Seanad Éireann debate -
Wednesday, 9 Jun 1993

Vol. 136 No. 11

Finance Bill, 1993 [Certified Money Bill]: Second Stage (Resumed).

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

Mr. Enright

The opening paragraph of the Minister's speech states: "This Finance Bill underpins the Government's priority objective — to maximise, on a sustainable basis, the job potential of our economy in two respects". This statement is inaccurate and untrue because the Finance Bill does the opposite: it imposes taxes on work, energy, initiative and enterprise.

The Finance Bill was the opportunity to tackle the problem of having 300,000 people out of work. It is the vehicle which enables the Government to tackle the endemic problem of unemployment. The Minister could have reduced unemployment by reducing tax on workers, employers' PRSI and VAT on products produced by sensitive industries. Regrettably, the Minister has taken the wrong direction. That is why I consider his opening statement to be inaccurate and untrue.

The Minister's proposals for VAT increases will cause job losses because they will affect a number of labour intensive industries. The increases will affect the ordinary worker in many ways as, combined with the new 1 per cent levy, they will cause job losses instead of maintaining existing jobs or creating job opportunities. To add insult to injury, the Government will give a total tax write off of all arrears of tax due to the Exchequer from people who have defrauded the system.

The Government's proposal to increase the VAT rate on hotels, holiday accommodation, newpapers and building supplies from 10 per cent to 12.5 per cent is a serious mistake. The VAT increase on newspapers is a charge on information and is a retrograde step. Irish newspapers are printed in Ireland, their staff are employed in this country and they are competing against imported newspapers from Great Britain. Some of our national and provincial newspapers are in serious financial difficulties at present. This VAT increase will exacerbate an already difficult situation for some of those newspapers. Visitors from Great Britain, Europe and America compliment the quality of our newspapers and we can be proud of the standards they have maintained.

Newspapers compete with RTE television and radio for advertising revenue. RTE is publicly funded and the removal of the cap on its advertising will adversely affect newspapers and periodicals. People in the newspaper industry estimate that the proposed changes in VAT will cost the industry at least £200 million. This will affect jobs and the important role of newspapers in education and in providing access to detailed information.

The increase in VAT rates demonstrates that the Government has little knowledge of the difficulties being experienced in the clothing and footwear industries. In 1991 VAT on clothes and footwear was 12.5 per cent. In 1992 the Minister increased it to 16 per cent and in this year's Finance Bill he has increased it to 21 per cent. The Minister must be aware of the damage these increases will do to our hard pressed clothing and shoe industries which are already under pressure and how they will affect jobs. The Minister is, no doubt, aware of the number of clothing and footwear firms which have closed and that further increases in VAT on clothing and footwear will cause additional hardship.

The VAT rate for shoes and clothes in the North is 17.5 per cent. In the Twenty-six Counties it will now be 21 per cent. VAT on clothing and footwear is charged at the same rates in the North and in Great Britain. The higher rate of VAT in the Republic will lead to an increase in sales of clothes and footwear in the Six Counties and in Britain. I am sure the Minister is aware of the serious job losses in the footwear and clothing industry. Between 1989 and the end of 1992, 2800 people working in the clothing and footwear industries lost their jobs. I am certain that the Minister does not fully realise the effects of those job losses.

I can supply the Minister with a list of the name and addresses of firms which have already closed. At Gardeur, 180 employees lost their jobs. At Cavan Fabrics, 80 were made redundant while at Babygro, the figure was 350. At Bonaventure, 450 jobs were lost. Cosmo closed with a loss of 40 jobs, and Mitzi closed with a loss of 180 jobs. At Irish Blouses, 30 were made redundant, at Robert Usher, 150 and 200 at Laura Ashley. The list is extensive, and the total number of jobs lost is 2,800. Since the Minister's recent announcement, two more firms have gone out of business, Wexman in Wexford, with a loss of 109 jobs, and Beeline in Dublin with a loss of 120 jobs. A number of retail fashion outlets have closed or made staff redundant since the budget. For one reason or another, these firms are in difficulties, and the increase in VAT will exacerbate an already difficult situation.

Best Menswear in the Square in Tallaght is about to close. Three jobs will be lost in a small firm in Galway. Clery's have made 60 staff redundant and Duggan's have made 40 staff redundant. The list is long, and, unfortunately, these VAT increases will make a difficult situation worse. The Minister stated he is increasing VAT on clothes and footwear because the revenue is needed. The revenue accumulating from these increases will be offset by an increase in payments of unemployment benefit, and the loss of PRSI contributions and income tax. This is short term economics and the Minister should think seriously before he takes this action.

I read this Bill during the last few weeks, I noted the situation in regard to the building industry and the decrease from 21 per cent to 10 per cent for poured concrete and concrete blocks. The Minister has acted on representations to him by different groups in the building industry and his proposal is welcome and wise. I ask him, even at this late stage, to consider further the situation in regard to the clothing and footwear industry.

Workers pay too much tax, I am certain the Minister is aware that, for example, a married man with six children receives approximately £180 unemployment assistance per week. If this person obtained a job with a county council or a local authority, he would earn approximately £186 a week. When the loss of benefits is taken into account, that person is financially better off drawing unemployment assistance. The 1 per cent income levy make this situation worse. Many workers pay tax at 48 per cent and a 7.5 per cent health levy. They are now asked to pay a further 1 per cent levy. PAYE workers may be taxable at the top rate of income tax, if they are single and have no benefits, on a figure as low as £11,000 per year. They must also pay 7.5 per cent PRSI, and the 1 per cent income levy. I cannot understand the attitude of the Government in bringing in this 1 per cent levy. Most of the people in the PAYE system are outraged that such a levy should be imposed. The Minister has taken bad advice. If the Minister and the Government hope to maintain the goodwill of workers and trade unions, the imposition of this 1 per cent levy is an unwise step and I cannot see the sense of imposing it now. Will the Minister consider withdrawing this levy?

I wish to raise another matter with the Minister. When the Taoiseach was Minister for Finance he promised a review in 1990 or 1991 on the issue of disabled drivers. People suffering from severe arthritis and permanently disabled cannot obtain exemption from tax on importing a car and other such allowances for disabled drivers, because they have not lost a limb or do not suffer from a similar physical disability. Somebody with chronic arthritis should get the same exemptions; the cost to the Exchequer would be minimal and it would be of tremendous help to many who are permanently incapacitated. I ask the Minister to examine this matter.

I also ask the Minister to examine taxation on lunch vouchers. Under the lunch voucher scheme tax must be paid on all but the first 15 pence of the cost of the meal. This figure was set in 1965 when three shillings was the price of a meal and is unrealistic now — it would not even buy a cup of coffee today. The Minister should examine how this allowance could be increased because it would be of immense benefit to small cafés and restaurants. Many of these are having difficulty staying in business: such an increase might help some of them and it would not be of great cost to the State.

The Minister spoke about the changes he made in relation to the probate tax. I note that the family residence and the normal house contents will be exempt. The Department and the Government have not thought out the probate tax sufficiently or given it the required study. When the matter was debated in this House I made the point that the probate tax is a return to death duties — it is a form of coffin chasing. The Minister said that he wishes to broaden the existing narrow base for taxing inheritances. There are already heavy tax liabilities on death in the form of inheritance tax and these changes will cause hardship in many case where there are no liquid assets.

Inheritance tax is chargeable at a basic rate of 20 per cent rising to 40 per cent and, while the thresholds vary considerably from £11,450 for a non-related person to £170,000 for a son or daughter, it can be a severe tax burden on a family property. The Minister said that on a transfer: "a young farmer will be able to acquire over £420,000 worth of agricultural property from his father or mother before any tax liability arises". That is correct if one is referring to transfer only but if a property is transferred to a bachelor who dies suddenly inheritance tax will have to be paid. In this area the probate tax has not been given sufficient thought.

Although the probate tax is dressed up as being of benefit to PAYE workers, thousands of people — or their dependants — will be caught by it in years to come. In the past parents advocated thrift; setting aside moneys for education, health and many other good reasons. The probate tax goes against such thrift. The PAYE worker pays tax on everything earned and more tax on savings. On death he will have to pay a further 2 per cent probate tax. This is the wrong direction for our system of taxation.

Until now tax was not payable on many small estates, but probate tax will be payable on most estates. As pointed out in the explanatory memorandum to this Bill a dependent child with an income in excess of £3,877 per annum, for example, a married man with children living in the family home, will now become liable for probate tax.

This probate tax is a retrograde move and it not something with which the Government should proceed. The section that says the tax must be paid at the time of the filing of the inland revenue affidavit prior to the grant of probate being issued is something that the officials in the Department have obviously not explained fully to the Minister, otherwise he would not proceed with this section. I am certain that the Minister and Senator O'Kennedy are aware that on somebody's death no property can be interfered with, assets cannot be touched, all bank accounts are closed and that all dealings with the estate are suspended and frozen until the grant of probate is issued by the principal probate office. When the grant is issued the beneficiary in the estate can divide up the assets or deal with them in the form outlined by the deceased person. A person may have money in a bank account but the beneficiary or executor cannot deal with the assets without obtaining a loan from a bank to pay the tax due because it is a type of self-assessment. This is an iniquitous approach and unfair when there is a bereavement in a family. The penalty of 15 per cent interest is very severe, particularly when interest rates have now been reduced. Will the Minister again examine this situation?

I previously outlined a situation where business people would have to pay this tax and I thought that the Minister would have taken the points I raised into account. The Minister spoke about exemptions being granted to farmers which are double those granted to businesses. As job losses are so high the same exemption limits should apply equally to farmers and businesses. They could apply to a small business, a shop, a small trading company, a restaurant or a pub. Where people are employed or in a family business and where there are no liquid assets, there should be an increased exemption. Many people experience great difficulties in meeting inheritance tax payments. Where a business is trading and discharging its liabilities, taking a sizeable sum of money, £10,000 or £15,000 out of it, could be the difference between surviving and going to the wall. Too many businesses fail and we have a duty to see how we can keep them afloat. I ask the Minister to examine this matter because it is important.

I had hoped that my comments in the Seanad would have had some effect on the Minister and would perhaps have convinced him and his colleagues that furniture should be exempt. I note the Minister's comment that normal contents of a home have been exempted. If a revenue return is made on land, the Revenue Commissioners and the valuation office have power to inspect the farm or land. If a normal return is made for a dwelling house, who decides what is a "normal" amount of furniture? Will the Minister or the Revenue Commissioners send officials to inspect dwelling houses to see what is "normal"? This is a serious issue because many people have their houses and the contents of the house insured, because of the average clause in insurance contracts, many properties are insured at a higher level than the realistic market value of the property. If the Revenue Commissioners ask for the insurance policy on a house and furniture, they may say that if a person dies and has furniture worth £50,000 included on an insurance policy that person is liable for 2 per cent probate tax or they may give an allowance of £10,000 and then charge tax at 2 per cent on the remainder.

I will give the Minister a simple example and ask him to bear it in mind in regard to this probate tax. A retired national school teacher dies. He has been reasonably successful and, perhaps irrespective of whatever scheme this House has put in place to try to deprive him of his savings, he has succeeded in saving some money. He may have received a gratuity on retirement and would perhaps have an insurance policy and some money saved. He passes away at 70, those moneys are part of his estate and are taxable at 2 per cent. If his wife had predeceased him and his son was living in the house and earning in excess of £3,800, he is liable for probate tax on the estate. I do not think that is what the Minister had in mind and what was intended in this scheme.

Probate tax is particularly difficult as it arises at the sensitive time of a bereavement in a family. We are aware of the existing powers of the Revenue Commissioners; under section 181 of the Finance Act, 1992, the Revenue Commissioners have extensive powers and it worries me how these powers may be used in regard to probate tax. The Revenue Commissioners' powers are much more extensive than in Great Britain and in most other countries yet many of those available have not been utilised. If they had many of the scandals in the recent past would have been avoided. Year after year, additional powers are granted to the Revenue Commissioners, this House has never carefully considered the extent of these powers and the dangers that can occur in the future. Consideration should be given to their extent.

In spite of all these extensive powers, the Minister now sees fit to grant an amnesty to people who have already defrauded and cheated the system. I believe the proposal to grant this amnesty will be anathema to the ordinary PAYE worker. Most workers who are trapped in the PAYE system will be outraged when they realise that people who have cheated and defrauded the system will now get off, subject to a 15 per cent interest penalty. This proposal will bring Irish tax laws into disrepute at both national and international level. I am certain that many foreigners living and paying tax here must be wondering what sort of a country we have when they see people defrauding and cheating the system and getting away with it.

This type of amnesty is different from the 1989 amnesty under which all taxes due had to be paid although penalties were waived. In the current case, people who have defrauded and cheated are being allowed to avail of their ill-gotten gains subject to the payment of a 15 per cent penalty. It is my view that this amnesty will be proved to be unconstitutional because there cannot be one law for a law abiding citizen and another for the tax cheat and defrauder.

We are heading down a dangerous road and future taxation policy could be seriously damaged by such an approach. I would ask the Minister to be careful, I believe he is not totally in favour of the amnesty. However, irrespective of who is or is not in favour of it, we are heading into dangerous territory and I would ask the Minister to seriously examine the situation.

Mr. O'Kennedy

I welcome the Minister to the House. It is significant that the Minister for Finance of the day has devoted so much time to comprehensively presenting the Finance Bill to this House. Senators will know that we do not have power in this House to move any amendments to money Bills, and in particular to the Finance Bill. For that reason I think it is a mark of extreme courtesy, which we all appreciate, that the Minister has made himself available to explain to us the overall strategy of his economic policy as contained in this Bill and to listen to what Senators have to say within the time constraints he has to operate. In that context, if during my contribution, the Minister finds those constraints oblige him to be elsewhere, I will understand. As a former Minister for Finance I understand the demands of the job, and it is as a former Minister for Finance that I would like to make some observations on what the Minister has presented today.

I welcome the fact that Senator Enright, as a spokesman for the Opposition, has, by and large, made a very reasoned and fair analysis of the Bill, though towards the end he strayed into another territory which is not part of this Bill. I share some of the reservations the Senator expressed——

Mr. Enright

I am not the only one straying into other territory.

Mr. O'Kennedy

—— in relation to the amnesty, but we will deal with that on another day when the legislation is presented to us. I would prefer to confine myself now to the thrust of this Bill as part of a three-pronged attack on the problems facing this country, and indicating the Minister's and the Government's strategy on economic and fiscal control and programming. I support, as I am sure almost every Member of this House does, the position of the Minister when he said that his primary and overriding purpose is to secure financial stability in difficult circumstances. That must be the most important element in his strategy because there are difficult economic and financial circumstances not alone in this country but to a much greater extent in the universal economic climate, and particularly in Europe.

It is very important that the Minister and the Government adhere to maintaining financial stability in those difficult international circumstances. The Minister has made it clear that this Bill is but one element in the Government's overall fiscal and economic strategy, and I support that approach. I have always thought of fiscal and economic strategy as being a tripod or three-legged stool which will not be stable unless all three legs are firmly in place. The first and most important leg is control of Government expenditure, the first element in annual budgetary and fiscal strategy. This must be controlled in the annual Estimates review, and, in particular, in current Government expenditure which normally begins in September or October. When I was in Government we began the expenditure review in August, with hardly time to finish our holidays, and we had the job done by November. This was the most important element in Government policy and when that was achieved one could deal with the budget and subsequently the Finance Bill. I am pleased that the Minister, with whom I was privileged to be in Government over those five years and previously, is firmly adhering to that same strategy.

Control of Government expenditure is the most vital element in the fiscal and economic approach and I support the Minister because of the consequences of that effective, disciplined approach. Any Government can spend in response to every demand, but that is the sign of a weak, ineffective and vacillating Government. A good Government is one that recognises the demands being made by various sectors, yet stands firm and does not respond to what appear to be reasonable and popular demands for more spending. This policy came into effect in 1987 and I am glad it is being maintained in a vigorous and effective way in 1993. The Minister has made it clear that this is his central purpose. If he were to respond to some of the easy options right now, so much of what has been achieved, perhaps at some considerable pain, since 1987 would be lost and that would be a major tragedy. However, I know that in the hands of this Minister there is no risk of that happening.

Let us see what has emerged from this consistent Government policy. The inflation rate has been reduced from double digits — 20 per cent and over when we came into office — to 2 per cent, thereby signalling to the world at large that this is a country with an enterprise climate for the generation of employment and the security of investment. This is happening at a time when many other countries in the EC are failing to meet the same test. Therefore, that strategy must be maintained.

Before we came into Government in 1987, especially before the appointment of the Minister, interest rates abroad were a benign influence on interest rates here. Rates were much lower outside and tended to pull our interest rates down. In the unfortunate period from 1983-87, despite interest rates being much lower outside, Irish rates were at their highest ever.

Now, because of the overall economic strategy the Minister has underlined, interest rates have dropped to the point at which they should be. Through no fault of Government our real interest rates are still too high and the difference between our inflation and interest rates is too great, possibly higher than anywhere else in Europe. That is a function of the money supply which has certainly come under greater control in the last six months, when there was a reduction of 4 per cent.

It is vitally important to maintain this economic and fiscal strategy, particularly when the main EC economies, notably Germany are in considerable difficulties, if not disarray. The problems of the German economy, the former mainstay of the EC, are now immense and complex. Political direction is lacking, as is economic and fiscal control. These facts will pose problems for other EC members. In my time as Minister for Foreign Affairs and Minister for Finance, one could be secure in the knowledge that the German Government had strict control of inflation and the economy. That is not the case now and, therefore, we must be all the more disciplined. One can see what happens in other economies and the reactions to Governments in France, Spain or Great Britain.

Ireland will not get much sustenance or comfort from the overall economic climate in Europe for the foreseeable future. That is why the policy pursued by this Government must be followed. Otherwise, as a small open economy, the country would be in great difficulty. One does not have to dwell on the point that a lack of progress towards the ERM, supposed to be central in European strategy, demonstrated the lack of co-ordinated direction on the part of most EC member states. It must be significant for a Minister who has attended the EC Council of Ministers recently to have it acknowledged that Ireland is pursuing the consistent policy and that other countries are trying to follow it.

The ASEAN countries were the beneficiaries of a support and development programme from the EC when I was Minister for Foreign Affairs from 1977-79. That is nearly unthinkable now. The EC had a programme to help them to create the basis of sound economic activity. The programme should now be operated in reverse because in that area there has not been a recession, lack of direction and confusion seen in the EC in recent times. The signals coming from the economy and the Government are most important. They indicate this is a climate for enterprise and the Finance Bill is securing that pattern for the future.

In common with what has been said today, there is only one way to consistently reduce taxation levels and simplify the tax code, by controlling public expenditure. During my period as Minister for Agriculture the Government decided that the consequences had to be faced. We knew we were bound to be criticised but we decided to go ahead with the task on hand.

Two bodies under my responsibility operated independently, ACOT and the Agricultural Institute, which cost £35 million between them. Consistent with Government policy, I was told they would receive £25 million the following year and would have to make the most of it.

I recall the reactions of the farm organisations who said the moves were outrageous but nobody utters a whimper now. At one fell swoop we reduced the expenditure by £10 million. That is significant, not just for its effect in that year but what it has prevented in the years since. We also introduced the concept that farmers pay a little towards this good service, particularly if they are at a certain level of income. It was understandable that the immediate reactions were unfavourable but now it is different. I mention that as an example of the approach we must adopt.

The central thrust of employment as the great priority and the encouragement of investment is clear from the Bill and is more important than some of the schemes outlined by the Minister. Those observing Ireland from the outside will want to know what the climate is like, whether Government policy can be trusted and whether the Minister is consistent. They will not necessarily inquire what schemes are available under the BES, significant as those may be. Nonetheless, foreign observers are influenced by what we do in the financial services sector and elsewhere. The less we spend the less tax we have to raise.

I would normally favour a short Finance Bill if the conditions were ripe and public expenditure was under sufficient control. It often happens that the detail of Finance Bills such as this one is comprehensive to the point of being complex. The only people able to come to terms with that are accountants. They then engage in an annual search for tax avoidance measures which are sometimes close to tax evasion.

Some years ago I told the Leinster Society of Chartered Accountants that I would much prefer to see accountants advise entrepreneurs and potential business people about their economic strategy rather than devoting so much time to finding new loopholes and tax avoidance measures. Each Finance Bill is minutely examined in the finance houses, not merely to see how new schemes can be availed of, but how to avoid heavier taxes. Some will be straying into the area of tax evasion and there is a thin line between the two.

The provisions in the Bill are not all positive, especially the 1 per cent income levy. It is not simply an issue of equity although that is important. The 1 per cent income levy belongs to a period which is not consistent with the policy now being pursued. During that period, 1984-85, when I was Opposition spokesman on Finance, the purpose of reducing the budget deficit was not achieved. The strategy was not to reduce the deficit by controlling public expenditure, but by increasing taxation. In that context a one per cent income levy was introduced by the then Government. However, the present 1 per cent income levy is not consistent with the Minister's economic strategy and I hope, therefore, that it will not be permanent.

Mr. O'Toole

The Senator was not too quick about getting rid of it when he was in office.

Mr. O'Kennedy

It was not introduced when I was Minister and, furthermore, the Government of which I was a member did not introduce such measures.

I welcome the fact that this Bill, like the budget, is employment oriented. Taken in conjunction with the control on expenditure, on which I have spoken at some length, the specific aids to employment creation contained in this Bill are important. For example, the relief for seed capital investment by entrepreneurs in new companies is crucial to their encouragement and development.

I also welcome the relief for investment in research and development. This area has enormous potential. The added value of knowledge derives from our heavy investment in education.

Mr. O'Toole

We have not invested enough.

Mr. O'Kennedy

No, but there has been a substantial investment and I hope the level will increase. We have a knowledge base that demonstrably can operate to our advantage in employment creation. Because of this I welcome the extension of relief for investment in research and development which is now no longer confined to a BES scheme.

The capital gains roll over relief is important as are the welcome changes in the BES scheme such as the new limits and exemptions. These measures, with the increased relief to employees to invest in employer companies, are part of an overall pattern which will demonstrate to people at home and abroad that the Government is pursuing policies of investment and employment creation.

I have a reservation in that these schemes are confined almost entirely to the manufacturing and international services sector. The potential for job creation in the other sectors of the economy is important, particularly in the services sector which has a high employment level, the distribution and marketing sector, and the tourism sector overall — not only in relation to car hire — where I welcome the arrangements introduced by the Minister.

The Minister addressed this issue in his speech when he pointed out that the same range of incentives would be offered to new businesses in this area when the main effect would be the displacement of jobs in existing firms who had not had the benefit of these incentives. I am amenable to the argument but I am not fully persuaded by the logic as it is an argument that could be made in respect of most incentives. Perhaps the Minister could keep options open on this issue as the services sector is one that could be developed to a considerable extent through incentives.

It is clear that the Finance Bill is in line with the Culliton report when it recommends that tax exemptions should be targeted. The Culliton report is not as comprehensive as it should be because its terms of reference were confined to the manufacturing sector. The services sector, the tourism sector and other sectors were not included in the remit of the Culliton report. This might not have happened if we had remained in Government as one group.

Perhaps the Minister would consider the employment potential in the services sector, especially in tourism. Even allowing for the observations he made in the House today, the Minister might be amenable to introducing change where it appears to be appropriate.

The improvement in the provision for equity finance, which has been a matter of importance for this country, is welcome. Again, it is a measure consistent with the thrust of the Bill. The new initiative aimed at increasing pension fund investment in small and medium sized enterprises who need venture and development funds is important.

The Minister signalled these measures in the budget. However, a number of the measures introduced by the Minister in this Bill were not in the budget but adopted after arguments during the course of the Dáil debate. Such measures are welcome.

The ordinary citizen will not necessarily be involved in availing of all the reliefs and incentives introduced in this Bill. If they do not have the advice or wherewithal to avail of these measures they will be aware of the tax levels to which they are subjected. It is a matter of significance that within a short period of time the standard rate of income tax has been reduced from 35 per cent to 27 per cent. I confidently hope that, given the thrust of the Bill, this trend will be maintained.

In the 1980s it would have been difficult to believe that we would by now have a single higher tax rate of 48 per cent as it was then greater than 60 per cent and the standard rate was 35 per cent. I have no doubt that with the thrust of this Bill we will achieve even more reductions in tax rates. There has been real progress in the fact that 13,500 taxpayers will leave the tax net and that 18,000 people will benefit from being taxed at the standard rate rather than at the higher, marginal rate. This is the the most significant thrust in a very significant Bill and I welcome the opportunity to support it. It is very much in line with the policy pursued when I was a member of the Government and I am happy that it is still being pursued vigorously.

Mr. O'Toole

In the early part of his speech the Minister spoke of the need for income moderation to enable us to surpass the employment performance of our EC partners. In that context, in the context of what the Minister said in his budget speech and of what happened in the meantime any fair-minded person recognises that control of public service pay and public expenditure is a major part of any Government's efforts to balance the books.

To achieve this, the social partners and the Government came to an agreement two and a half years ago which resulted in the Programme for Economic and Social Progress. At that time we did not foresee the present recession. The increases provided for in the Programme for Economic and Social Progress were minimal and the wage agreement appeared to be in line with forecasts. The Government ran into difficulties in January 1992, it discussed these with the social partners and, after difficult negotiations, agreement was reached on how the wage and salary increases provided for in the Programme for Economic and Social Progress would be dealt with during the remaining period of the programme, to the end of 1993.

In his budget speech this year the Minister stated that he saw difficult economic times ahead and wished to outline the difficulties he was facing to the social partners, particularly to the public service unions affiliated to the ICTU. During this period a number of issues arose such as the appointment of an arbitrator, the need to examine methods of determining pay awards in the public service and the removal of the limits imposed on various pay increases.

The agreement announced last weekend between the Government and the public service unions affiliated to the ICTU did not constitute a concession by the Government or a change from the policy it announced in the budget, it was a restatement of and a recommitment to the Programme for Economic and Social Progress. That should be stated clearly and positively. The argument is an important public recognition of the need for consensus and a recognition by the Government that the trade unions moved towards the Government's position last year in a time of economic strife and were ready to do so again. The battle is over, there will be difficulties with the local bargaining clause, the final formula for pay determination and the extension of pay related social insurance, all of which have been referred to by the Government. These matters need to be dealt with in the long term and I am sure there will be differences between us.

It is important to recognise that last weekend's agreement was a reiteration of what was previously agreed. However, it was presented incorrectly by the media, in many cases the Minister's Budget Statement was followed by an account of the decisions made at the weekend and the agreement was presented as a climb-down or a concession. Members of my own union rang me over the last few days inquiring about the new agreement and the concessions it contained. However, there is no new agreement and there is great confusion.

I have been very critical of the Department of Finance in recent months because it lacks vision as to the direction the country should take. I recall some of the great initiatives by the Department of Finance since the foundation of the State such as the ESB Ardnacrusha scheme, the rural electrification scheme and the establishment of Erin Foods and the Sugar Company. These developments were made possible by visionary thinking, patriotic entrepreneurs and progressive Department of Finance and Central Bank policies which do not now exist. There is no evidence of them in the Culliton report which has failed to grasp the realities of the problem.

We should look at our economic performance over the last ten years. Over this period our economy grew beyond all expectations. In 1987 the debt-GNP ratio was approximately 150 per cent, I estimate that it is now down to about 110 per cent. The Minister did not refer to this ratio in recent times, I would welcome if he could confirm the ratio when replying to Second Stage of the debate because it is of crucial importance in terms of our commitment to the EC.

Before I become more critical I wish to give kudos to the Government regarding the Exchequer borrowing requirement. My comments on this matter do not take from what I have already said about the need for constraint and discipline in public spending and for achieving value for money from such spending. We have an EBR of less than 3 per cent. In the European context this would be considered to be very small, none of our EC partners would be concerned about such a figure. Even Britain, which is governed by grey, dull, unimaginative Tories, has an EBR of between 7 and 9 per cent.

We have lower inflation, interest rates which are even lower than those in Germany and an EBR which is less than half that of Britain and, as far as I know, substantially less than that of Germany. Thus, our economic indicators are favourable. What has gone wrong? We have done all the things we needed to do since 1987 when Mr. MacSharry became Minister for Finance. The purpose of the fiscal rectitude since then was to reduce inflation, interest rates, the EBR and the debt-GNP ratio. We have succeeded in reducing the first three beyond our wildest expectations. We must reduce the debt-GNP ratio to below 100 per cent over the next two or three years but I have no doubt that this will be done.

What has gone wrong? I ask this question every year when the Finance Bill is being discussed. In 1982 we had a workforce of approximately 1.2 million.

The economy has grown out of all proportion and a huge amount of wealth has been created in the last ten years. Various job creation schemes have been introduced. In fact, this country was almost turned into a FÁS scheme in order to create the correct climate for jobs. Over the last ten years there have been arguments about the levels of emigration and the fact that if there were fewer emigrants and more immigration the unemployment figures would be different. It has been said that because there are 25,000 people entering the workforce annually is not wonder the number of people unemployed is increasing.

I have said this before and I will say it on every occasion we discuss the economy: the worries about the 300,000 unemployed are strongly underlined in media comment and discussion. These problems affect everyone — the Government, the Opposition and Independent politicians. It is a problem for all of us to tackle but, in my view there is a bigger problem, it is not that unemployment has increased from over 100,000 in 1982 to over 300,000 at present; the real problem is that we had 1.2 million people working in 1982 yet despite the introduction of FÁS schemes, business expansion schemes, and support for industry, nationally and internationally, there are now fewer people working. This highlights our failure in this regard.

Some 10,000 jobs are created each year, but 25,000 people enter the workforce. Therefore, unemployment will grow. There was a reduction in the number of emigrants from approximately 40,000 to 10,000 two years ago and there was net immigration last year. This has led to a higher level of unemployment. Perhaps someone could explain to me why fewer people are now working. Why have our job creation schemes failed to keep the same number in employment as there were in 1982? I am not using this as as political football; I am not saying that I could do better if I was in Government. I accept the good intentions of people at all levels of political life to try to solve the problem of unemployment but I ask that the focus be moved to the employed, rather than the unemployed, in order to make progress.

I believe that the cause of the problem lies in the Department of Finance. There is no leadership, vision of sense of mission in the Department, and I have said this on numerous occasions. Departmental personnel do not worry about value for money; they do not raise their eyes above the bottom line in any page of accounts. Their views is centered on balancing the books. Those who should be concerned about national investment have no idea about value for money. They do not know if money is being properly spent. They are more concerned about saving money and balancing the books.

The Department of Finance has no ambition. It is like the hard worker, they never get rich. It grieves me to criticise people who operate in the public service but the Department of Finance is proving that it lacks vision and mission in its approach to the Irish economy. It does not have a plan. It talks about balancing the books but it is not showing any lead.

When I see imagination, as in this Finance Bill, I take the opportunity to praise it. I see some imagination in the new tax measures which have been introduced. I welcome the removal of the cap on the BES. The scheme was abused by banks and accountancy firms when it was turned into a no-risk investment in asset backed and guaranteed returns two or three years ago. A previous Finance Bill closed that loophole. Why then were we trying to encourage people to invest in the BES? The cap on the BES never made sense to me.

The £0.5 million cap was a great deterrent and lost many companies investments over the past number of years. Tipperary Glass, for example, could have had an investment of at least double the £0.5 million under the business expansion scheme of 1992 had it not been for the cap. I support the removal of the cap.

I smiled when I heard the references to research and development and the inclusion of research and development in the BES. Some of us have pointed out the appalling record of the Irish private sector in research and development over the past ten years. I did not check the figures today because they annoy and frustrate me but the last time I checked, not only were we the worst in Europe in terms of our investment in research and development, but we only invested half as much as the second last country in the league of European development. Belgium was the only country ahead of us, but even they were investing twice as much as we were in this area.

This reflects the unimaginative approach of Irish industry. This will be evident in this House in an hour's time. I invite the Minister of State, Deputy O'Rourke, to return and listen to the debate on the copyright issue. People have no imagination and they want to copy other people's work without paying for it.

There are industries in Ireland which take advantage of the period after which the patent runs out on products but they can still be developed and marketed as generic products — usually in the medical and chemical industries. For example, we now call paracetemol by its name but prior to this, it was marketed under a brand name.

The chemical area of the agri-industry is dependent on the period between 16 years, when the patent expires, and 25 years, when the product is still useful to the industry. An industry can take advantage of this period because it does not have to pay royalties. This shows how lazy we have become and why we are not developing our own products.

I was talking to a man last week who has an industry on the Border. He was looking for someone to develop new products for his company. He searched Ireland to find someone who would design and develop these new products. Eventually he had to employ a person from London. He could not find anyone in Ireland to do the job. This does not mean there are no intelligent people in Ireland but there is no market here and the people who design and develop new products must go to England to get employment. Therefore, we lose out.

These people who are good at their jobs will not charge high fees for their services. Instead, they will design a product at minimum cost, but they will be paid royalties if it is a marketing success. This is an investment in one's own ability, but it is moving money out of the country. An Irishman, working in a London based company, will come to Ireland and work in the industry along the Border for six to seven months. He will design a new product at minimum cost. This person will return to London and continue his work. If the product is a success, a royalty will be paid to the English company. This means that not only are we not employing the person to design and develop the product, but the royalties are going to another country. This creates many difficulties.

What has happened to the shape of Irish industry and the Irish workforce over the last ten years? Ten years ago, when the Minister and I were teachers, we described Ireland as an agricultural country. It is no longer an agricultural country. The number of people involved in full-time farming at present is approximately 160,000. When I was at school, Ireland was predominantly an agricultural country. We then moved to a point where the economy was roughly one-third agriculture, one-third service and one-third manufacturing industry. Now that has changed again and service and manufacturing industries have outstripped farming. The agri-industry is different as it involves both types of industry. That means that the agri-industry demands a huge level of research and development and, in particular, food processing and the development of the food industry. That is not being done and we are losing out seriously as a result.

However bad last year was economically, our exports increased. There was an increase of over 10 per cent in our exports as the Minister announced about six weeks ago. The previous year the increase was 14 per cent. Over a two year period in a recession, we have increased our exports by over 20 per cent. The work is being done and the market is there but the development is all wrong.

I would criticise this budget on the basis of the 1 per cent income levy. It is a disgrace and is no more than an increase in the basic tax rate — that would have been a more honest approach. On budget day I spoke officially on behalf of my union and said that if the 1 per cent levy is seen to create jobs I would not begrudge it. I would be the first to pay it and I would be prepared to encourage the 20,000 members of my union to pay it if it creates jobs. However, I do not see that happening, and I do not say that cynically. I do not believe that the 1 per cent levy will create jobs. If it does, I would even support increasing the levy to 2 per cent. However, the general belief is that the money will be used to balance the books.

Senator O'Kennedy spoke about his opposition to income levies but, as I interrupted him to point out, when he was Minister for Finance he was not in a hurry to get rid of income levies; and while he might not have introduced new ones, he did not get rid of any old ones as far I recall. I am sure he would have corrected me had I been wrong.

In terms of our dependency on and our movement towards the EC — and I have said this for the last two years — the problem we had with the exchange rate mechanism and with the monetary system over the last six months could not have happened if there was a single European currency. What is happening is that the money market is playing one currency off against another. For any Irish person who has been abroad for a holiday, or for those who are in Latvia today, for instance, it takes about two hours to understand a new currency and to work out its value. I do not see any threat to our sovereignty or our independence by moving into a single European currency as soon as possible. The sooner this is done, the sooner we can sort out those people who make money out of our misery every time there is a problem with currencies in different European countries. Those who target weak currencies could not do so if there was a single European currency. Apparently the British have trouble understanding that but let them do their own thing. It makes no difference to me whether I am dealing with ECUs or punts.

In developing our economy we have lacked imagination, the private sector has let us down and the public sector has not given a clear enough direction. I find the development in the tax base and the BES imaginative. The scheme allowing a person to move into industry and to invest in an industry provided they take up employment for at least 12 months, and allowing them to claim a tax rebate of up to £75,000 paid over the previous three years in imaginative, novel and will encourage people to invest in industry.

Senator O'Kennedy mentioned that when he was Minister for Foreign Affairs there was a support scheme for some of the Pacific countries, the ASEAN countries as he referred to them. It would be worthwhile considering the case of Taiwan where, less than 20 years ago, the economic indicators were not much better than our own. They have now gone to the top of the world league. Thailand is following quickly behind and the Pacific countries, such as Hong Kong and Singapore, have a new market area in southeast China where there has been huge development. Those countries were no better off — or were worse off — 20 years ago than this country. I say this to illustrate that imaginative development can lead to significant economic development and can give the opportunity for a state to progress.

On Committee Stage there will be time to deal with specific aspects of the Bill. I take the Minister's point that it is easy for someone to stand up and pick flaws in 150 pages of legislation. However, the Minister is paid more than us to face that, so I do not have a problem with it. I recognise that this Bill is an attempt to bring about a balance, but there is need for an injection of imagination in the Department of Finance. There is also a need for an entrepreneurial and risk-taking element to have some influence in the Department of Finance and that should be reflected in Finance Bills in the future. Let us take a chance and invest in our future. It is not just research, development and training that is needed, education is also needed. However, I will not deal with that now as I have often aired my view on that subject in this House. A fault with the Culliton report was that it did not recognise that we cannot have research and development in a state without also investing in education. I hope the opportunities created by the Finance Bill to allow for imaginative investment in industry will run their course.

The tax amnesty is a major blunder, and I will speak on that when the relevant legislation is brought before the House. I do not understand why the move on the probate tax was made but we will discuss these issues on another day. I look forward to the Committee Stage.

Ms O'Sullivan

Inevitably this debate will be wide ranging because of the nature of the Finance Bill and its implications for the year ahead. I would like to deal with a wide range of issues. I would like to underline my party's main priorities. Our approach to the Finance Bill would be increase the equity of how tax is paid, how revenue is brought in so that there is a fairer sharing of responsibility, and, if possible, to take the burden off the PAYE sector and extend it to other sectors who at present do not pay their fair share. Another priority for us is job creation. I would like to address the Finance Bill from these two aspects.

This Bill was formulated in the context of the wider European and world economies and at that time interest rates were unstable and it was necessary for the budget to be relatively conservative — or, at least, not as radical as we would have liked — since we needed to set our economy within a stable framework.

Debate adjourned.

Sitting suspended at 5.30 p.m. and resumed at 6 p.m.