 per cent rate of corporation tax to the Cork free port. This would be a major boost to the economy in Cork and provide badly needed investment in the area.

With regard to urban renewal relief, I welcome the provisions in Chapter VII which will extend this relief to the Temple Bar area. No one could deny that this has been a success in all designated areas and has encouraged private sector investment in areas where otherwise there might have been none. In Cork we have been fortunate in that some areas have been designated as urban renewal areas, for example, South Parish, Shandon, Black-pool, McCurtin Street, Union Quay and Washington Street. It is worth putting the results of this scheme on the record.

One hundred and twenty six acres were designated and 18 projects have been completed at a cost of £8.820 million. At present there are 14 projects in progress at a cost of £5.355 million and 14 projects in planning which will cost £12.155 million.

Progress in Cork has been satisfactory. What is particularly significant about the development within this area is the greater mix between residential and commercial schemes. I should like to put on record the most noteworthy projects which have been completed: the Washington Street office refurbishment project undertaken by O'Keeffe Buttiner, and involving a floor area of 100,000 sq. metres at a cost of £100,000; the apartment-offices project at the South Terrace undertaken by Zion Developments at a cost of £1.2 million for phase I-phase II of this project is in planning and the estimated cost is £1.65 million; the apartments complex and the commercial refurbishment of the old fire station at O'Sullivan's Quay by Redbridge Property Company at a cost of £450,000 and the house building programme by Cork Corporation and SHARE at Grattan Street at a cost of £2 million. These are most worthy developments and all deserve our congratulations and support. I should also mention the hospital extension, apartments and consulting rooms to be constructed by Hillview Securities at Grenville Place-Henry Street at an estimated cost of £6 million.

We are all enjoying this tour of Cork.

The 1989 urban renewal grant of £241,000 assisted the local authority in their environmental improvement scheme in the South Parish, Shandon and Red Abbey areas of the city. I might add that these developments are outside my constituency.

It will still read well in the Cork Examiner.

A grant of £70,000 has ben provisionally allocated to the corporation this year. Outlining these measures in a parochial way brings home to us the effectiveness of the urban renewal scheme.

The Senator could be the next Minister from Cork.

There are enough aspirants for that post, at present.

Acting Chairman

Senator O'Keeffe, without interruption.

The final matter to which I want to refer is the change in VAT rates. I do not come from a Border county but the harmonisation of our VAT rates with those operating on the other side of the Border is to be welcomed. The Minister is carrying out his functions in bringing about greater harmonisation in VAT rates.

The Bill, with the budget on which it is based, is just one of the measures taken by Fianna Fáil in Government which will rescue the finances of this country from the neglect of the 1982-87 period. By the time the Government face the electorate again they can be happy in the knowledge that they have served the country well and that we have an economy which John Major and the Conservative Party in the UK aspire to.

I always enjoy speaking after Senator O'Keeffe as his speeches are stimulating, interesting and provocative. I would not for a minute take from his grasp of the facts as he seems to have perused the economy indicators, the growth rates, ratios, etc. and has made copious notes of the proceedings of the Oireachtas over the last ten years or so. However, the Senator has a tendency to edit and select and to use the words of a man in UCD years ago, much of what he says is an abstraction from the totality of reality. He did not seem to find much about unemployment in his perusal of all the data and speeches.

It has already been covered by the Minister.

He did not seem to find anything of interest in the very lengthy NESC report on emigration which was published a few days ago. While he did refer to an ESRI report, it is a pity that when he had concluded his very pleasant reading of the report — and it seemed from his tone to have been a very pleasant experience for him — that he did not take up the other similar report and look through it. If he had done that he would have been able to make an even more interesting speech. I would not ever want to pretend that I do not suffer occasionally from the same disorder as Senator O'Keeffe; in other words, a tendency to abstract from the full and balanced picture. It is for that reason that I want to refer to page 8 of the Minister's speech.

The Senator's party suffered an aberration——

Acting Chairman

Senator Upton, without interruption, please.

The Minister in his speech said:

I would like to turn at this point to the speculation about whether the budget is on course or not. There is nothing new in that, nor nothing harmful in itself; the reality is that no forecast can claim infallibility.

When that sentence is decoded, it can be seen that it means the budget is off-course to a significant extent. The Minister then went on to set standards for himself. He said: "Charting a disciplined course and sticking to it is the real test of budgetary management". However, in his budget speech on 30 January he forcast a growth rate of 2.25 per cent. He is now saying that we will undoubtedly experience a difficult year. It is quite clear that we are drifting fairly steadily into budgetary difficulties. I do not think the growth rate which the Minister forecast in January will be attained. I think there is now widespread acceptance of that reality, in other words, the growth rate was excessively optimistic.

There is also the recurring, persistent and intractable problem of unemployment which now stands at approximately 250,000. Indeed it has been confidently suggested that the real figure may be higher than what the published data indicate. In addition, emigration continues to be a terrible problem. To some extent this problem is made worse because when people emigrate they have great difficulty in finding jobs. This is particularly true of people who emigrate to the United Kingdom. Many of our young emigrants are faced with the choice of either staying in the cardboard cities of some European countries or returning home, adding further to the terrible unemployment problems here. Our grim labour market certainly holds very few optimistic prospects for young people. I have met young people who are well qualified, educated and capable, and it is extremely depressing to hear about the terrible difficulties they are experiencing in trying to get any type of job in this country. Unfortunately many of them have been forced to lower their standards and accept very low wages. Even when they are prepared to do that, some of them still cannot find any worthwhile employment in this country.

The taxation question is, of course, very topical. There is much media interest in the fact that the Minister for Finance seems to be distancing himself from the prospect of a 2 per cent reduction in the pound each year over the next two years. This is a matter of great annoyance to the other party in the Coalition Government. However, apart from issuing fairly headline grabbing newspaper statements they are not doing very much about this. They are very good at filling up newspapers with statements about their anxiety, annoyance and thinly veiled threats as to what is going to happen, but in the heel of the hunt these statements depend on delivery and what they have done so far only amounts to hot air. Many demands will be put on taxation this year because unemployment is so high and not enough people are working to generate tax. This is one of the basic reasons there are so many difficulties in this area.

The Minister has to deal with a great number of difficulties and when one decodes his speech one can see that, in effect, he is acknowledging this. He said that what is more important than any figures is whether or not the policy thrust defined in the budget is adhered to. I would have thought that figures are very important in the matter of economics, that the capacity of people to attain their objectives, to reach their targets, was fairly fundamental, and that that fundamental reality remained whether or not the basic policy trust was being adhered to. He also said that over the past two years the Government had kept their sights consistently on where they were going. Again, I do not think that such statements mean very much beyond creating a climate in which it is possible to acknowledge publicly that the whole system is coming unstuck. Certainly there are enough indicators in his speech to suggest this. He uses the headline "the fundamentals are right". The implication of that is that a good many things are not right and many of the economic realities are badly out of place.

The Minister said that the IDA are holding firmly to their target of 13,000 jobs in 1991. The term "holding firmly" clearly indicates that there is pressure on, in other words, a virtue is being made of the fact that what has been set up as a target is being attained. Given the present level of unemployment, one would have hoped that an objective of 13,000 new jobs was very very modest. It is a great disappointment that the Minister seems to be making a virtue of the fact that the IDA are holding firmly to this target. If one decodes the statement "recent economic indicators point out some difficulties" one can see that it is a Eurospeak for problems of a fairly significant nature down the road. Current sluggishness does not indicate a serious problem. A mini budget is clearly on the cards and that reality will become perfectly clear to everybody very soon after 27 June.

Sitting suspended at 1.30 p.m. and resumed at 2 p.m.

The impact and merit of this Finance Bill before the Seanad must be evaluated in the context of the Government's overall strategy for the economy. Over the past number of years the Government demonstrated their commitment restoring order to the public finances. Movement towards this objective has been manifested in lower public borrowing, improvement in competitiveness and strict observance of the country's obligations to the EMS. This sound strategy has resulted in conditions conducive to low inflation and lower interest rates. These conditions are of obvious benefit to everyone and we now see a significantly higher level of investor and consumer confidence all round. Doubtless this confidence has been generated as a direct result of the Government's programme for sustained economic progress. The results have been tangible and we are now experiencing a rate of economic growth which is amongst the highest in the European Community.

This economic growth and increased prosperity has translated itself into higher numbers in employment which is the yardstick by which most people measure economic progress and well being. This is to be welcomed and we must now redouble our efforts to make sure that greater inroads are made in reducing our higher unemployment figures. The Government's commitment in this regard is indisputable and, over the next few years. I hope we will see substantial reductions in the number of people who suffer the appalling plight of unemployment. We are well placed to achieve our targets but our efforts must never be relaxed. To date the Government's programme has been an undoubted success and as a result of the sound fundamentals prevailing, we are in a position to reap the rewards of our efforts. Currently we are witnessing an international economic downturn but this country now has an inbuilt resilience to withstand external pressures.

The Programme for National Recovery was significant in that it was responsible for many of the advances we made in the economic and social arenas. The Programme for Economic and Social Progress its successor, continues the strategy which underpinned the Programme for Economic Recovery. The chief objective of the Programme for Economic and Social Progress is to develop a modern and efficient economy with the capacity to sustain economic and employment growth crucial to this country if we are to realise the resources which will be necessary and if we are to address broader social objectives.

Under the Programme for Economic and Social Progress rigorous discipline must be observed and maintained. The Government reaffirm their medium-term objective of progressively reducing the debt-GNP ratio towards 100 per cent by 1993. The ultimate objective is to bring this ratio more into line with that of other member states of the European Community. This goal was firmly in mind in the 1991 budget target which anticipates total borrowing of under 2 per cent of GNP.

The pay accord enshrined in the Programme for Economic and Social Progress will assist in consolidating the competitive gains of recent years. It will also ensure a substantial improvement in workers' living standards against a background of harmonious industrial relations. Substantial increases in real take home pay were achieved over the PNR period given its combination of moderate pay increases, low inflation and income tax concessions in excess of £800 million under the Programme for Economic and Social Progress agreed pay increases, coupled with the tax concessions in this year's budget and a projected 3 per cent inflation rate, the basis is provided for an additional increase in real take home pay this year. Inflation is now reckoned to be even less than 3 per cent for this year.

Current measures adopted are certainly giving the correct signals to both domestic and foreign investors. Certain to maintain confidence in this economy is the credibility inspired by sound economic policy. The creation of employment opportunities and sustainable jobs is essential and to this end it is critical that we generate a climate that attracts, encourages and sustains investment.

Any assessment of the 1991 Finance Bill must be made against a background of prevailing economic conditions and the prospect for future growth and development. The objectives of this Finance Bill is to provide a legislative basis for new taxation measures. While external conditions remain difficult and impose obvious constraints, there is no denying that the Government have made considerable advances towards tax reform and towards giving a taxation system sensitive to the needs of the economy and the Single Market.

Efforts towards reducing the tax rate must be viewed in conjunction with the Government's determination to improve tax collection and enforcement. In particular I welcome provisions in this Bill which comprise important initiatives in respect of the administration of capital gains tax and stamp duty. I am also happy to note the Government's dedication to widening the tax base to make the tax system more equitable and to ensure that special relief and incentives are targeted more prudently. The Bill continues to represent the broad thrust of previous years in reducing the cost of tax expenditure and seeking to maximise their effectiveness and efficiency.

The Bill also reinforces the Government's intention to build on progress already achieved particularly in relation to personal income tax, a factor which is essential in the attainment of employment goals.

I am pleased to note the Government's commitment to disciplined and rigorous management of our public finances which is absolutely imperative if we are to successfully strike sustainable lower tax rates.

I have no hesitation in signalling my support for the general measures contained in this Bill and I would like to address my remarks to two extremely important aspects of it. First, I would like to make some cogent observations in relation to capital acquisition tax, a tax which has proved to be cruel and inequitable in many instances. Liabilities for inheritance tax vary according to the relationship between the recipient and the donor. In the case of the CAT burden which rested where a residence was transferred between elderly brothers and sisters, cases of the most severe hardship have been brought to my attention. Heretofore the threshold for the inheritance between brother and sister was considerably low at £21,520. The tax liability occurred by virtue of such an inheritance has been excessive beyond belief and I am aware of a number of instances where the property inherited had to be sold to pay the inheritance tax. This situation is, at best, absurd and, at worst, cruel and unjust. Imagine a situation where a family home has to be sold to keep the wolf, in the guise of CAT, from the door. It is surely the most ridiculous example of having to sell the family silver just because it exists.

I am delighted that the Bill incorporates marked relief for those who find themselves in these traumatic circumstances where they end up broke and simply by virtue of finding themselves better off, and in circumstances beyond their control. They end up selling the house they inherited and by the time they have discharged all their debts in buying another smaller property, they are totally strapped for cash. Is this not ridiculous? The hardships suffered in urban areas particularly are very acute when taken in the light of the sustainable appreciation in property values over the past number of years. Excessive CAT has been discriminatory in the extreme. I am delighted to support the concessions incorporated in this Bill which effect significant changes in CAT. The two top rates are now abolished and the highest rate is reduced to 40 per cent.

In the case of persons aged 55 years or over who inherit a house or part of a house from a brother or sister with whom he or she has been living for the previous five years for tax purposes the value of the house will be reduced by £50,000 or 50 per cent whichever is the lesser. This measure will alleviate considerably the pain and hardship which has been inflicted on a sizeable number of taxpayers who have experienced enormous difficulties in meeting their tax obligations under current legislation, legislation which has financially paralysed many over the years.

I wholeheartedly support the tax amnesty extended to CAT until the end of September of this year under which all outstanding liabilities can be paid without incurring interest. I would like to take this opportunity to congratulate the Minister on amending the law in relation to CAT. I know many elderly people were in fear and trembling at the prospect of inheriting a property which they could not afford. The initiative is timely and I hope the concessions will eliminate the hardships which CAT imposed in the past.

I would now like to turn to the provisions contained in the Bill which relate specifically to Temple Bar and other designated areas for which a very special package of incentives have been provided. I am delighted the Government have recognised the unique significance of the Temple Bar area of Dublin and have selected the renewal and development of Temple Bar area as a flagship project. This project of rejuvenation will be the Government's contribution to marking Dublin's current status as European Cultural Capital. Temple Bar is a very special area and represents a unique atmosphere in Dublin city centre in an enclave of particular physical beauty and appeal. It has a distinctive character which must be preserved. The Government's intention is that existing buildings in the area should be refurbished and conserved in a manner consistent with their character and integrity.

At this stage I would like to congratulate Dublin Corporation's planning department on the work involved in the plan to refurbish the Temple Bar area. The planners, at the behest of the members of the planning committee of which I am chairman, undertook a very detailed study on the importance of Temple Bar. We pressed the Government to undertake a programme like this and we are delighted the Government have done so. The construction will be permitted only if it complements the architecture of the area and is sympathetic to the ambience of the district. Activities in the Temple Bar area will be encouraged and supported only if they are compatible with the overall ambience peculiar to Dublin's left bank.

To this end a particular function will be vested in Temple Bar Area Renewal Limited which will supervise all activities relating to this area. Special tax reliefs will exist for a five year period, until April 1996. Before any refurbished or any new construction work can take place the suitability of any such development must be addressed and approved by Temple Bar Area Renewal Limited. This function is a novel and appropriate departure which will facilitate the correct rehabilitation of the beautiful characterful area of Temple Bar. Tax reliefs are clearly detailed in section 49 of the Bill. Owner/occupiers can avail of a 100 per cent allowance for capital expenditure on refurbishment of existing commercial buildings. Not only will this expenditure include the actual refurbishment, but will also include the lesser of the cost of acquiring the building or the value of the building at 1 January 1991 provided that the expenditure on the actual refurbishment is at a cost equal to this additional cost for value element. A 50 per cent initial and 4 per cent annual allowance will be accorded for a person leasing a refurbished commercial building. As with commercial premises, 100 per cent relief will also be available to owner/occupiers who refurbish their residential buildings. For new commercial buildings, construction expenditure will attract a 50 per cent capital allowance for owner/occupiers. For lessees, there will be a 25 per cent initial and 2 per cent annual allowance. Individuals with leases in both existing and newly built commercial premises, can also avail of double rent allowance. Owner/occupiers will be able to avail of a 50 per cent tax allowance at 5 per cent over ten years. Section 23 relief will apply to the construction of the new residential premises and to the refurbishment and conversion of existing buildings.

This is a very important measure. Dublin's inner city has benefited very well from the designated areas provisions over the last few years but recently we have seen a slowdown due to a downturn in the office market because of the number built in recent years. I am delighted that the Government have undertaken to give a special incentive to people to build residential accommodation in the inner city. One of the senior managers in Dublin Corporation said that this incentive is probably one of the most significant for inner city renewal in Dublin in about 30 years.

In addition, the intention is that a 100 per cent capital allowance will be provided for the development of a multi-storey car park in the Temple Bar area. Where the car parks is leased, a 50 per cent initial and 4 per cent annual allowance will be applicable. It is recognised that car parks must be integrated so in this instance such parks need not be freestanding so as to preserve the intricate character of the area. The principle of integration is also catered for in allowing apportionment of expenditure for tax relief purposes within a building which is partially commercial and partially residential. In relation to section 23 relief on construction and conversion, the time scale has been extended to 5 April 1996 in the Temple Bar area. Section 50 of the Bill also removes the recompense on conversion expenditure in the area. The result of this is that, such expenditure can be offset against all rental income in future whereas before it could only be offset against rental income from the property in question.

This exciting and imaginative package of measures for the Temple Bar area provides the necessary incentives to ensure that the area becomes a vibrant and populous part of Dublin which will provide an interesting and appealing aspect to Dublin both for the people of the capital, the country and for tourists alike. I welcome the Government's recognition of this important historical area and I am delighted that they have seen fit to confer special status on the area ensuring that Dublin enjoys its year as European cultural capital. The Government's commitment to the area is to be commended and I trust this House will lend full support to these constructive and positive measures.

I am disappointed because if the Government had not done anything for the Temple Bar area and had not extended section 23 measures to the inner city as it has done in this Finance Bill, the howls of indignation, abuse and criticism against the Government would have been considerable and the silence is now almost deafening when it comes to complimenting the Government for taking these two measures. Before it was done politicians in Dublin generally from all parties asked for this but they have been quiet since these measures were introduced.

Our economic performance is good although we have suffered from the international climate. Some economic commentators told us things were looking very bad, that the Government's budget was going to be completely out, that we were overspending, but because of buoyant tax receipts I gather that this so-called certain mini-budget will now probably not take place. Independent observers recently said that the economy will grow by 2 per cent and that generally speaking the Government will be within the criteria of the budget as set out. This is a good thing which shows that all the hard work and sacrifices made in the last few years have been worth it. It is now shown that we can sustain a downturn internationally that our economy can still grow. I hope when the international economies begin to pick up again we will be well placed to latch on to that to let our economy grow even further so that we may tackle the single greatest national problem which is unemployment.

I welcome this opportunity to contribute to the debate on the Finance Bill which I suppose is the annual review. Given that the Seanad does not have a budget debate this is our budget debate cum review of the economic prospects for the forthcoming year in relation to what has happened in various areas over the last 12 months. It is also an opportunity for us to examine the various financial and taxation measures and other matters which are partly changed or considered from year to year. While, like the last speaker, I would give certain recognition to this Finance Bill in relation to the question of urban renewal in the year of the development of the Taoiseach's new offices, progress with the Custom House, Dublin city being adopted as European city of culture, and the Temple Bar development, which was mentioned by the previous speaker but we must look at these developments in relation to the overall economic position and prospects for the county.

Ireland can do certain things itself but it is influenced by various outside factors such as the British and American markets and economies, and by developments in Europe. We are aware of what has happened further afield and no one in this country could be held responsible for the Gulf situation. We must look at barometers and assess progress made in many areas. I do not think this Finance Bill holds out much hope to the many school leavers presently studying in the last week or two prior to the leaving certificate. They will not think when they look at this Finance Bill that it is going to bring the many necessary jobs. While the Finance Bill in itself should not necessarily be the provider of jobs, it should provide the appropriate climate. The Bill raises the question of the taxation system and while certain progress has been made, we have not been able to do enough to change the taxation code and system or to reduce taxes sufficiently. The PAYE worker and many others are paying too high a rate of tax on relatively small incomes. People from other countries are amazed how quickly one can reach the maximum level of tax deduction here while not being paid inordinately. Any extra allowance is welcome but it is only a drop in the ocean compared to what we have tried to do this year and in recent years.

Great attention is paid to the poor hearts of the Progressive Democrats who come bleating on a weekly basis and at times on a daily basis and the same clichés are being trotted out by various Progressive Democrat members. It tends to be the same one or two people from a party which like the great eagle, is almost extinct; its membership is declining and it can at best be described as on the ventilator waiting for some medic or kind soul to come along and turn it off. It is unfortunate that we have this so-called demand for a reduction in taxes unaccompanied by any meaningful suggestions. The Irish public are getting fed up with these threats coming from a small, mickey mouse party who could be compared with the boy who said to another boy: "I am going to tell my mother on you".

The Progressive Democrats seem to be always looking for notice under some guise to create the impression that they are doing something. It should be made clear that we want them to either put up or shut up and let the Government deliver on reducing tax. We have to do more to reduce our tax rates. We have to work towards that end and to have a planned structure.

This Bill does not do much for the many school-leavers or the unemployed. I call on the Minister with the Central Bank, the banks and the building societies to press further that the reduction of .5 per cent which was brought about some months ago will be followed by a more generous 1 per cent reduction in interest rates. I welcome the news this morning that the British rates have been reduced by .5 per cent. The banks and building societies have to be tackled. They are very quick to increase interest rates but they are not so quick to reduce them. I would ask the Leader of the House to impress on the Minister the importance of reducing interest rates.

VAT has to be looked at. We have abnormally high VAT rates on many of our services. For many people who have to pay fees, this extra 21 per cent on top of their bill is penal. This year the Minister is going out of his way to collect extra money. I have in mind VAT on jockeys' fees. This is a disgrace and is another kick in the teeth for the racing industry.

That is a great move.

May I ask the Chair for assistance?

Senator Cosgrave to continue without interruption.

This is a matter the Leader of the House should take close to his heart because he will be letting down the racing industry and the many people who follow this sport if something is not done. We have read about the difficulties experienced by those in the English racing industry and we too have these difficulties here. I would ask the Leader of the House and Senator Wright to exercise their influence to see that VAT is not imposed in this area because it might stop reliable information circulating around this House and could lead to further job losses within the industry.

The Senator is very slow to convey that information to me.

On a point of clarification, this was introduced as a result of EC VAT harmonisation. Since the Minister went to considerable trouble to apply the reduced rate of 12.5 per cent instead of 21 per cent which he should have applied, it is considerably better than it might have been.

While I welcome the Minister of State's explanation——

The Senator is obviously looking for stable information.

In such serious circumstances, as happens at times at the race track, this tax should not be paid.

We would not know anything about that on this side of the House.

The Senator is extremely knowledgeable and well informed.

The difference between prices in the Republic and across the Border has been adequately dealt with. The differences in excise duties and taxes are hindering tourism and many industries here. These price differences have to be looked at. I would ask the Minister to set in train studies to examine why some goods — such as drink, electrical goods etc. — cost more here. If we do not reduce our prices we will price ourselves out of the market.

I do not think this Finance Bill will create the climate to provide extra jobs for our school leavers. There are many people of various ages who will never work again. This problem has got to be faced. I would ask the Minister to take into account what I have said and when replying to deal with the points I have raised.

Debate adjourned.

Acting Chairman

When is it proposed to sit again?

If the House agrees I propose we adjourn until 12 noon on Tuesday next.

Acting Chairman

Is that agreed? Agreed.

The Seanad adjourned at 2.40 p.m. until 12 noon on Tuesday, 28 May 1991.