At the outset I would like to compliment and pay tribute to the Minister for Finance for his interest in the Seanad. I also welcome the Minister of State, Deputy O'Rourke, to the Seanad this afternoon.
Regrettably, the Finance Bill repeats and enforces the major errors which were made in the budget of 1992. The Bill fails completely to address the enormous problems facing the country, in particular the very serious cancer of unemployment. It also fails to take advantage of the opportunities of a new Europe on whose edge the country is now poised. In fact, I believe this Finance Bill could be described as anti-work and anti-enterprise. I do not make those remarks lightly. Inherent in the Bill is that sort of message. It discourages risk taking and rewards fence sitting and playing it safe. This is a retrograde step.
It marks the first increase in the Exchequer borrowing requirement since 1986 and moves fiscal policy further from the medium term target of a balanced budget by 1993 and the long term target of reducing the national debt to 60 per cent of GNP by 1997. It is a product, unfortunately, of some conflict between our two partners in Government, the Fianna Fáil Party and the Progressive Democrats. The message one gets is that there is a certain amount of conflict emerging which is apparent throughout the Bill.
Never before has this country needed greater vision and greater imagination in the application of fiscal policy to solve the country's problems. It is regrettable that never before has there been such clear failure in this regard. Of all the missed monetary opportunities in recent years, this must be considered the greatest one.
One of the most interesting aspects of the Finance Bill is the disparity and contradiction between the contents of the Bill and the rhetoric with which the Bill and the budget has been presented to the people. Neither the budget nor the Finance Bill does what those persons advocating them claim. The facts belie the words and one needs an insight into the conflict between the Government partners, at Cabinet level in particular, to understand how this has arisen. The Programme for Government negotiated between the major partner in Government, Fianna Fáil, and the junior partner, the Progressive Democrats, gave a solemn commitment to reduce the marginal rate of tax to 25 per cent and 44 per cent, respectively. This was to be done in a revenue neutral manner. Whatever was given in the swings would be taken back on the roundabouts.
The document was quite precise in indentifying the particular Peter who was to be robbed to pay Paul. Tax breaks, tax avoidance schemes and tax reliefs were to be abolished to fund the reduction in income tax according to the agreed programme. Government spokesmen said that almost unlimited funds were available for PAYE income tax reductions if reliefs and breaks were abolished. One Deputy from the Government parties claimed amounts up to £1.5 billion being available and the Government spin doctors placed juicy items in the media suggesting that the Revenue Commissioners and the Department of Finance were amazed at the possible yield. There was a euphoria projected, promoted and put before the people as to what could be done. Yet on budget day, when the Minister for Finance announced the reductions in the top rate of tax to 48 per cent and the standard rate to 27 per cent — a welcome move — at a cost of £168 million, he found only £37 million from the abolition of tax reliefs, breaks and tax avoidance measures, and £17 million of this came from changes in taxation on company cars. So, effectively, with the exclusion of company cars, there is only £20 million involved. Clearly, the only reliefs whose abolition would provide the Government with large sums of money were interest relief and VHI relief. There appeared to be a greater conflict between the Government partners again in this area. Frankly, it was evident that while a certain section of the Government wished to have the VHI reliefs and mortgage reliefs abolished, the other partner did not do so, and that argument won in the end.
There is a great deal of confusion when ideology on the one hand gets confused with expediency of a political nature on the other, leading to a certain amount of debris through the Finance Bill, which is a very important document. The political fallout from this situation is very serious. A large number of tax rates have been abolished for a small yield. The reasoning of certain people is that all tax breaks are wrong and should be abolished. I do not agree with this. The use of tax reliefs and tax breaks to encourage certain desirable kinds of social and economic behaviour is a feature of the tax code of every developed country, and to adopt a purist approach which claims that all breaks are wrong as an instrument of social and economic policy is ridiculous. This feature of ridiculousness is demonstrated time and time again throughout the Bill, and there are measures to prove that. There is little encouragement to advocate investment, enterprise, job creation or risk taking. Those sheltered in employment are rewarded through some of the measures taken. There will be an adverse effect on enterprise; in fact, it will cost jobs rather than create them.
I said earlier that if we omit the company cars dimension from this famous £37 million, we have only £20 million accruing from tax breaks. Since the Government failed to find the yield to fund their tax cuts in the way they said they would, they had to look elsewhere for revenue. They got it from two places — they increased borrowing and raised VAT. Both these measures run counter to our commitments to our EC partners and are totally inconsistent with the obligations which the Government are undertaking under the Maastricht Treaty. It is not generally realised that as a result of the Taoiseach's last budget and Minister Ahern's first budget the real Exchequer borrowing requirements have been doubled, and at a time when the Government are committed to a balanced budget in 1993 and are urging the electorate to undertake the far more onerous task of reducing the debt as a percentage of gross national product to 60 per cent by 1997.
One could go on and on and cite examples of the type I have referred to, but frankly the main thrust of this Finance Bill is one of great disappointment. We do not see much hope in it for jobs. Enterprise development is sadly lacking in the Bill. For instance, with regard to enterprise, the changes in VAT will cost jobs. The changes in the co-operative taxation will cost jobs.
On this point, may I elaborate slightly? Many of our co-operative societies will have a liability of 40 per cent tax; those are the non-producing co-operative societies such as livestock marts. I suggest that 40 per cent is not a very reasonable or equitable figure. Many of our co-operatives, big and small, depending on their type of operation, will find it extremely difficult to survive in the times ahead. The changes in tax on company cars to which I have already referred will also cost jobs. The changes in capital gains tax will cost jobs.
I would like to refer to an amendment put down in the other House by Deputy Foxe of Roscommon requesting the abolition of capital acquisitions tax. Deputy Foxe failed to get the amendment clarified. I support the view expressed in that amendment, the total and complete abolition of capital acquisitions or capital gains tax. I can justify my view by saying that at present the rates are such that many properties either have to be sold or the people have to borrow heavily on them when they pass them on to their successors. I appreciate that there are certain concessions available for inter-family arrangements where a father passes a property on to his son or his daughter, but these are exceptional.
There are many other examples I could talk about. It is imperative that the Government would realise that we need to have a very determined and close look at what is happening at present. For example, we have introduced a VAT arrangement which has six different rates: zero, 2.7 per cent, 10 per cent, 12.5 per cent, 16 per cent and 21 per cent. This could not in any way be regarded as progress towards harmonisation or simplification of the code. We appreciate downwards adjustments in the VAT area, but, frankly, presenting us with six different VAT rates is a bit too much.
Taxpayers who do not avail of the new deposit accounts will pay only 27 per cent on their unearned income from other accounts, but if they are part of the 40 per cent of taxpayers, they will be paying at the higher rate of 48 per cent. This is a disincentive to people rather than an encouragement to them to take risks and make money. It is important that we as a nation followed the example of other countries, such as the USA, and considered that there was nothing wrong with wealth or profit provided that it was made within the parameters of propriety, corrections and so on. There is a similar discouragement to small investors in the equity market, as the balance of advantage has swung in favour of the deposit accounts and against investment in equities.
There is not one single job creation measure in the Bill. I repeat that fact because I believe it is so important. It is difficult to conceive how indeed 15 intelligent people sat around the Cabinet table and saw his kind of document and gave it their approval.
I would ask the Minister to answer one simple question. Is there such a close connection between the marginal rate of tax and job creation? If there is, why is it over the last few years, when the standard rate of income tax has been reduced from 35 per cent to 27 per cent and the high rate has been reduced to 48 per cent, that this has been accompanied by the highest level of unemployment since the foundation of the State in 1922? I ask the Minister to respond to that question and to respond to the question on capital acquisitions tax to which I referred earlier.
I also would like somebody to explain how a further reduction in the marginal rate of tax to 25 per cent and 44 per cent is going to provide the magic trigger for job creation when larger adjustments up to now have had no effect whatsoever. Is it not time that there was a clear understanding about our present tax policy which, I respectfully submit, is not workable and not capable of giving effect to the dramatic economic changes that some people propose it can do? I know there is divided opinion on this matter, but I suggest that it is a very major issue in this Finance Bill and something that has to be addressed.
When the Finance Bill was published the Minister's PR people projected him in the resolute cloak because he insisted in the Finance Bill on implementing some of his budgetary proposals. The message was that the Minister would not change. Perhaps it was a list more personal than that. I would suggest that what was wrong with the budget in January was wrong in the Finance Bill in April and should have been changed. This is a weakness that has been allowed to go by. There was merit in the case put forward by commercial travellers, publicans, members of co-operative societies, small investors and farmers and the Minister should have listened to them.
I will deal with a few of the specifics in the Finance Bill. It is not the rate at which people pay income tax which is the key issue but the total amount paid. Taxpayers are dragged into the tax net at a low level of income, and at a moderate level are dragged into the higher band. It should be remembered that almost 40 per cent of all taxpayers pay tax at the higher rate. Single people on £60 per week fall into the tax net. It is logical that there should be a lower tax rate as an introductory rate and it would be feasible to introduce a rate of perhaps 15 per cent on the first £1,000 of taxable income for married persons. A clear commitment should be given to widen the tranche of income to which the lower introductory rate of tax would apply. It also makes good sense for the Minister to widen the standard rate band so that 80 per cent of taxpayers would pay tax at no more than the standard rate of tax by the year 1994-95.
With regard to the abolition of income tax relief on insurance policies, this would make endowment mortgages more costly and there would need to be a commitment from the Minister for Finance to maintain mortgage interest relief and VHI tax relief. On the question of the premia for life assurance it was a retrograde step to remove the tax relief there; it discourages important investment beneficial to our economy.
The decision by the Minister for Finance to introduce on Report Stage in the other House an amendment to the Finance Bill to apply the 40 per cent rate of corportion tax to advertising profits is appalling. The media are extremely important and the Minister made no provision for that in his budget or in the Finance Bill. It is appalling also that a major change in newspaper taxation is being introduced in an underhanded fashion. This new provision will have a serious effect on the newspaper industry and put additional pressure on its ability to carry out a fundamental democratic role in society.
Other provisions in the tax code which are being firmed up in this Finance Bill will make it difficult if not impossible for companies to offset losses made in the manufacturing part of the company against gains in the advertising area. Consequently newspapers which make an overall loss will quite likely have to pay tax on profits from advertising.
This Finance Bill is without imagination or vision and gives scant regard to putting our economy back into shape. Fortunately, an air of buoyancy is developing in the world economy and I hope it will come our direction soon. We must put our house in order to avail of that buoyancy when it comes. I am not sure that this Finance Bill equips our economy to avail of that buoyancy which will come I hope sooner rather than later. The measures introduced in the budget and in the Finance Bill will do little to attract foreign investment which is vital to the advancement of our economy and to the survival of our nation.
Every Irish person is concerned about the serious crisis in our economy at present, and I include the Government and Government parties in that. They are aware of the seriousness of the economic situation. I would like the Government to address our economic problems. The Government cannot solve our unemployment problems or our taxation problems but they could play a greater role in alleviating present difficulties. I am aware that most decisions which affect our economy are taken now in Brussels and we must exert more influence over what is decided in Brussels.
There are three sectors in our economy — agriculture, tourism and industry — which are the earners of money for State services. At the moment agriculture is underdeveloped and we must ensure through the Common Agricultural Policy and GATT, that it does not lose out. We must promote our tourist industry and develop certain industries more vigorously so that we will have more money for our starved Department of Health, for education, for law and order enforcement and for all other vital services that cannot generate or create revenue. It is incumbent upon the Government to take on board certain policies that will develop to the fullest these various sectors so that our economy can succeed.
I want to revert again to the question of inheritance tax and capital acquisitions tax which is a more serious problem than is appreciated by the Minister and by the Government. Many people do not have a direct relationship with the person to whom they transfer their farm or business. Small allowances only are allowed in those cases of inter-family transfers. The allowances that apply in industry and in agriculture are more generous; the allowance in agriculture is substantial whether the transfer is from parent to child or from spouse to spouse. Numerous properties throughout the country are transferred in circumstances other than a direct relationship. These transfers, together with direct family transfers, must be looked at with a view to abolishing the capital acquisitions tax or inheritence tax.
The amendment which Deputy Foxe of Roscommon put down in the other House and which was not dealt with there has my support. I hope that the Minister will give it and the other points I raised here his fullest consideration.