Senator O'Sullivan, you have 38 minutes left.
Finance Bill, 1993 [Certified Money Bill]: Second Stage (Resumed).
I do not think that I will need quite that amount of time. Before the change of business I had introduced what I wanted to say. The two main priorities from the Labour Party's perspective would be, first, equity in the taxation system and, second job creation. At the time of the budget and the preparation of the Finance Bill the interest rate problem in Europe was acute. That has now settled down significantly and we can look forward to a period of economic calm and stability. There will be scope over the next few years for more radical measures and a more radical approach to the budgets and the Finance Bills. I expect we would be able to make greater inroads into the area of equity in taxation.
There has been significant progress this year on the widening of the standard tax band as well as the level at which people are liable for tax. In his speech, the Minister said that the implementation of this section of the Bill would cost £37.6 million in 1993, and that the changes would remove an estimated 13,500 taxpayers from the tax net while bringing a further 18,000 taxpayers from the higher rate to the standard rate. I welcome these moves towards tax equity which, though gradual are in the right direction. Our approach would not be the same as, for example, the Progressive Democrats' which would be to concentrate on reducing the higher rate of tax. We would be more concerned with widening the standard band and removing people at the bottom of the scale from the tax net altogether.
The 1 per cent levy is a contentious issue and is not something any of us wants to see in the taxation system for any length of time. It is described in the Bill as a temporary levy, and that would be our view. It was brought in at a time of specific problems but should not be part of the ongoing taxation system and, in my view, it should go next year.
Taxation is used to raise money for public expenditure and there have been significant and positive aspects to this. As regards support for families, £62 million was provided in this year's budget for child income support. Most of that money was to meet the increase in the family allowance to £20 per child for the first three children, and a higher rate after that. In addition, there was an increase in child dependant allowances and a £12 per week increase in the family income supplement. These items are not in the Finance Bill but they were in the budget and are directly related because taxes are required to pay for this increase in family support spending. My position, and that of my party, is that we must support families who are in difficulty and the money has to come from somewhere. All sectors of society have to bear their share of the taxation burden, and we are in favour of greater equity within the taxation system.
I would like to turn my attention now to the subject of job creation, our second major priority. Senator O'Toole spoke of the need for greater imagination in the approach to job creation, and I would agree with that. There are, however, some measures in the Finance Bill which do encourage that kind of approach. They include encouraging indigenous exporting industries through the seed capital measure, the expansion of the business expansion scheme and the removal of the cap.
Other elements that are associated with the Finance Bill, although not a part of it, include the jobs fund in the Programme for a Partnership Government, the decision to set up an economic and social forum, and expenditure of the £8 billion in EC Structural Funds which we hope to attract, plus the £4 billion in matching funds from our own budget. All these elements are connected in the planning required for job creation, and they tie in with the provisions in the Finance Bill to encourage job creation as well as encouraging various sectors to invest in local exporting firms. The Minister said he would continue to implement the various measures and would, if necessary, review them if they were not achieving what was intended or if loopholes were discovered.
Speaking about job creation and Structural Funds, I have consistently referred to the need to monitor and review measures, to listening to what the people involved are saying, and to take those issues on board. We should be prepared to change decisions when necessary because if one does not listen to how programmes are being implemented or look at progress and the target dates, or if there is too rigid an approach, one will not learn.
I support the Minister's plan to monitor the various measures which are, as he said, "focused incentives". It is important that the Minister would target areas where there is scope to create more jobs and bring investment into areas where it is needed. Specific measures are designed for this purpose, and they include the seed capital scheme, the special investment account scheme, the various incentives for employees to invest money in their companies and get tax relief for doing so, and encouragement for people who are made redundant to invest redundancy payments in setting up business. These measures need to be specific otherwise they would not achieve their intended purpose. We should not simply throw money at companies and schemes; instead we should investigate how that money is to be spent.
The buzz word in management and training is "total" in the sense of "total management". My understanding is that would involve consultation from the bottom up rather than the top down with small businesses struggling to survive and with those trying to set up small or medium-sized businesses. Its purpose, which is the correct one, is to understand the problems and rather than injecting money to assess how money should be spent. That coincides with what Senator O'Toole said earlier about the need for imagination and understanding. The people doing the job are those most aware of the difficulties.
Specific reference is made in section 51 to a company called First Step Limited set up in 1990, a company that should be more widely known than it is. Its purpose is to encourage the establishment of small businesses in areas of high unemployment and to help them with investments. If employment is to be generated, certain needs must be met and capital injections made available. We must also be able to help with management and marketing and with the expansion of product markets. In an earlier debate we talked about the dangers when setting up businesses similar to ones already existing in other parts of the country, of simply replacing one with another. That must be borne in mind and was referred to also by the Minister.
Much needs to be learnt about employment creation. We must listen to those working in small industries and to those trying to set up enterprises, accept their suggestions and try to understand the problems. If the problems were easily solved solutions would have been devised before now. We have had high unemployment for many years and we have to begin to reduce the numbers. Senator O'Toole said we have not created many jobs over recent years in Ireland despite our awareness of the problem and our attempts to solve it.
An overall planned approach is necessary to bring the various strands together. These include this Finance Bill, Structural Funds, the County Enterprise Partnership Boards and responses to the Culliton proposals and especially for those trying to establish small businesses. There is great scope for learning and for understanding problems and for focussing and targeting seed capital and investment funding where there is real scope for job creation. People have initiative, ideas and the incentive to turn these into jobs in Ireland. They need support. I strongly support the initiatives in this Bill which will focus on job creation.
I am pleased the Bill contains investment incentives for the film industry which has great employment potential. There have been many Irish film successes in recent years. Irish people have the imagination to make films here, if the necessary injection of capital were available. The Bill addresses that issue.
The time extension for the urban renewal schemes is welcome. In my city, Limerick, the scheme has been a wonderful means of developing the inner city. Limerick has been transformed by it. The same would be true of other centres around Ireland. That scheme could continue to be of benefit and I am pleased it has had its life extended.
The changes in the tax assessment of married couples were mentioned today by the Minister. There will now be greater equality for women in marriage for tax assessment and regarding the return of overpaid taxes. The woman can now be seen as the primary earner.
I welcome the trend of the Bill and I appreciate in the context it was formulated it could not be more radical. The moves towards greater tax equity are welcome, as are the steps towards targeting for job creation. The 1 per cent levy should be removed as soon as possible. In future years there will be room for a more radical reform of the tax system.
I welcome the opportunity to speak on this Finance Bill which has passed all stages in the Lower House. This Bill was conceived over a period of about ten weeks when the Government parties were preparing their proposals for Government seeking a radical solution to the problem of over 300,000 unemployment people. The solution included a 1 per cent levy, an increase in VAT on clothing, footwear, hotel accommodation and other holiday services, a 2 per cent probate tax on property and a rearranging of increases in telephone charges which means 25 per cent of people will take the full brunt of the £34 million in increases the relevant Minister spoke of in this House some weeks ago. Following the conception and birth of the Finance Bill I can only conclude all of those working in the sectors mentioned will undoubtedly be in severe labour as long as this Government is in office.
Members on the Government side welcomed these proposals while hoping the 1 per cent levy would only last a short period. I ask why has it been included among the taxes on pay slips and not separately identified. My conclusion is that the levy is there to stay. The increases in social welfare and child allowances have been largely taken back by the 1 per cent levy. The Government with its huge majority could have ensured it was worth someone's while to go to work and give incentives and provide opportunities to those who wished to start their own businesses.
The biggest increase in the numbers employed in this country is in the Revenue Commissioners who visit businesses, small and large, throughout the country. This morning, an individual who had difficulties making his tax payments contacted me advising that the Sheriff was not offering him any flexibility in making these payments which would help him to remain in business.
The system we have developed over the last number of years is playing a major part in preventing people from starting up their own businesses and preventing those in business from employing more staff. As an illustration, the Revenue Commissioners reassure people after an audit has been undertaken that the years covered by the audit will not be re-examined. However, as soon as any moneys are paid, another section of the Revenue Commissioners requests a further audit for the same years. The comments from the Revenue Commissioners — and their attitudes — are sometimes unhelpful, especially for those trying to maintain a business and keep people employed.
Given the attitude of the Revenue Commissioners that everyone throughout the country has unjustly done the system out of money, how will an amnesty, at the give-away price of 15 per cent, bring the money belonging to even one person back to the State?
It is better then 10 per cent.
The partnership Government has misread this situation.
Would the Senator prefer 10 per cent?
Given the present system, there will be no growth, young people will not be able to start up businesses and there will not be an expansion of existing businesses. That is the problem in rural Ireland which the Finance Bill fails to address.
I am not surprised that eight out of the nine Labour Party Members in this House were not Members when the Labour Party was last in Government with the Fine Gael Party. However, as I have been a Member of the Oireachtas for the last 12 years I can testify that decisions in Government today are similar to those taken between 1982 and 1987. People are demoralised because of the system and the only people who will be better off under the proposals recently announced by this Government are those who have not been honest in regard to the system.
The Minister said that the jobs lost in the clothing industry were not related to the increases in VAT introduced in the budget. However, large numbers of people have been hit by VAT increases and jobs have been lost since the budget. Furthermore, it is a culmination of increases over a period of years which has contributed to the downfall of many companies.
We were condemned for introducing a Private Members' motion on the VAT increases and the Government refused to implement our proposals. However, it made sweeping changes in other areas in response to strong lobbying.
There was similar prevarication in relation to privatisation which has been on and off the agenda. If State assets are sold one of two measures should be taken with the funds. The national debt should be reduced or there should be investment in projects that create employment. However, under the last Government and the present Government the funds are used for day-to-day expenditure. Given this situation it is no wonder that people have fears that the country will have no major assets, continuing debt problems and high unemployment.
Increases in VAT on hotels, accommodation and holiday services from 10 to 12.5 per cent, with brochures printed for this year, will have a detrimental effect on the industry in the coming year. This is an industry that provides large numbers of short term jobs and with a major number of projects being undertaken around the country there is added potential for permanent long term employment. However, this is not the way to deal with the tourist industry and I am pleased at the reversal in Government policy.
Two years ago, when the proposed abolition of the BES schemes was announced, I said that such a measure would have a detrimental effect on the numbers of people working on new accommodation for visitors to this country. At least somebody listens, even if on a number of these issues action is taken too late. The reintroduction of the BES schemes will create extra employment over the next 12 months.
I recall the time when a land tax was proposed, the Fine Gael Party was blamed by those the tax would have affected. The proposal did not survive but now there is a probate tax. It is proposed to impose a tax of 2 per cent on inherited property, even property of the smallest value. This measure will be like every other tax which, when introduced, is seldom abolished. It is a step in the wrong direction. Reorganising the tax system, as proposed in the Culliton report, over a period of two to five years would go some way to ease the burden on people who are paying the most and finding it most difficult.
I met a person last night who voted for one of the Government parties. She was told during the election last November that there would be free third level education. She has two children in third-level education and a third will go on to third-level provided he is successful in his exams. We now find that this proposal, made by the major party in Government, will not be implemented, there is no mention of it in the budget or in the Finance Bill, no tax allowance will be given to people paying the top tax rate of 48 per cent and PRSI which, combined, amount to 56p or 57p in the pound; no allowance is to be given to those how have to borrow to finance third-level education for their children.
The Labour Party's response to the proposal is set up a commission. This is not much help because we know who is affected, people in the middle income group who pay the high rate of tax and have two or three children eligible for third-level education. I know a family who, to allow their daughter who was very successful in her leaving certificate to go on to third-level education, had to withdraw their son from a third-level college because they could not afford such education for two. A simple and easy solution for such problems is to provide tax relief to assist those people in the same way that tax relief is given to those paying mortgages. All parties during the election said that providing free third-level education would be part of their policy if elected to Government. One of the Government parties is proposing the establishment of a commission and the other one is saying that it is unable to implement the proposal it put forward during the election.
It is sad that the budget proposals and the proposed telephone charge increases which will affect about 25 per cent of the population are defended by Ministers as being part of the Culliton report recommendations. It is obvious that selective parts of this report are being implemented. This is a far cry from the time when Telecom Éireann, in advertisements on all the television networks and radio channels, encouraged everybody to have a telephone. Now that a large proportion of the population have telephones, the company says it can only survive competition by increasing charges for elderly people living alone and small businesses who will bear the brunt of the proposed increases.
The Government's proposals for dealing with unemployment show that we do not have a very bright future. We still await real action in setting up the county enterprise partnership boards. Changes have been made to these boards which are probably an improvement on the original proposals. Unless real power and sufficient funding are given to these boards we will not be successful in helping young enterpreneurs to start and develop businesses because costs are stacked against them at every opportunity.
I hope the Minister for Finance, during the course of the debate and when amendments are tabled tomorrow, will consider changing some of these proposals which will have disastrous consequences for the areas they will affect. Is the Minister telling us, through the VAT increases he has introduced this year, that over the next one to three budgets he intends to achieve a standard VAT rate of 17.5 per cent, when the standard rate in many other countries in much less? The Government has gone down a cul-de-sac by seeking revenue from old reliables such as imposing a 1 per cent levy on incomes and VAT increases. It is not dealing with the real problems. I hope the Minister will tomorrow accept some of the reasonable amendments which were rejected by the other House but which should be accepted if progress is to be made in dealing with the problem of more than 300,000 people who are unemployed.
The overall strategy of the budget, which is clearly more important than the individual details of the Finance Bill, is commendable in its overall accuracy or in getting the balance right. Last February, when the budget was framed, the currency crisis, which erupted in September, was still a major factor and the dominant issue in the international financial markets. Interest rates were spectacularly high a few short months ago. During September alone rates increased by 3 per cent. On budget day there was every indication that rates would continue to rise. In the Dublin money markets in February they were almost 16 per cent. To say that the budget had a turbulent background is an understatement. It was set against the further feature of the longest international recession in the post-war era.
The success of the budget, and, therefore, of the Minister and the Government, is most visible in the impact on interest rates. Today interest rates in the same money markets are slightly over 7.5 per cent, less than half what they were in mid-February when the budget was framed. The Central Bank which is the controlling authority, has on 12 different occasions intervened to reduce interest rates which resulted in corresponding reductions in retail rates. Interest rates, which are critical determinants of the cost of money and investment, are lower now than they have been for any sustained period since the 1960s. The overall success of the financial strategy, which I have briefly outlined, is more important than the individual details of the Finance Bill, important as they are and I will refer to some of them.
We now have lower inflation, lower public borrowing and a higher balance of payments surplus than virtually any other country, not alone in the EC but in the broader OECD. We know how important competitiveness is for a small open economy such as ours, we depend on exports. Our economy is more competitive now than it has been for many years.
The economic commentators, who are often the bearers of depressing news, are now more optimistic than they have been for some time. Some of them have speculated that GNP will grow by as much as 4 per cent in 1994. Clearly, growth rates are in excess of what is expected in other international countries. We need better growth rates. When I chaired the Oireachtas Joint Committee on Employment last year it was evident that we had to move quickly in terms of growth rates to maintain or improve existing levels. If jobs are to be created as quickly as possible, better growth rates than the international norm are needed.
Employment is the most important issue for the Government. The Finance Bill is a Bill for jobs. There is more scope for improvement in the taxation area. However, some important improvements have been made in the taxation area which will help job creation. The budget is framed and focused in that regard.
Provisions, such as the seed capital scheme, are imaginative and relevant to the current problems and challenges. The seed capital scheme, for example, offers an incentive for employees in safe employment to leave their jobs and start up their own enterprises. The Oireachtas Joint Committee on Employment had a short existence of six months. However, during that time a recurring theme among the various interest groups which we consulted was the acute shortage of seed or venture capital for development purposes for small, indigenous industry. Therefore, this imaginative tax refund on previous income up to a total of £75,000 for new enterprises should help to encourage people to start their own enterprises.
I mentioned people in safe employment. Many experienced and talented people have the capacity to start their own business, but they are now redundant. The incentives in relation to the taxable redundancy lump sums under the seed capital scheme are important.
A further positive development in this regard is the business expansion scheme which has been renewed for a further three years. The lifetime cap on it has also been removed. The intention is to increase the capital flow to small and start-up enterprises. It is now widely accepted that we rely too heavily on overseas investment for job creation. Two out of every five industrial jobs are provided by multinational companies. However, we need to augment indigenous industry and help it to grow stronger. In this context, the BES will help to augment the capital for indigenous companies. The special investment accounts are a step in the right direction, because they should provide funds for risk-taking adventures. By international standards, we are doing well in the savings area. There are abundant savings in Ireland. However, where are they being directed? To safe investments, rather than being used as risk-capital. At the beginning of this year it was possible for investors to get an interest rate as high as 15 per cent tax free on savings, without any risk. This situation needed to be reversed.
The Finance Bill reverses this unsatisfactory situation. Companies were at a disadvantage, in terms of income and capital gains tax, compared to the 15 per cent no-risk return. The combination of lower interest rates and special investment accounts have reversed the undesirable trend which existed a few months ago.
I am glad that the area of pension funds is being considered with a view to including these funds in Irish industry. In that context, I welcome the joint initiative between the Minister for Finance and the pension funds industry. I notice in the speech of the Minister for Finance that the pension fund industry has welcomed this initiative. The idea is to remove obstacles which are forcing these funds to invest in non-Irish companies and to change that practice. The hope is that substantial funds, perhaps £100 million or more, will be available as capital for Irish industry over the next few years.
The Minister talked about incentives for private enterprise and entrepreneurship. Ireland needs more entrepreneurs but a variety of issues have not facilitated that development. However, I am concerned about one matter and I referred to it recently in the debate in the House in response to the Culliton report. There is too great an emphasis on the employee, especially among those who are better educated. I speak from experience of university work where some highly educated people aspire to jobs as employees of large organisations, rather than starting their own enterprises. The seed capital scheme is imaginative in this context because it is targeted at employees who would normally remain employees. Through this measure people in safe employment or the unemployed can avail of the tax refund incentive to start their own business and to move from the employee culture.
We need to do more in the educational system to encourage people to start their own business. I do not intend to discuss this in detail, as I referred to it on a previous occasion in the House. There are strong views about the curriculum at second level schools. Academic subjects have been in the second level curriculum for a long time and should be continued. The Culliton report argued that a balance should be struck between the academic subjects and the introduction of technical subjects, without neglecting the academic subjects. Many people may have an aptitude for technical projects, rather than for languages. However, the two are not mutually exclusive.
A lot can be said for traditional academic subjects. I refer specifically to mathematics. As a schoolboy, I thought that mathematics was an abstract subject. However, it is an intellectual training, especially for decision making with which we are faced during our lives. We need a balance between academic subjects and technical subjects, with more emphasis on knowledge and skills, to provide a basis for enteprise and to facilitate entrepreneurship through the educational system.
I welcome the positive elements of the Finance Bill, especially the incentives which I mentioned. I have other concerns also in relation to entrepreneurship. The context in which Irish enterprise must operate and prosper leaves a lot to be desired. I am referring to the level of bureaucracy which faces small and medium sized enterprises. Bureaucracy has it place and accountability is important. However, I am concerned about bureaucracy which impedes progress. This can stifle initiative and waste valuable time and effort. I understand the necessity for accountability in the public service, but for someone starting a business or small enterprise, the amount of form filling is daunting. Often the level of bureaucracy is unacceptable and needs to be streamlined as a priority.
Reference was made to the county enterprise partnership boards. I welcome this initiative, which is one of several efforts at enterprise promotion. We already have the area based partnerships in areas of acute unemployment and they are doing a good job. The area enterprise partnerships were represented in the subcommittee system of the Oireachtas Joint Committee on Employment last year. Several interest groups were represented, made up of committed people who had day to day experience of job creation and they contributed greatly to our work. Although I am not fully familiar with the proportions of the national economic and social forum which is about to be formed, we will have the benefit of a wide variety of interest groups who can participate and contribute in a realistic, practical and informed way, as we found in the employment committee.
I want to return to the point about bureaucracy. We must always be vigilant that the various initiatives taken to promote enterprise do not get confused in a bureaucratic morass. In the context of the county enterprise partnership boards that are now being added to the initiatives, there needs to be overall co-ordination and a vigilant watch kept on the various initiatives, so that we are not tripped up by bureaucracy and do not lose sight of the objective of tackling the most urgent economic, social and political problem facing the country, namely that of employment. It is essential that the structures be kept under review to eliminate unnecessary bureaucracy. Every effort must be made to ensure that all branches of the State apparatus are as enterprise friendly as possible, as opposed to presenting obstacles. While there are valuable incentives in this Finance Bill, if we do not watch the bureaucratic and structural implications of what we are doing and keep them constantly under review, amended and streamlined, there is the risk that we will give incentives with one hand and frustrate the system with the other.
In the light of the Culliton report and the Government's response to it, I detect a new urgency in relation to the State apparatus and the kind of positive role it can play side by side with a private sector that will be encouraged and receive incentives in the Finance Bill. I was particularly glad to hear the Minister say that he will report at six monthly intervals on the progress made on the response to the Culliton report. It is already evident in the published response that there is a timetable for implementation. That needs to be watched carefully so that the proposals and actions outlined in that response will be fully implemented as soon as possible.
The budget was framed in difficult circumstances. Fundamentally, the budget and the Finance Bill safeguard our financial stability and confirm our commitment to sound economic and budgetary management. It is a Bill for jobs. There is quite a distance to go with regard to taxation, but we must remember that there is space and political time in which to make further progress on the taxation front. The Finance Bill is a Bill for jobs and that is what we need more than anything else.
I would like to share my time with Senator Henry.
Is that agreed? Agreed.
I have a couple of points to make in a general sense. I am not an economist so there is not much point in my trying to get purchase on the entire matter, pretending that I know about material when I do not.
I would like to refer briefly to the tax amnesty. I do not approve of it at all. I think it is a mistake, particularly when one puts it in context of the remarks made in the last few days about people who are described as social welfare "dodgers". It seems that we are using the carrot and the stick and we are giving the stick to the weakest people. That is the kind of language that has been emanating from the Government. We are going to be very severe on people who, after a small amnesty, are to be brought into the social welfare net yet these people are simply earning a few extra pounds in order to bring themselves above the level of miserable and wretched poverty. These people are treated with severity while encouraging "hot" money back into the country.
I happen to know where some of this "hot" money is and how it is generated. Some of it is generated by property speculation in the inner city of Dublin, as under the counter cash payments from well connected property speculators who are able to bypass the Revenue Commissioners by getting cash in hand and transferring it out of the country, or in a neat and almost abstract fashion by transferring payments from one Isle of Man bank account to another. These are the people we expect to bring this money back in, to launder it. I do not think it will work.
I object strongly to this on an issue of principle as there is a disparity in the way we treat the weaker sections of society, the so-called social welfare "dodgers," when we have an economy that drives people to that practice, while the people with real wealth are being gently encouraged to bring it back to the country. that disparity is not something we should encourage.
It might be possible for the Minister to have a word in the ear of the Revenue Commissioners about their general approach to the public. I cannot claim that I have been badly treated by them but they frequently send computer-generated, unpleasant letters to people without considering the paltry sums of money involved or the circumstances of these people. The attitude of a small number of people in the Revenue Commissioners ought to be looked at and changed.
I speak with some feeling about this matter because, when this tax amnesty for the super rich was announced, a 95-year-old relative of mine got a threatening letter from the Revenue Commissioners stating that the sheriff would be sent if this person did not immediately send a cheque for £250. She got a similar letter last year and it turned out that they were wrong and that they owed her money. At the age of 95 the prospect of having to deal with the sheriff is extremely upsetting. This relative of mine telephoned the number at the top of the letter and explained that she was elderly and a little confused and very upset about the matter, and was putting a cheque in the post immediately. The person on the other end brusquely asked for the case number and my relative asked the person to hang on for a moment so that she could look through her papers to find it. The telephone was put down at the other end of the line. That is not acceptable. For elderly people the shock of such an event can have a serious impact on their health. Personally, I could not care less about such letters, which go straight into the bin. It is different for elderly people, and at the time when they are offering a tax amnesty to the super rich there is something obscene about looking for these tiny amounts.
Most of the people in the Revenue Commissioners are decent and civilised and deal with people in a humane way but perhaps these instances should be brought to their attention and those few who are out of line should be asked to consider imaginatively what it is like to be on the receiving end of this kind of material.
With regard to inner city renewal schemes, some years ago I got some recommendations included in a Finance Bill about listed buildings within designated areas. I have asked several times about the take-up of this. If one person has taken up these opportunities that is as much as has happened. Could the Minister ask people in the Department to examine this scheme again and consider if it can be broadened a little? I had very useful and educative discussions with people in the Department of Finance and we eventually came to this arrangement. They were clearly guarding the nation's capital and they were afraid there would be a haemorrhage. The amount of money involved has been minute but if we are serious about our heritage we ought to be cautiously expanding this kind of programme.
The very small heritage areas such as Henrietta Street, North Great George's Street, Mountjoy Square and others in Galway, Limerick and Cork should be exempt from property tax. The cost to the Exchequer would be minute. These were all slum areas in the inner cities where people took a calculated risk, put in their own money and much hard work, only to find they were in the situation that existed in the 18th and 19th centuries of being rack-rented. Everybody recognised it was grossly unfair that tenants who, by their own efforts, increased the value of their property were clobbered. That is happening to people in our few cities who are restoring historic buildings, which is one of the objectives of Government. As soon as they do this they find themselves in the trap of the property tax. I would be happy to have discussions with officials of the Department to consider some form of exemption. With regard to town houses in particular, it is not practical to open them to the public for 30 days every year or whatever the requirement is. There should be some direct exemption.
I wish to move briefly to the question of Temple Bar. It is time there was a review of what is going on there. I speak with some feeling as I took the first lease on number ten Fownes Street in 1978. It became the first gay community centre, the Hirschfeld Centre. We did much work there and it was regarded very highly. We stemmed the massive increase in AIDS infection in the gay community; there is no question or doubt about that. We worked for nothing and provided a service, which the Government of that period was unwilling or unable to provide, in terms of health care and community resources. Not only did we pay every single tax, PRSI, VAT, corporation tax, etc. — I made very sure that we did because I was not going to be caught in any kind of shady operation — but we were hit for non-distribution of profit. As none of us had taken a profit, we were penalised and taxed 20 per cent extra for working for nothing in the interest of the State. That seems absurd.
The Temple Bar property company was somewhat crass in the way it moved in. It attempted to create an immediate kitsch culture there. When I moved to Temple Bar there were two pubs, a barber's shop and the Project Arts Centre. People talk about the "left bank" ambience and I know where it came from, even if the people who have carpetbagged the scheme do not. It is a pity that it is entirely tax driven. It should not be. There is a place for these tax schemes where VAT write-offs can be given but that only helps profit-making business. There should be some degree of cash injection for small businesses and voluntary groups. I appeal for a review of the operation of Temple Bar Properties because of the way in which it threw out a well-known artist, Judith Guy, from her studio. I understand that "eviction" is still a dirty word in Ireland. The company demolished all of Essex Quay overnight and it put up a completely hostile development against the walls of the Hirschfeld Centre. If there are the possibilities of great energy coming from Temple Bar is it not directly the responsibility of the Department of Finance but it should be examined so that there can be a degree of encouragement for a mixed development of small enterprises as well as the cosy circle that seems to have large amounts of cash delivered to it.
I wish to make a brief remark about the £6 billion which may be treated with complete scorn because it is so naïve. If I were the European Community I would not leave the money in the hands of Irish politicians to deliver. I will tell the House exactly what I would do with it and the Minister might even agree with me. I would put it towards repaying this country's debt, rather than building roads and interpretative centres all over the place — interpreting the bubbles on the Liffey. We know that many of them are a waste of time and utterly hostile to the environment. Instead of looking around for projects to mop up the money in case it embarrasses us by being put back into the pool, could we not just say for once and once only, give us this chance to put all of that money, or at least a sizeable proportion of it, against our national debt? It might require some kind of legal manoeuvring in the EC but why not go for it? If £6 billion was wiped off our debt, the Government would be in a position to reduce tax. It is a naïve idea but it might work. Naïve ideas sometimes do and I have plenty of them.
I intend to put down an amendment on the question of VAT on health clubs. There is an anomaly in this area. Health clubs are charged VAT but leisure facilities and quasi-amateur operations are exempt. This is clearly unfair competition. I speak with feeling because I am a member of a health club. It may not appear so but I have managed to lose over three stone in two and a half years through doing aerobics. It is a marvellous thing and there is no doubt that it contributes to health. The Government has certain health objectives. It spent £1.8 million on advertising through the Health Promotion Unit of the Department of Health and then it imposes VAT on health clubs. It is unfair because they are in competition with groups such as the ESB Sportsco, Loughlinstown Leisure Centre and the Aer Lingus Athletic and Sports Association. I do not have time to read it all out but I have a list here of 30 professional clubs in the Dublin area that closed down in the last 18 months to two years simply because of unfair competition from places like these leisure, community and business centres, many of which get cash grants from central funds. The GAA and rugby clubs are other examples. They are able to provide facilities in which, for example, aerobics teachers can rent a hall for £10 a night and make £200 a night.
There is a haemorrhage away from traditional health clubs to these groups that are trading unfairly. I have evidence that they clearly advertise that they are commercial operations in commercial competition. I have here an example of a notice that was in the Department of Finance and the former Departments of Tourism and Transport and Industry and Commerce advertising an aerobics class for £2 an hour. This provided in a facility which received State funding but was not charged VAT. Why not? The criteria for exemption from VAT include teaching or training in arts and crafts, ballet, cooking, drama, dress-making, elocution, languages, modelling, music, driving of commercial vehicles, hairdressing, management techniques and selling. Why can something like health care, which improves people's physical well-being, not be included?
If there was sufficient time, I could put on record information from the President's Council on Physical Fitness and Sports in the United States of America listing the advantages of fitness in terms of prevention of premature death, cancer, cardiovascular disease, cholesterol, high blood pressure, body weight and composition, osteoporosis, insomnia and so on. In terms of employment, turnover of employees and days lost, the President's Commission has clearly given evidence which demonstrates incontrovertibly that these types of health clubs play a vital and economically efficient role in improving the health of people. Professor Risteárd Mulcahy, who will be well-known to the Minister of State and other Senators for his work in cardiovascular disease, wrote the following letter to the owner of a health club in Dundrum:
Thank you for your letter referring to the problem of VAT being imposed in the health and fitness clubs. It seems illogical that the VAT is imposed because the Revenue people have decided that clubs such as yours make no contribution to people's health. This of course is quite wrong. I think that the facilities offered by the health and fitness clubs and philosophy behind the service provided by those clubs plays a major role in health promotion and encouraging people to look after their own health and that of their families. If the reason for the imposition of the VAT is based simply on the contention that the clubs make no contribution to people's health, I imagine that this is something that could be contested in the courts.
I would certainly give you every support in your efforts to have the VAT removed and I am taking this opportunity of returning the petition form which I have had completed by my colleagues Professor Ian Graham, Dr. David Kilcoyne and Dr. David Moore.
You cannot have a much better authority than the State's leading expert on cardiovascular disease who says that this is clearly a health matter and yet the State is investing, both directly and indirectly, in unfair competition. There are a number of ways this can be addressed. One is to have a level playing field and to start penalising health and leisure centres. This is not the way to do it. It should be possible to include health clubs in the excluded categories, along with dress-making, hairdressing and ballet. I know they are all wonderfully valuable, but does the Department of Finance believe they are more important than health and fitness?
I will be supporting Senator Norris on the health matter tomorrow, but I would point out to him that ballet is also good for one's health.
Aerobics is ballet.
I wish to refer briefly to the investment incentive schemes which have been improved. I welcome the provision of relief for seed capital investment by new entrepreneurs, including redundant workers. People working in a company may feel that they could start a business of their own but there is little incentive for them to do so, especially if they are earning large salaries. I am also glad that the limit is high because many of our businesses fail due to underprovision of capital at the initial stages.
While I was delighted to see relief for investment in research and development projects, I became dismayed when I read it. Research and development are two favourite topics of mine and I remember telling the Minister of State for Enterprise and Employment, Deputy O'Rourke, during the debate on Digital how important it was to maintain the research and development function because it had built up a good relationship with University College Galway and Galway regional technical college. The company has retained most of its employees there and the new computer firm coming to the complex was partly attracted by the high levels of research and development there. Many of our regional technical colleges, Dublin Institute of Technology and universities are greatly involved in this.
There is little knowledge or philosophy of research and development. The extension of the BES relief will only be for a further three years — that is 1995-97. One would have barely started in building a research and development area in this time; it would take a year to assemble personnel and to get projects started and at least three years before the company is up and running. Relief should be given for a longer length of time. What is suggested is not realistic. You cannot put money into research and development on a quick-fix basis. A five-year project is the shortest feasible time span. This provision would not have been made unless somebody claimed that they only needed six months to get good research and development projects going and I would be highly suspicious of such individuals.
While I praise the reliefs, I am also bitterly disappointed because putting a six-month time span shows a deplorable lack of understanding of what research and development means.
This Bill gives us an opportunity to discuss much of what was announced in the budget earlier in the year. I do not understand why we could not have had this debate after the budget debate in the Dáil. Some type of a debate takes place on the appropriation legislation. There are many welcome provisions in the Finance Bill, which have largely gone unnoticed by the general public. It is necessary to publish a short guide, similar to the guide on social welfare services, on the incentives contained in the Bill. Even the explanatory memorandum is complex. I fear that some of the professionals in the business are advising those who have money to invest that these new incentives do not offer much to them.
In framing a tax system, the Minister of State and the Government must be aware that a deepening unemployment crisis exists; there are approximately 300,000 unemployed. The Government has had some success in coping with the financial problems in our economy and our economic fundamentals are sound. Our inflation rate is forecast to be around 3 per cent this year, our borrowing requirements are as targeted by the Government and expenditure projections for March are broadly in line with what was predicted in the budget, yet there is an upward trend in unemployment which had disappointed many of us. We had anticipated growth of approximately 2 per cent in the labour market this year, not 20,000 additional unemployed and we will be unable to provide employment for all of them. Worthwhile incentives must be put in place to create employment and reduce unemployment. I ask the Minister to forecast the number of jobs which will be created as a result of these incentives because we must set targets in relation to job creation.
A number of Senators referred to the huge amounts in pension funds and how they can be translated into sustainable employment. However, with approximately 20,000 people joining the labour market this year, unemployment figures will continue to increase. Urgent and immediate action is needed.
This Bill will put in place a framework whereby substantial capital will become available for start-up small businesses and industries. It will also provide tax breaks for investment in research and development. This too is welcome. Last week a group representing small industries published a detailed plan which is worthy of consideration. It outlined how assistance could be given to small businesses in order to create employment, with little cost to the Exchequer. Such incentives would involve long term investment in job creation and in industry.
Employment opportunities for school leavers are limited. Today in particular, we must focus our attention on those sitting the leaving certificate. They look to politicians for information about future plans and policies. What they see is an economy that is over-taxed to the stage where it is almost stagnant.
We must return to a system where income tax levels may be systematically reduced. I do not like the 1 per cent levy and it must be removed as soon as possible. What were introduced as temporary levies often increase and remain indefinitely. Such measures are unnecessary especially at a time when the economy is sound. However, if the Minister for Finance and advisers believe such measures are necessary, I am prepared to accept that but this levy must be abolished as soon as possible, particularly for the lower paid workers. The Bill provides for lower paid workers but I am not sure if this provision applies to the low income self-employed people. This is an important detail.
I compliment the Department of Finance, the Minister, the Minister of State and those involved in the preparation of the public capital programme. Increased investment in the public capital programme will stimulate and create meaningful employment in public service projects and schemes. This may be expanded into a number of smaller schemes; I welcome the extension of the business expansion scheme. I ask that the figure which has been increased from £0.5 million to £1 million be further increased to £2 million.
It is important that, under the business expansion scheme, big projects, particularly in the area of tourism, are undertaken. Such projects will attract large numbers of overseas visitors. They must be located in key tourist areas. Resorts such as Ballybunion, County Kerry; Salthill, County Galway; Kilkee and Lahinch, County Clare, have deteriorated over a number of years because of lack of investment. The BES has given a boost to Ballybunion and Kilkee. There has been considerable investment in holiday accommodation in some seaside resorts.
The Minister must provide the £2 million mentioned in the original business expansion scheme. I welcome the Minister's decision to extend the urban renewal scheme. The result of that scheme may be seen in Ennis, County Clare. Derelict areas in many towns could benefit from the extension of this scheme. There are shortcomings in the scheme which will be overcome.
The BES and the urban renewal scheme must be directed towards underdeveloped areas. There have been abuses of the BES in large urban areas which did not need this level of investment. I know of an establishment where the price for bed and breakfast increased from £25 per night to £75. I do not condone such measures. Large investment projects must be undertaken in underdeveloped tourism areas. This would provide additional employment opportunities.
I welcome the income tax relief for an employee who invests up to £3,000 — a new limit — in his or her employing company. That is a welcome and positive trend. I am not sure if the majority of people employed in industry or elsewhere are aware of the existence of that provision and the Department should bring it to the attention of ordinary PAYE workers.
In relation to the current state of the economy all the indications are that the strength of the economy will begin to show in the next year or so. An upturn has taken place in the British economy, on which we are very dependent. There has been a greater upturn in the United States economy, and while the situation in Europe is not great, the overall trend seems to be one of a rising tide. With such a small economy, we should be in a better position to participate in developments which are taking place right across the European Community. We can provide many more jobs here by encouraging processing and the development of our indigenous industries, especially small businesses.
The thrust of this Finance Bill is worthwhile. It should boost the chances of further businesses being established and increase the volume of our exports and technology products. As previous speakers have said, agricultural production and incomes have been increasing and the rising tide of economic progress and our highly skilled workforce should enable us to create many more employment opportunites. We should focus on areas such as tourism and the development of a small craft industry. A review is taking place of development agencies and the various organisations involved in the promotion of industry and we should not lose time in coming to grips with the unemployment situation, which is our major economic problem at present.
In this legislation, the Minister is going a long way towards establishing a taxation system which will encourage intensive job creation and employment opportunities and he should be complimented on it. While we would quibble and disagree with some of the details of the legislation, the overall thrust of the Bill is worthwhile and will make a meaningful impact on our employment situation.
I wish to share my time with Senator Belton.
Is that agreed? Agreed.
I would like to welcome the Minister of State to the House and, as she is here, I would like to refer to the ESRI report which was leaked to the Sunday newspapers. There is now a very real fear in the west of Ireland——
A highly inaccurate version of the report.
Nevertheless, it was in the local newspaper.
I ask the Senator to stay with the Finance Bill.
When the report is published the Senator will know.
We would like to get the report.
It will be published shortly.
There is a very real fear in the west of Ireland that headage payments will be withdrawn.
Senator Burke on the Finance Bill.
There are some elements in the legislation which I oppose totally. Those are the VAT increases on clothes and shoes, the 2 per cent probate tax, the 1 per cent levy, the telephone charges, in addition to extra charges such as the £30 call out charge and the charge of £128 an hour. All of those charges have been implemented in the last number of weeks. Those charges, in addition to the increases in VAT and the 1 per cent levy, are putting great pressure on small businesses and on the general public and that should be made clear to Government.
I would also like to draw attention to a number of aspects of the allocation of grants, one of which is grants for golf clubs. Privately owned golf clubs can receive substantial grants but public golf clubs, who may have large memberships, cannot receive any grants from the lottery funds or any other funding. The Minister for Finance should examine this because there is a great need to expand the tourism industry and to develop poorer regions.
The Senator was not around two years ago when his party was strongly against giving funds to golf clubs.
Senator Burke, without interruption, on the Finance Bill.
I was just reminding the Senator about the reality.
That was in relation to private courses.
We brought in the national lottery.
Senator Burke without interruption.
I agree with Senator Belton that we brought in the lottery and we spent it well. I would also like to draw attention to a very interesting part of the Finance Act, 1992 which affects many county councillors and the PAYE and business sectors. Company directors are now exposed to a potentially large increase in their tax bills. The legislation obliges directors of all corporate bodies, even directors of a charitable or sports organisation operating as a company to make a tax return, subject to the imposition of a surcharge on late returns and possible audit of the tax return.
For the tax year 1992-93 onwards, directors must submit an annual tax return without being requested to do so by their tax inspector. This applies whether or not the director has paid all of his or her tax through the PAYE system. The latest date for submitting a return is 31 January following the end of the tax year. For example, the return for the current tax year 1992-93 must be filed by 31 January 1994. Previously, a director with PAYE income only, did not have to file a return unless specifically requested by the inspector.
The complexity of the tax return form will mean that many directors will have to obtain professional help to complete it and the cost of professional services is not tax deductible. Failure to meet the filing deadline will result in a surcharge of 10 per cent of the tax liability for the year, including tax paid through the PAYE system. For example, a person who paid his or her full tax liability of £20,000 under the PAYE system would have a surcharge of £2,000 if he or she missed the filing deadline. That is very serious. Members of local authorities or credit unions who are appointed to voluntary or sporting organisations may be liable for the 10 per cent surcharge if those organisations do not file tax returns in the nine months after the deadline. That issue has not been addressed in this Bill or in the last Finance Bill and it should be addressed in the Seanad on this occasion. That requirement should be changed because it affects people who wish to get involved in local and sporting organisations or credit unions — organisations which provide great facilities throughout the country. I propose that this section be omitted from the Finance Bill so that such people will not be liable for the surcharge as they have already paid their PAYE.
I wish to draw attention to private bus operators who, although they are registered for VAT, cannot reclaim VAT paid on the purchase of buses or diesel. That puts these bus operators at a disadvantage. We need a better transport system and every assistance should be given to private bus and tour operators so that they can compete with State-owned and foreign operators. They should be permitted to reclaim VAT paid on their equipment and on diesel. Every other business registered for VAT can reclaim its VAT payments.
The unfair competition between the ESB — a State-sponsored body — and private electrical dealers. The ESB is permitted to sell appliances and the repayments can be made through the ESB billing system. This issue has been raised in both Houses of the Oireachtas. Electrical shops should be able to provide the same facilities as the ESB. A person who buys a washing machine or television from a private electrical shop should be allowed to use the ESB billing system to make repayments over the required period, and they should also benefit from the same allowances.
Businesses that provide canteen facilities and may subsidise the cost of meals for their staff are not obliged to pay tax on those services. Employees do not have to pay PAYE or PRSI on that benefit in kind. In contrast, employees of small businesses which do not provide canteen facilities must pay PAYE and PRSI on their meals. Where a luncheon voucher scheme operates tax must be paid on all but the first 15 pence cost of the meal. This severely discriminates against small businesses and employers as well as the restaurants which cater for them and, of course, the company which provides meal vouchers. The rules are unjust and I do not understand why they have not been changed.
Apart from discriminating against employers in small businesses, the tax laws also discriminate against restaurants and delicatessens which provide moderately priced lunches and meals, and favour commercial catering companies. Consequently catering companies have grown while moderately priced restaurants and delicatessens are forced out of business. Prices in restaurants and delicatessens have increased as a result of the loss of their luncheon business to canteens in the workplace and they have become even more uncompetitive and expensive. The tax laws discriminate against Irish Luncheon Vouchers, a company that provids a meal voucher service for businesses which do not have canteen facilities.
In discriminating against small businesses the tax laws do not comply with the recommendations of the Culliton report. Their adverse effect on restaurants and delicatessens is contrary to the best interests of the tourism industry. In discriminating between citizens they are unjust. Such preferential tax treatment for larger companies with canteen facilities places small restaurants and delicatessens at an unfair disadvantge even though they must provide additional services, such as to toilets and staff quarters.
I wish to speak about the income levy. The Government has carried out an astute public relations operation in its presentation of policy. The income levy is called a "temporary income levy". That is the equivalent of taking a gun, shooting someone and then saying the person is only temporarily shot and will not be shot again. People are obliged to pay the levy and there is nothing temporary about that. Saying that the income levy is temporary is a public relations trick, a sop by the two parties in Government. The levy is not temporary for the people who must pay it and it is not temporary in its effect on employment.
We have heard many times that we must establish the right circumstances to solve our unemployment crisis. Look at what has happened. There has been an increase in VAT on clothing; this will affect one of our most important industries. I know from the experience of clothing factories in my area that the clothing industry faces terrible problems as a result of foreign imports. Instead of taking those problems into account what did the Government do? It increased the VAT on clothing. That is a move taken by a Government that has gone mad, it has become blind. It is a Government that says one thing and does the opposite. I am surprised that the smaller party in the Government puts up with such treatment. However, it also has many advisers. Perhaps it is a Government run by advisers. Perhaps the programme managers are running the country because straight thinking politicians would not have imposed this measure.
Now the Government has introduced an amnesty for people who failed to observe the laws of this State. Like a magician, the Minister, Deputy Woods, then puts his hand into the hat and pulls out another amnesty for those cheating on social welfare, for persons who do not want to observe the laws of the State. At the same time, responsible people from the PAYE or the self employed sector who have paid their taxes must sit back and watch while these people are given amnesties. We are told by senior Members of Government that the most important thing is to bring in the money. That is the philosophy of the present Government. Who is supporting this? Labour, the party of change. This change will not be forgotten by responsible people who pay their way.
Probate tax is also introduced in this Bill under which tax will have to be paid on the transfer of a business or farm which may have taken a lifetime to build up. The estate of a responsible individual who paid taxes, and has a certain amount of wealth, on which tax was paid during that lifetime, will be subject to a further 2 per cent tax. At the same time, the Government is making special arrangements for those who did not pay tax due and who may have sent their money abroad. This Government has lost all sense of responsibility. When people disregard the institutions of State, the Government itself is sometimes to blame.
Like other speakers who have taken the trouble to read the Finance Bill, I welcome it. In the circumstances facing the Minister for Finance and the Government this year, the Bill and the budget which preceded it are a prudent mix of employment inducing incentives and creative tax measures. I will concentrate primarily on the employment creation measures contained in the Bill.
In a nation with 300,000 people unemployed, and with a still growing young population, the employment emphasis is entirely appropriate. In the Bill, and in his contribution earlier today, the Minister recognises that a major problem for Irish industry, particularly for small and medium sized Irish industry, has been the perennial difficulty of inadequate equity financing. The measures in the Bill take a very creative approach to that area. Without capital, ideas cannot be converted into products or into jobs. That reality sometimes evades comrades on the doctrinaire left. The package provided in this Bill contains measures both to assist in the capitalisation of existing industry, and perhaps more importantly, to help fund new start-ups.
One of the features of Irish business is the unwillingness of financial institutions to provide funds when they are really necessary, and on the converse, indeed the perverse side, the rather openhanded willingness of those same financial institutions to throw funds at business and at well placed individuals when they do not really need them. We could all give many examples of good schemes and businesses which have failed because of tight fisted and narrow minded attitudes on the part of banks, and a perusal of the public press would enable all of us to mention occasions when those same financial institutions have bolstered their own cronies with extraordinary generosity. Perhaps that is a debate for another day.
The Minister's investment inducing package contains no less than eight specific elements including the BES extension, which everybody has welcomed. Elements of this package include improvements to and the sensitisation of the scheme, the introduction from 1 February last of special investment accounts, which were the subject of much inaccurate comment at the time, and the seed capital scheme, which is aimed at encouraging employees to start their own businesses. This ingenious scheme helps to overcome the perennial problem of finding initial working capital. Under the scheme an individual can enjoy up to £75,000 immediate relief on investment. The Minister, his Department and the Government have shown they are sensitive to criticism about this scheme, because, since its inception, some fine tuning has been introduced. The Minister has indicated that, as a result of political input from all sides in this House and elsewhere, he has redrafted the scheme somewhat, to allow any three years out of the previous five years to be chosen by an individual. In this way he will help people who have become recently unemployed to avail to the maximum extent of the benefits from the scheme.
The section 27 provisions introduce a welcome extension to roll-over relief for capital gains tax. Under the new arrangements, an investor can cash in shares in a company and reinvest in manufacturing or in specific service industries, deferring the capital gains tax. This will be a useful inducement of capital into small manufacturing and service industry, and the Minister has taken pains to avoid problems that existed previously by being very specific about where this particular inducement can be availed of. Bringing research and development activities into the business expansion scheme is a welcome development. The research and development area is historically an area where Irish firms have been deficient. Without research and development, companies inevitably stagnate. New products, processes and technologies are vital to long term growth. The extension of the business expansion scheme umbrella to research and development must be welcomed by anybody interested in Irish industry, in Irish services or in Irish employment.
The establishment of a target for the creation of a £100 million venture or development capital fund to be subscribed by pension funds is another initiative which I regard as worthwhile and commendable. Pension funds and other institutional investors in Ireland have historically shied away from investment in small and medium sized industries. Ironically while Irish industry has often been starved for capital, Irish pension funds and institutional investors have effectively been exporting capital to safe, secure, often poor earning investments outside the country. It is time that investment by pension funds came under scrutiny. While no potential pensioner wants chances taken with pension funds, it is reasonable to assume that most pension contributors would like, if they were asked, to see Irish pension funds invested in a way which would be beneficial to themselves and to the Irish economy.
Although the Minister introduced a number of new tax break schemes aimed at making more capital available for productive and job creating investment, he has also had the courage to recognise that earlier schemes become tools for enhancing the private take of unscrupulous and well placed individuals. With the help of tax advisers who themselves are not overburdened with conscience, they come up with new and ingenuous ways to avoid meeting their tax obligations. We have all been offended by stories that have been made public in recent times of people using extraordinary ingenuity to pervert tax schemes which were put in place to induce investment and employment.
An illustration of this form of antisocial behaviour can be found in the activities of senior personnel in one of the building societies. Some time back a new tax break was introduced on patent earnings. In a country that recognises that earnings from artistic endeavour are eligible for special tax treatment it is reasonable to extend that privilege to the intellectual property of the investor. When the Government introduced such a tax inducement I, like everyone else, welcomed it. I believed that it was a good measure aimed at enhancing and encouraging innovation, yet these laudable arrangements have been abused by people in high places.
In the case of the building society I mentioned special software to handle the needs of the society was devised by a software house specialising in that area. This software was then registered as the design of a subsidiary company of the building society and senior personnel from the society in question received payments from the subsidiary. As these represented the earnings of intellectual property they attracted the most advantaged tax rate. In other words, a scheme which was brought into operation for the very best of reasons was perverted into a conduit through which the greedy could grab more. They had not invented any process nor had they contributed in any way to the development of the software in question. Their sole contribution to the sum of human knowledge was to come up with yet another elegant tax scam and they were able to get away with it.
Something needs to be done about that because it is an offence to every taxpayer in the nation. I applaud, therefore, the fact that this Minister has set about weeding out arrangements which, whatever their original intention, have become little more than new forms of — to use a euphemism which is all too current of late — tax efficient payment systems. I compliment the Minister on that work.
However, the Minister should go a step further. I accept that he has undertaken to keep all the tax based inducements which he has introduced in this Bill under review and will, if necessary, do some fine tuning to ensure that they do not become bolt-holes for the greedy. I would like the Minister and his officials to turn their minds to the introduction of some legal advice which would allow the Revenue Commissioners to claw back any tax avoided by the perverse use of inducement schemes. If such a device could be designed it would strike a blow for the vast majority of decent people who pay their due taxes and bring the smart alecs to boot; it would be beneficial to the economy in the long term and rewarding to the Exchequer. I am not sure what form such a legal device would take, but I am convinced, given all the evidence amassed over the last five or six years about the abundant capacity to abuse tax schemes, that something along these lines is necessary.
New or amended schemes are just one plank in the Minister's employment platform. The rationalisation of the tax treatment of scrip dividends, new arrangements allowing businesses supplying export industries to avail of zero VAT rating, special car hire arrangements in the tourism industry, the extension of the final date on the urban renewal scheme, the new arrangements to encourage investment in the film industry, special stock release for farmers to assist herd development and the removal of stamp duty on corporate funds add up to a formidable range of initiatives aimed at improving investment and job creation. There has not been a fair or rational debate on this here or in the other House. The contributions of the Opposition have not given due recognition to how adventurous this Finance Bill is.
In an earlier contribution the point was made that new incentives are not in themselves enough, it was suggested that in addition to incentives we should be looking at the disincentives to job creation. The warning in that contribution concerned excessive bureacracy and its impact on job creation. We are naturally inclined towards excessive bureaucracy: it has grown to a point where excessive regulation is a very real impediment to job creation and business. I will go further and suggest that excessive regulation and the "job's worth" mentality that often exist in our public administration has reached the point where it may well negate, in part if not entirely, the beneficial impact of the tax inducements which the Minister and his immediate predecessors introduced.
This is not the time to go into the matter in great detail, but the point can be illustrated by the manner in which we operate EC regulations and our own planning laws. EC regulations are applied with a vigour not evident in other member states. Within yards of my own home, for example, a butcher slaughters in his own abattoir. He is being driven out of business by a combination of excessive adherence to the letter of EC regulations, as interpreted by officials from the Department of Agriculture and Food, and the excessive observance of planning rules by the county council. Although this man gives good employment and has never been the cause of a complaint he is likely to be driven out of business, because every official seems to take the view that it is more than their job is worth to apply common sense as well as the rules.
The farcical twists and turns that we have gone through over whether the Office of Public Works can build is another example of this national malady. When grand public administration reform strategies — along the lines of the Devlin report here — failed in other OECD states, those nations turned to more specific strategies. One of the strategies adopted by almost every one of the most developed OECD nations was to look at — and I know it is a cumbersome title — debureaucratisation policies which aim to limit public regulation and bureaucracy to the very minimum consistent with good public administration.
We have no equivalent in operation. We need to slash away unnecessary regulation and to deregulate where possible. We should, for example, extend the type of audit that operates in public administration outside the purely financial area. We could copy the type of form audit agency in France and probably go a step further by introducing an administrative systems audit to limit to the minimum necessary any form of administrative activity or regulation. As Members know, this is an area close to my heart and I will probably return to it in future debates; it is not appropriate to go into detail now.
There have been many improvements in personal income tax since 1987 and the current position is better than when personal income tax rates rocketed in the mid-1980s. I have always defended the measures taken in the last five years on personal income tax — not just on a partisan basis. Nevertheless, personal income taxpayers perceive the tax burden on them as excessive and in spite of the changes it remains excessive.
I acknowledge that the standard rate has been cut from 35 per cent to 27 per cent and there is now only a single higher rate of 48 per cent. That was because of the political courage and willingness to address the issues in public finance. I also welcome the additional income tax relief totalling almost £38 million in this budget. The increase in the interest rate ceiling is also welcome. Its impact and the impact of the lower interest rates have not received the publicity or acknowledgment they deserve from people and parties who were critical of the Government in 1992 when interest rates were moving in the opposite direction. However, that is the nature of politics and it would be naive to expect generosity in that regard.
I am less happy with the 1 per cent levy and the amnesty proposals. The latter has caused a great deal of understandable resentment among compliant taxpayers and PAYE payers. If this group is to continue to have faith in the equity of the tax system, they must see a substantial yield to the Exchequer from this amnesty and very real evidence that tax evaders are brought increasingly to boot. Many of those engaged in the so-called liberal professions, who are in receipt of cash payments, skim off substantial money for investments, frequently outside the State or alternatively for burial in nominee accounts. This must be stopped. It is an abuse by people who regard themselves as being at the upper end of society. It is an abuse that is endemic, particularly, in the medical and dental professions and we have to establish some form of policing arrangements to bring it to an end. The tax codes must be adhered to at all times.
I wish to speak about the 1 per cent levy. I have never spoken in either House against the expansion of the tax system. Our tax base is too narrow and falls too heavily on the shoulders of the PAYE taxpayers. Nonetheless, I do not like the idea of any, across the board, levy on income. If services are worth providing — and the services which are being provided by the levy are — they are worth providing from general taxation. I hope that the 1 per cent levy is a temporary provision and that it will be terminated at the earliest possible date. I say this while being conscious from economic history that income tax was introduced during the Napoleonic Wars as a temporary levy to be abolished as soon as the hostilities in Europe came to an end.
I had, therefore, just two criticisms of the Bill and I have made them. The Bill, as a whole, deserves the endorsement of this House and the Minister deserves the compliments of the Members of the House. The Bill does not deserve the mindless criticism which it has received from the Opposition. I compliment the Minister and I will be pleased to support this Bill.
I welcome the opportunity to discuss the Finance Bill. May I share my time with Senator Sherlock?
Is that agreed? Agreed.
In this budget, everybody expected that there would be some new initiatives in relation to job creation because, as the Minister and the Government said, unemployment is the major problem facing this Government and the area on which it will be judged. The majority of people expected moves towards further tax reform and that there would be greater fairness in the distribution of the tax burden. This budget could not be said to be pro-employment. The recent report of the Central Bank emphasised the negative and damaging effects that the tax wedge is having on the labour market. The 1 per cent levy which was introduced in this budget increased the tax wedge. This is an issue about which we, in the Progressive Democrats, have always been talking.
When we were in Government, we tried to ensure that, however slight, the wedge between the cost for an employer of employing somebody and what the worker would take home in his pay packet was reduced each year. I appreciate it is extremely difficult to do that but it is generally perceived that the PAYE workers bear the brunt of the taxation burden. In the past number of years, as Senator Roche said, they have been getting some indication that the Government was looking after them but that certainly stopped in this budget. I cannot understand how any Government which says that it is pro-employment could impose a 1 per cent levy on people who are earning £173 a week, which is below the average industrial wage. It is a flat rate of tax on all income and because of that it has led to an increase in the burden on PAYE workers. We, as a party, gave a commitment that we would try to reduce tax rates and when we were in Government we did that. If we were in Government now, the 1 per cent levy would not have been introduced in this budget.
Workers tend to think that the cost of employment is just what they get into their pocket at the end of the week but the employer has to take the gross cost into account. There are now no fewer than five different taxes on work. We tend to tax work as a luxury. The five different taxes are income tax, employers' and employees' PRSI, health contributions, the training levy and now the 1 per cent income levy. We talked previously about the Culliton report and employment through enterprise, Deputy Quinn was in the House to discuss it. The Culliton report stated that our tax system and how we choose to adapt it represents the single most effect tool at the disposal of Government if it wishes to create an enterprise society. I agree. It is not the only thing that can be done but it has a major impact on employment and that is why the actions of the Government are very strange. The Government protests that greater employment creation is its top priority and talks about a pro-jobs budget. Sadly, its actions speak louder than words. Workers are disheartened and dismayed by the imposition of the 1 per cent levy. The Minister said that if we want to provide the level of services required this is the means of doing it. I hope that it will be a temporary levy. In relation to the tax amnesty, the PAYE workers expect they will be given relief in this area.
The Minister said that two-thirds of the clothing produced in this country is exported and that there is no VAT on it. He also said that two-thirds of the clothes sold in the shops are imported and that the same rate of VAT applies to those as applies to the clothes produced in this country. The clothing industry is labour intensive but the retailing and drapery trade is also quite extensive and employs many people. In rural areas or in smaller towns, the family grocer and the smaller grocery shops are closing down. In the past number of years drapery shops have closed down and the increase in VAT will put the tin hat on it. We will have ghost towns around the country. We talk about rural development and keeping people in rural Ireland. By bringing in proposals that will close small grocery and drapery shops, we are reducing the only employment available in many towns. I oppose it for that reason.
There is a general perception that if people are making millions the Government will look after them. This is the signal being given out through the tax amnesty. The small businessman or PAYE worker who constantly pay their taxes year after year are being given bad signals. People are prepared to make sacrifices but they must understand and believe that the principle of fairness in taxation is paramount in the Government's mind and that the distribution of the tax burden is fair — and seen to be fair.
The Minister will make the point that a certain level of services must be provided and that cannot be done unless taxes are collected. We talk about tax reform but people object to each new tax introduced. I do not accept that broadening the tax base and reducing the rate of income tax will leave everyone better off in every circumstance. There has to be trade-offs where some people benefit and some lose out, but those who lose out should be those favoured at the moment. That is what everybody means by tax reform. The people who are now paying what they perceive to be, and what is, an unfair share are those who should benefit from tax reform. The people whom Senator Roche talked about, who are not paying their fair share, should be brought into the tax net and not afforded the benefits of a tax amnesty at 15 per cent. It is difficult to convince ordinary people that this is a fair taxation system if that is how we treat them.
I would also like to deal with the probate tax. It is strange that the Minister reintroduced this measure which was abolished in 1974 by the then Coalition Government because it was inequitable and unfair. The capital acquisitions tax was introduced as an alternative and I cannot understand why the Minister could not have increased the rates of this tax instead of introducing the new tax which affects people who are not well off. The threshold is only £10,000, the same as it was in 1974, but since then the cost of living has gone up by 560 per cent. On Committee Stage in the other House the Minister said that if the threshold had been raised to £50,000 one third of the people who will now be liable to pay this tax would not be liable. If the threshold was raised to £100,000 almost two thirds of those people would not be liable. The small person, who does not have much money and will not inherit a lot of money, will end up paying this tax, which is unfair. We must return to the principle of fairness.
I welcome section 10 which was introduced on Committee Stage in the other House and in which the Minister made changes in relation to the taxation of married couples in response to the recommendations by the Commission on the Status of Women. Although I welcome and appreciate the changes, the Minister should have gone further. The commission recommended separate tax assessments rather than a joint assessment for married couples, and felt that, in relation to married women who had been out of the workforce and were returning to work, in general the husband tended to have all the allowances, including tax at the lower rate. When women returned to the workforce they went in at a high rate of tax and the only allowances they had were in relation to PAYE and PRSI. Inevitably, many men advised their wives that it was not worthwhile to work, and when wives looked at what they were getting at the end of the week, because they were paying tax at the marginal rate, they agreed. This was the reason we wanted separate assessment to be the norm unless a couple opted for joint assessment. It is an important issue because women's earnings would then be greater and men could not claim that it was hardly worth a woman's while to return to work. This was the principle that the Commission on the Status of Women recommended and I hope that, next year, the Minister will continue along these lines. I welcome the reforms and hope the Minister will adopt the principle of fairness and try to show ordinary people that this is the direction we are taking.
In recent years the public have taken a great interest in the Finance Bill. Some years ago it was just the budget, but they know now that the Finance Bill gives effect to the budget. Unfortunately, for the vast majority of people, the 1993 Finance Bill is particularly complex legislation and many of its sections require careful study before passing judgment on them. One thing is clear, however, the Bill provides no progress towards fundamental tax reform, as has been stated by other Senators, and confirms the kick in the teeth to the PAYE sector in the form of the 1 per cent levy. Imagine imposing a 1 per cent levy with the support of a socialist party when people are marginalised and on the bread line and complaining about the hole tax and PRSI makes in their wage packets.
As the Government indicated its support for the broad thrust of the recommendations of the Culliton report, it is disappointing that it has not availed of the opportunity presented by the Finance Bill to review the 1 per cent levy which will apply to all but the lowest paid workers and which flies in the face of the Culliton recommendations. Culliton was the doctrine preached but where is Culliton now? What is being implemented? Nothing has happened and nothing will because it is all empty rhetoric; neither has there been any move towards the broadening of the tax base as recommended by Culliton. Virtually all the new reliefs and concessions are directed at the business and commercial sectors. If business does not respond in this climate of incentives then the Government is wasting its time promoting that school of economic recovery.
It remains to be seen if the myriad of new schemes and tax reliefs will result in an increase in employment levels and if any new jobs created will counterbalance the jobs lost in the clothing industry. In February 1982, the then Government, which was only six or seven months in office, was brought down because it imposed an 18 per cent VAT rate on clothes and footwear. There is no doubt that the VAT increase on clothing in this budget will result in job losses. In my own town I have had discussions with people in the trade who say it is already having such an effect. I will not go into that now because it has been mentioned frequently. There were signs of development in both the voluntary and statutory sectors, but those in the voluntary sector are getting sick and tired of waiting. They have attended seminars, they have had reports and have been preached to by able people, but nothing has happened.
I am aware that in many instances those who carry the burden and provide essential core services were depending on social welfare schemes which have not been approved or implemented. This matter should be taken on board quickly because what we want now is action. The changes proposed in the social welfare scheme are not working and this is placing a major burden on those voluntary bodies.
Nothing exposes the confusion at the heart of public policy on job creation and investment strategies quite so well as the Finance Bill, 1993, sponsored by the Minister, the purpose of which was to close loopholes in the tax code, limit exemptions, shut down shelters, restrict allowances and set up a conciliatory tax regime. These were accompanied by modest income tax reductions as distinct from radical tax reform.
This year a tax amnesty was introduced. PAYE taxpayers are extremely angry about this amnesty which also has a demoralising effect on the staff of State Departments and the Revenue Commissioners who strongly advised against the move and who repeatedly asked for additional staff and resources to combat rampant tax evasion. One member of the Government said tax evasion was endemic in Irish society. If it is necessary to appoint people to prevent tax evasion and avoidance that should be done.
It will come as no surprise that Fianna Fáil is prepared to excuse the activities of tax offenders. What surprises and shocks me is the fact that Labour members support the amnesty. I am especially surprised Deputy Kemmy is so supportive of the measure. A socialist party backing a tax amnesty while putting a 1 per cent levy on the PAYE sector is difficult to understand.
I will be positive and constructive at this late hour of the evening and focus on what is good or promising in the Bill and make suggestions as to how it can be improved, in this Bill or perhaps in future legislation. I will concentrate on one major issue connected with this Bill and talk about it from the business perspective, responding to something Senator Hillery said earlier. This is the issue of raising capital for Irish companies. I focus on a single issue because everything of a general nature worth saying about this Bill has already been said. However I will be speaking about taxation on Committee Stage..
Why is the question of getting more capital into Irish business so crucial? We must begin with the realisation we have an under-developed appreciation of the need to provide businesses with capital.
We do not fully appreciate why businesses need capital in the first place. A growing business — especially one where technology is changing — needs constant transfusions of capital all the time, generated both from inside the business through retained profits, and from outside the business by attracting investors.
I am not talking about injections of cash just to keep the business going, to pay the bills at the end of the month. This is money for investing in the future of the business, in its capacity to grow and to create more jobs. Our under appreciation of the role capital should play in any business, and of the need for adequate capital in every business, has had a bad effect in both the public and the private sector.
In the public sector, it has given us commercial State companies unable to grow to the extent they could because they are not capitalised properly. The philosophy behind most State companies had been to give loan capital and to starve them of equity. A correctly structured business enterprise has a balance of the two, with most of the development capital coming from equity.
In the private sector, on the other hand, too many businesses are run on a hand-to-mouth basis. As with State companies, many try to run entirely on loan capital, usually from a bank. This is sometimes made worse by the fact that they are often run at such a low level of profitability they cannot generate a healthy proportion of their new capital resources from within the company. That is something every healthy company should be able to do.
In our public policy towards private sector companies, a key thrust should be to ensure in every possible way that companies are properly capitalised. It should not be a main job of the State to provide business capital for the private sector. We should do as little as possible of that. The best possible role for the State is to create favourable circumstances for other people to invest in the private sector, rather than have the State do so. A key task for the State should be to ensure on the one hand people are encouraged to invest in private sector companies rather than in other forms of investment and on the other hand that companies are encouraged very strongly to capitalise themselves properly.
The central problem, where this Finance Bill comes into play, is that for a long time now the investment playing-field has not been level. Investing in Irish companies has not been as attractive as investing in other ways. Our national growth has been hampered as a result. The State is not an innocent bystander in this, because to a large extent the State designs the playing-field through its taxation regime.
For instance, on 31 December last there was already a bias against private-sector investment. In the first week of January, the special savings accounts were introduced which offered a totally new advantaged to what is in any case virtually a risk-free investment. If one invests now in bank deposits, interest on the first £50,000 is taxed at only 10 per cent. The most tax one can pay on any deposit interest is 27 per cent.
That measure tilted one end of the playing-field out of sight. The measures in this Bill to extend the 10 per cent regime to a series of other savings instruments are an attempt to redress some of the balance. I welcome them on that account but they do not go far enough. The special savings accounts and the new instruments allowing for investment in equities are not equally attractive. One investment is virtually risk-free and the other has all the risks associated with any business investment. Yet the tax regime treats them in the same way.
These new instruments will not be successful in attracting funds and people will not invest in Irish industry, which is the objective here. I therefore make a concrete suggestion. If the Minister cannot accept it in this Bill he might bear it in mind for the next time time and the sooner the better.
The equity related savings instruments, those intended to inject more capital into Irish industry, should have a tax advantage over the other schemes. This approach could be attractive to the Minister and the Department of Finance because they can create this differential not by lowering further the tax on equity related savings but by increasing the tax on special savings accounts. I am not often heard suggesting something like that.
It is clear the 10 per cent tax on special savings accounts is more generous than is necessary to discourage people from depositing their money abroad. The original DIRT tax was disastrous. As soon as the exchange controls were removed they disappeared. We now know that it is not necessary to have a tax as low as 10 per cent to keep the money in this country — a rate of 15 per cent would be sufficient.
This gives the Minister space in which to discriminate in favour of the equity-based savings. They should remain at a tax rate of 10 per cent, while the special savings accounts should increase to, say, 15 per cent. The money would stay in this country, but people would be given a clear and easily understandable encouragement to place their money into equity-related savings that would put more capital into Irish business.
Given the importance of capital, I welcome most of the changes in the business expansion scheme. For example, it is a good change to allow people to invest in their own businesses through the BES. The prohibition was an anomaly whose removal I welcome. I am pleased to note that, outside the BES, there is a 400 per cent increase in the amount of shares that employees can take up in the companies they work for, getting a tax allowance on what they spend.
I wish also to draw attention to what I believe to be a retrograde step in the proposed changes to the BES. This is the lifting of the amount that a company can raise from £500,000 to £1 million. Lifting the limit in that way is too crude and I believe that it will have a negative impact on the smaller enterprises that the scheme is designed to help. By raising the limit to £1 million, the focus will shift to bigger companies where the initial fundraising is concerned. The promoters of these schemes, who are important players in the equation, will go for the companies looking for £900,000 or £1 million at the first bite. The smaller companies, with a need for a first injection of, say, £300,000 to £400,000 will find it harder to be considered, or worse, they will be encouraged to overstate their requirements.
I propose that the £500,000 limit be maintained for the first injection of funds. This would give the smaller companies a fair crack of the whip. Then, instead of cutting them off permanently from further BES funding, companies who had already reached their limit should be allowed to obtain additional funding of up to £500,000 for each of two years. This would keep open the door for further injections of capital for these smaller companies, without biasing the whole scheme against them at the crucial first stage of injecting the early capital.
I share the scepticism that some people have expressed about the value of the BES in job creation. It has proved to be far more effective as a tax shelter for fairly well-off people than as a creator of jobs. The way to deal with this is not to abolish the BES, which would be throwing out the baby with the bathwater, but to keep working at refining and focusing the scheme so that it does for the country what it is capable of doing. As with the special savings accounts, the incentive under BES is more generous than necessary. It would save the Exchequer substantially, while producing the same result, if tax relief on the BES was restricted to the standard rate. In its present form, the BES is expensive to the Exchequer and it is necessary to continue to improve it to ensure a better return. Senator Roche spoke of the measures that could be taken to ovecome abuses of the BES but this is not the issue I am raising.
I welcome the proposal to give entrepreneurs some of their tax back, in order to help with the seed capital for a new business. It is a novel idea which targets the difficulty that many promoters of start-up companies have in acquiring capital. In order to be credible to other investors and to State agencies, a promoter has to put up some of his or her own money. Usually borrowings will be made against a house, but this is not always possible. This proposal provides another possibility and is a good idea. I hope it will not be abandoned because of too high expectations. It would be foolish to expect thousands of takers under this proposal. If there are a hundred in the first year we will be doing well. The proposal is closely modelled on the IDA's enterprise development programme, which is aimed at attracting senior people out of big companies and encouraging them to start up on their own. That is the kind of person that the legislation is clearly targeting.
It must be remembered that in more than 10 years of the IDA's scheme, there are still only hundreds of EDP companies. The key point is that they are the successes. They have a very low failure rate. It is important to judge this proposal on the quality of results rather than the quantity.
It is a serious mistake to restrict this scheme to manufacturing and a few internationally-traded services. That is the traditional approach which does not take account of the view that there is little future employment growth in manufacturing. Over the next 20 years it will be a considerable achievement to maintain present levels of employment in manufacturing and even then it will not be the same jobs.
If we want to increase employment substantially, which is what must be done as we do not have any choice in the matter, then the only area which will generate increases is the services sector. This was realised by the Taoiseach when he announced the setting-up of a task force on jobs in the services sector at the recent IMI conference.
I am realistic enough to understand that we cannot overturn our present bias towards manufacturing immediately. We should recognise the potential of services by allowing service businesses equal access to any new schemes that are introduced. I have no problem with most of the proposed restrictions on this scheme, but to continue to exclude services is, I believe, cutting off our nose to spite our face.
There are three main ways in which this Finance Bill addresses the central problem of helping the growth of the private sector. First, the Bill creates a 10 per cent regime for savings instruments that are equity-related. I welcome those, but stress that they need to be more attractive if they are to compete with risk-free special savings accounts.
Second, the Bill expands the scope of the BES in several different ways. I welcome those also but believe that more refining is necessary to tighten the focus on the small companies that we really want to help and to increase the cost-effectiveness of this tax incentive.
Third, the Bill creates an innovative way of helping some entrepreneurs put together their part of the seed capital for new projects. My welcome for this is accompanied by my plea that services must be brought within the scope of new schemes like this because in the future services are where the extra jobs will be, not in manufacturing.
In urging the Minister to consider improving his proposals in these ways, I point out that, taken together, they would increase rather than decrease the revenue yield to the State.
I thank all the Senators who contributed to this debate. I particularly thank the Senators who offered constructive criticism and proposed some good ideas. In the last hour or so there have been some excellent contributions which I appreciate.
The primary and overriding purpose of the Finance Bill and the budget was to secure financial stability in difficult circumstances and to signal the Government's commitment to sound economic and budgetary management. I was glad that this was recognised by Senators from all sides of the House. After a period of unprecedented uncertainty in financial markets worldwide — from which we are now luckily free, although a number of countries are still in great difficulties — we had to try to give clear commitments to the markets, which we cannot ignore, and to show them the thrust of Government policy.
Senator Quinn made the point, and I am glad to hear it being made by a prominent business person, that commercial and business decisions should not depend on the Finance Bill or any other legislation. The view that we have to insert amendments to provide incentives for special or vested interest groups or to encourage ideas is unadulterated rubbish. People should see that in this small country with an open economy the essential condition for business development and job creation is economic growth. The fiscal policy of the Government in the budget in any year is of far more value to the prospects for employment creation and investment generation than such incentives. It is wrong to believe that fiscal policy can be disregarded and that half-baked and probably half-mad ideas are better than overall control. Today we had a balanced debate on this issue.
I am glad that last year and this year we continued in difficult circumstances to maintain tight control of the Exchequer borrowing requirement and the current budget deficit. It is not unnoticed in the EC, where there is average negative growth this year of around -0.8 per cent, that this country will probably achieve growth of around 2.7 or 2.8 per cent. With Luxembourg, we will have one of the lowest current budget deficits in the EC, provided that nothing goes drastically wrong in the second half of the year.
There are three reasons for our low interest rates. The way we handled devaluation after the devaluation of sterling by around 20 per cent and the inflows into our economy were major factors. The point has to be made that the markets waited for the budget. There were no inflows for two and a half weeks afgter devaluation. Not even £1 million came into the economy. People waited to see the policy to be pursued by the new Government, to see if they would continue to pursue fiscal policies which measured up to what the international markets and community wanted or if they would totally disregard such policies and ignore what had been achieved since 1987 by successive Governments. I acknowledge that the Progressive Democrats were part of the Government when the 1990, 1991 and 1992 budgets were framed.
Senator O'Toole said that balancing the books is of no importance. He represents the 50,000 teachers we manage to pay every week. Such payment requires much balancing of the books. If we did not balance the books I could assure him that next year it would not be a 1 per cent levy we would have to bring in but a 10 per cent one in order to keep books balanced. My colleagues in my own party and my colleagues in both this Government and the last one have heard me making this point. I have argued since 1984 within my own party and in Oireachtas debates that if Governments do not continue to pursue tight fiscal policies we will have no future. We have to measure what we can produce based on sound economic policies.
There is no point in people in this House, the other House or anywhere else saying they are in favour of tax reform, broadening the tax base and better services if they are also opposed to new taxes being introduced by the Government which broaden the base. People cannot have it both ways. One cannot talk about tax reform if one equates such reform with tax reductions. Tax reform does not mean reducing tax; it means finding alternative ways of collecting the same amount. Otherwise services would have to be reduced. No speaker, with the exception of the last speaker, favoured reducing public expenditure in any area. I am prepared to listen to an argument, I do not have the time now to go through all the detailed questions but I will do so tomorrow.
There is no point in people saying that they are against the 1 per cent levy but that more money should be provided for education and the health services. We heard this in the debate today. It is pointless for people to say that the probate tax is unfair on relatives of the deceased, while at the same time saying that they are in favour of tax reform and broadening the tax base. Tax reform means redistributing the burden of existing taxes. Broadening the base means introducing new taxes such as the probate tax and others. Increasing public expenditure in any area means increasing borrowing or taxation or reducing spending on other services. These are the economic indicators with which any Minister for Finance or serious politician has to live. I am prepared tomorrow to listen to any worthwhile amendments whereby people want to cut services by taking £50 million from a particular area or close a school or a hospital or curtail various sectors or businesses in order to finance tax cuts.
Last year when I closed the loopholes, exemptions and thresholds everybody welcomed this as being tax reform except the groups which were affected. I closed 48 loopholes last year.
The Minister was very selective where he wanted to cut.
There are a few more left. The Minister should look again.
The closing of these loopholes affected about 95 pressure groups. Every time an exemption or a threshold or a concessionary tax is removed, if there is not a pressure group already there I can guarantee that by the time the debate on budget night is completed there will be a pressure group meeting in Buswells Hotel. This is what we have to face.
I thank all Senators who put forward constructive suggestions and I will certainly look at them. Although I may not be against some of the arguments made by Senator Quinn about the BES scheme, in the discussions we had about these changes opinion was divided. I am glad to hear the Senators' views on this. If the incentives which have been mentioned today are abused, I hope I will be here next year to remove them. This year I have tried, in difficult circumstances, to target any incentive given to a defined area.
While Members of both Houses complained that there was insufficient time to debate the Bill, two individual tax advisers published books on the Finance Bill. I do not mean that they published the budget night papers, although I commend the fact that they were published overnight. These publications were detailed assessments. These advisers also hold major conferences where they inform their clients about tax avoidance. I do not think that tax advisers use the word "tax evasion".
That is the way to get around tax reforms.
Accountants, legal professional or tax advisers would never use any clause or section of the Finance Bill for tax evasion, but they have a loose definition of the word "avoidance". Deputy Roche, who has studied this at great length, is more severe than I am. If any of the concessions which I am putting before this House are abused, they must be removed.
The schemes for entrepreneurs must be availed of by people who are willing to give up their jobs or who are unemployed. I agree with Senators that we must give these people time. We do not have 5,000 people in this country with totally new ideas which will make a lot of money. I would like to see people with more bright ideas and this will give them an opportunity to develop innovative schemes.
The services area was mentioned by a number of Senators. This is an issue which the Government will continue to consider.
I wish to address a point to Senator Honan about the Council for the Status of Women. The Government has moved part of the way on this and I am not against movement in this area. I thank the Senator for her comments. Following the divorce referendum, we will have an opportunity to look at the scheme again. We have followed the philosophy that tax law must follow State law. Many other initiatives can be considered if the people so wish. If it is not the wish of the people, then we can consider the scheme to see what else can be done in the area of separate assessments.
I thank all the speakers and I assure them that officials from the Department of Finance have taken detailed notes. If the issues are not raised tomorrow, we will consider them in general legislation.
- Bohan, Eddie.
- Byrne, Seán.
- Calnan, Michael.
- Cashin, Bill.
- Crowley, Brian.
- Daly, Brendan.
- Fahey, Frank.
- Finneran, Michael.
- McGennis, Marian.
- McGowan, Paddy.
- Maloney, Sean.
- Mullooly, Brian.
- Norris, David.
- O'Brien, Francis.
- Fitzgerald, Tom.
- Henry, Mary.
- Hillery, Brian.
- Kelleher, Billy.
- Kiely, Dan.
- Kiely, Rory.
- Lanigan, Mick.
- Lydon, Don.
- O'Sullivan, Jan.
- O'Toole, Joe.
- Ormonde, Ann.
- Quinn, Feargal.
- Roche, Dick.
- Wall, Jack.
- Wright, G.V.
- Belton, Louis J.
- Burke, Paddy.
- Cosgrave, Liam.
- Cotter, Bill.
- Dardis, John.
- Doyle, Joe.
- Enright, Thomas W.
- Farrelly, John V.
- Honan, Cathy.
- Howard, Michael.
- McDonagh, Jarlath.
- Naughten, Liam.
- Neville, Daniel.
- Ross, Shane P.N.
- Sherlock, Joe.
- Taylor-Quinn, Madeleine.
When is it proposed to take remaining Stages?
It is proposed to take remaining Stages tomorrow.
When it is proposed to sit again?
At 10.30 a.m. tomorrow.