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Seanad Éireann debate -
Wednesday, 18 May 1994

Vol. 140 No. 10

Finance Bill, 1994 [Certified Money Bill]: Second Stage.

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

The focus in this year's Finance Bill is firmly on taxation policies which will promote and assist the creation of sustainable employment. The Bill's provisions pursue this goal on two fronts. First, it takes tax reform, particularly in the area of personal income tax, a further and significant step forward. This Bill must be seen in the context of the Government's broadly based strategy for economic progress in the interests of job creation. The key elements of this are the continued observance of budgetary discipline, the responsible pay arrangements in the new Programme for Competitiveness and Work, and the commitment to reforming the taxation system to make it more employment friendly. The Bill implements a range of targeted measures aimed at enhancing business competitiveness, promoting productive use of resources and stimulating and rewarding genuine enterprise.

In bringing forward these latter measures, I have taken account of the views of many interested parties, notably the Task Force on Small Business and the Task Force on Jobs in Services. Accordingly, this year's package places particular emphasis on improving the climate for smaller and start-up enterprises. It also reflects the Government's conviction that the services sector can continue to make a major contribution to fulfilling our employment needs. I would emphasise that the measures in this year's Bill should not be viewed in isolation but rather as complementing and enhancing the initiatives for enterprise and employment enshrined in the Finance Act, 1993.

Among the significant items in the Bill in this connection are the introduction of a special capital gains tax rate for individuals in respect of shares in most unquoted trading companies so as to help in attracting investment funds to this area and to reward those who put their funds at risk in developing job creating businesses; an extension to the wider services sector of the roll-over relief under capital gains tax for equity investment by entrepreneurs in unquoted trading companies, introduced last year for reinvestment in businesses in certain sectors; a new business assets relief in capital acquisitions tax so as to facilitate the transfer of family businesses and to improve incentives for those trying to build-up businesses; an easing of the income qualification test for access to the seed capital scheme which assists new business start-ups by employees and the unemployed; an increase in the company value limit for the purpose of BES investment by the "original entrepreneur"; a raising of the VAT thresholds for both goods and services thus relieving the very small business from the obligations associated with VAT registration; the cash basis of accounting for VAT is being made available to businesses in all sectors with an annual turnover of up to £250,000; a new and better focused scheme of incentives for urban renewal, with new incentives for industrial buildings in the interests of more balanced development in inner city areas; improved annual capital allowances for hotel development and farm buildings; an increased allowance for business cars, and the granting of capital allowances to the purchase of computer software or the rights to use such software; the introduction of a new provision into the relief for investment in films aimed at assisting low budget Irish films; simplification of the payment arrangements, subject to EU approval, for VAT on long term leases of property; a range of relieving stamp duty measures, including a new appeals procedure and a special relief for young trained farmers; modernisation of the tax treatment of businesses' foreign exchange gains and losses; unilateral credit relief for foreign withholding taxes incurred by computer software companies; a range of measures to underpin the further development of the International Financial Services Centre and amendment of the tax provisions relating to bearer bonds so as to assist the development of Irish financial markets.

This Bill marks a major step forward in the Government's tax reform programme. This programme is aimed at reducing the tax on low income earners and families and removing as many taxpayers as practicable from liability to the higher rate of tax. This year I have been in a position to provide for a substantial package of income tax reliefs.

It is worth while repeating the main improvements contained in this Bill which are as follows: the tax free allowance for a single person is being increased from £2,175 to £2,350; the tax free allowance for a married couple is being increased from £4,350 to £4,700; the tax allowances for widowed persons and widowed and single persons are being increased accordingly; the standard rate band is being increased by £525 for a single person and £1,050 for a married couple; the child additions to the exemption limits are being increased by £100 per child; the marginal relief rate of income tax is being reduced from 48 per cent to 40 per cent; the PAYE and PRSI allowances are being retained and the PAYE allowance is being extended to the children of the self-employed and proprietary directors who are genuinely employed by their parents.

In addition, while not provided for in the Bill, the 1 per cent income levy is being abolished and a threshold of £9,000 is being introduced for the health contribution and the employment and training levy. These changes will be felt in the paypacket of the average taxpayer. For example, a single person on £9,000 a year will be almost £5 a week better off, while a single person on £13,000, near the average industrial wage, will be more than £6 a week better off. A married couple with one spouse earning an income of £10,000 a year will be almost £7 a week better off and the same couple where the spouse is earning £24,000 a year will be over £10 a week better off.

More important than the actual gains to individual taxpayers is perhaps the fact that these improvements are tangible evidence that the Government's tax reform policy is working. I assure this House that I intend to ensure that this policy continues to work and that the trend we have established of removing taxation from work will be continued.

Tax reform cannot be progressed if the whole matrix of existing reliefs was to be regarded as an untouchable edifice. These reliefs grew up in different times reflecting the particular needs and concerns of society at that time which, in the context of a tax structure, are quite different to that which pertains today. This Government is, of course, committed to maintaining the main discretionary reliefs, such as mortgage interest relief and health insurance relief. These reliefs have a significant part to play in the provision of housing and health care. However, this Bill seeks to address some of the less desirable effects of how these reliefs operate at present. In particular, it will ensure that these reliefs are of equal value to the more well off taxpayer. This is being achieved by the standard rating of these reliefs on a phased basis.

During my budget speech I indicated that I intended to raise the limit below which unreimbursed medical expenses would be allowable for income tax to £150 for an individual and £300 for a family; indeed, were the individual limit to have kept ace with inflation it would be £500 today. During the passage of the Bill through the other House, however, I reconsidered the matter and decided that the new limits should be fixed at £100 for an individual and £200 for a family. These new limits can be in no way considered onerous on the taxpayer.

The Government is committed to maintaining the core element of this relief which is designed as a means by which the taxpayer can be assisted with unpredictable and emergency expenditure. I note that from amendments brought in last week this change went unnoticed. I am sure that from today's debate it will be picked up that we have made a significant amendment to that provision which is of great benefit for individuals who have no medical cards, normally no VHI but who have high medical bills. They can claim these reliefs through the tax system and I am glad we have been able to improve this position. The above provisions are contained in the first eight sections of the Bill.

There are a number of other income tax measures in the Bill. These relate to the rates used for determining the benefit-in-kind charge on preferential loans, the payment of the 1 per cent income levy by the self employed, the income qualification requirements and the certification agencies for the seed capital scheme, the small company exemption to the own ownership exclusion under the BES, the access requirements for and benefit in kind in respect of works of art displayed in heritage buildings and the taxation of unemployment benefit. A number of other amendments of a technical nature are contained in the Bill. These changes are outlined in the explanatory memorandum to the Bill and do not warrant repetition at length today.

Since the introduction of the Bill, however, there have been two noteworthy changes in this area. First, the proposals in relation to access to heritage buildings have been revised. Initially I had proposed to increase the length that a heritage building would be required to be open to the public from 30 days to 90 days, 60 of which would have to be in the period May to September.

On reflection however I have decided to increase the period to 60 days rather than 90, and to require that 40 rather than 60 of these days be in the period May to September. The new limits will, I believe, ensure that this relief will provide real benefits in terms of public access to heritage buildings.

Second, a new section 13 has been included in the Bill which provides for the drawing up of guidelines in relation to works which can benefit from the artists' exemption. This section is necessary to ensure that the original focus and intention of the 1969 provision which is to assist artistic, creative and original works is maintained. The guidelines will ensure that only creative and original works of art are able to avail of the relief and the Revenue Commissioners and the Appeal Commissioner will be obliged to have regard to the guidelines when determining whether a work is entitled to be exempted or otherwise.

Unemployment benefit has been made reckonable for tax purposes from 6 April 1994. It has been decided however that, in recognition of their special circumstances, workers who on 5 April 1994 were engaged in systematic short-time working arrangements, recognised by the Department of Social Welfare, will be temporarily exempted from the new tax arrangements. This exemption will apply for the tax year 1994-95 or to the end of the individual's current unemployment claim or current period of short-time working, whichever is the shorter.

The Bill provides for the taxation elements of the recommendations in relation to expenses of members of the Judiciary contained in Report No. 35 of the Review Body on Higher Remuneration in the Public Sector.

The Bill improves the provisions for capital allowances in a number of important areas. In the case of cars used for business purposes, the capital value threshold for determining the capital allowances and the deduction for running expenses is being increased from £10,000 to £13,000 with effect from 27 January 1994. The higher threshold will apply to capital allowances for new cars only, but will apply to allowable running expenses for all cars.

In the case of capital expenditure on hotels and holiday camps, the Bill provides for the shortening of the writing down period from ten to seven years for expenditure incurred on or after 27 January 1994. This reduced writing down period will also apply to the capital allowances regime for farm buildings and structures.

An important change is also being introduced in relation to capital allowance for computer software. The Bill provides that where computer software is acquired as an asset of a business, either by outright purchase or under licence, the company will be able to treat the asset as plant and machinery for capital allowance purposes.

The Bill closes off a number of loopholes and unintended uses of certain provisions of the tax code. In the case of the tax exemption for patent royalty income the Bill refocuses the relief on genuine inventions researched and developed in the State. The exemption has been retained where the royalty is paid in respect of manufacturing activity and in the case of non-manufacturing activity where the royalty arises from third party payments. Dividends paid out of such exempt royalties will continue to be exempt from tax subject to existing requirements. Royalties derived from non manufacturing activity where the payments are made between connected persons will no longer be exempt from tax.

The Bill also closes off, from the date of publication of the Bill, certain unintended and unacceptable uses of the legislation dealing with capital allowances and loss relief in the case of general partnership schemes by confining them to the partnership income in such situations.

The Bill deals with two issues arising from the removal in the Finance Act, 1992, of the formal liability of non-residents to income in respect of Irish dividends. First, it deals with a problem that has arisen with a number of our double taxation treaty partners who have taken the view that dividends, if legally exempt from Irish tax, cannot be said to be subject to double taxation if fully taxed in the treaty partner country. This ignores that Irish corporation tax is paid on the profits of an Irish company paying dividends to non-residents — in other words, the non-resident shareholder effectively bears Irish tax.

Second, it closes a loophole inadvertently created whereby Irish dividend income received outside of the State for the ultimate benefit of an Irish resident falls outside the scope of certain anti-avoidance provisions of the Finance Act, 1974. Both of these problems are being solved by amending the 1992 legislation. While dividends paid to shareholders who are neither resident nor ordinarily resident will be liable to Irish tax, any tax due will be fully eliminated by means of relief which will produce a net nil liability to Irish tax.

The Bill also introduces restrictions in the tax rules for capital allowances for lessors of plant and machinery in order to deal with an unintended use of these provisions through a new type of lease arrangement with serious implications for the corporate tax revenue yield. Under these new arrangements known as "balloon leases", the bulk of the lease payments are not received by the lessor until the end of the primary leasing period which can be up to ten or 15 years after the commencement of the lease. The effect of this is that the lessor can use virtually all the capital allowances on the leased assets for offset against his other taxable income over the early years of the lease.

With certain exceptions, therefore, the Bill ringfences the capital allowances in the case of such leases to the lessor's receipts from that particular lease. The new rules will not apply to leasing companies in the Financial Services Centre or Shannon or to leases of buildings and the rules are relaxed to allow for seasonal factors in the case of leases of agricultural machinery. Special arrangements are provided in the case of leased machinery or plant which is provided for the purposes of certain new grant-aided projects.

Senators will be aware that, in order to comply with a direction from the European Commission, the Government has had to take steps to remove mushroom cultivation from the scope of the 10 per cent manufacturing rate of corporation tax. Section 48 of the Bill makes the necessary changes.

The Bill provides that a company entitled to a section 84 loan by virtue of it being included on an IDA list of allowable loans can only get one such loan of the full allowable amount. The Bill also imposes a seven year limit on the duration of section 84 loans taken out on or after the publication date of the Bill and provides that all loans taken out before that date should be terminated before 11 April 2001, that is, seven years after the publication date of the Bill.

The Bill extends to 31 December 1996 the relief from corporation tax for gifts to the Enterprise Trust. The Bill also provides for an exemption from corporation tax for certain payments by the Minister for Agriculture, Food and Forestry to National Co-operative Farm Relief Services Limited and to grants made by that body to its member cooperatives for the purpose of engaging contractors to provide farm relief services.

The Bill deals with a double taxation problem arising from foreign withholding taxes affecting certain computer software companies. It provides for the introduction of unilateral credit relief for foreign withholding taxes on payments in respect of software transactions.

The Bill addresses a number of the most pressing problems in the area of foreign exchange gains and losses facing Irish business engaged in international trade. In dealing with these issues, I have decided to take a minimalist approach targeted on the main current problems and based on accounting practice. I am encouraged by the welcome that these changes have received from the business community. The changes ensure that commercial strategies for reduction or elimination of currency risk are effective after the taxation liability on the transactions have been determined.

Briefly, the Bill provides that foreign exchange gains and losses on long term borrowings will now be deductible or chargeable, as appropriate, in the computation of taxable income. It also provides that the foreign exchange gain, or loss, on associated hedging instruments will be included in the computation of taxable income and excluded from the computation of capital gains. Moreover, companies with a non-Irish pound "functional" currency will now be allowed to compute their capital allowances in that functional currency. Finally, any trading loss in that functional currency will be valued at the exchange rate of the year the loss is offset against income.

The Bill provides for an exemption from tax for certain income of non-commercial State bodies. The exemption will not apply to deposit interest or to fee income, excepting statutory fees and incidental income of this kind. I would add that in settling the annual Exchequer allocation for such bodies, account is fully taken of own resources arising to them so that the interests of the Exchequer will be safeguarded even in the absence of a tax charge. The Bill extends the definition of "qualifying shipping activities" in section 39 of the 1980 Finance Act to include deep-sea tugs.

Spanish fishermen.

The IFSC has been a great success and I am anxious to ensure that it develops to its full potential. I am proposing certain changes, most of which are of a technical nature, to assist this. The changes will help the development of the collective funds and life assurance sectors specifically. Both of these areas are important from an employment generation point of view and in the context of the long term future of the centre.

The Finance Bill amends the tax relief for investment in Irish film making companies. In future, the Minister for Arts, Culture and the Gaeltacht will certify all films in respect of which relief is claimed in accordance with guidelines laid down with the agreement of the Minister for Finance. The certification will allow the Minister for Arts, Culture and the Gaeltacht to specify what conditions, for instance employment or value added to the economy, must be met before a project will be entitled to the relief. The Minister may also certify certain low budget films to avail of a pilot concession whereby corporate investors do not have to reinvest after one year in order to qualify for a capital gains tax relief on the disposal of their shares. In addition, in accordance with my announcement of 14 January 1994, investment in film by way of loans will no longer qualify for relief. Furthermore, new procedures for claiming relief have been introduced. These changes have been made in order to ensure that the relief provides the maximum return to the economy and promotes the Government's objective to place the film industry in Ireland on a sustained development path.

In the Finance Bill, provision is made for the termination of the existing urban renewal scheme on 31 July 1994, subject to some transitional arrangements. A new three year scheme will commence on 1 August 1994. The new scheme contains incentives targeted at promoting residential and industrial development over office development, and refurbishment over new building projects.

During the progression of the Bill through the Dáil, I introduced two additional measures to further promote balanced urban renewal. First, I introduced a provision where the residential tax incentives under the new urban renewal scheme will be conditional on the houses and apartments meeting certain standards to be set out in guidelines which will be issued by the Minister for the Environment with the consent of the Minister for Finance. This arises from concerns which have been raised about the standards, size and mix of the many new apartments being built in inner city areas. It is envisaged that the guidelines will provide for improved standards in the design and construction or refurbishment of dwellings, the total floor areas and dimensions of rooms within developments, the provision of ancillary facilities and amenities and the balance to be achieved between dwellings of different types and sizes.

Second, in the light of concerns expressed by the hotel industry, I have made provision for non-owner occupier hotels in designated areas to avail of a choice between the capital allowances for the lessor in respect of the expenditure on construction or refurbishment of the hotel and the double rent allowances for ten years for the tenant operator of the hotel. In order for the double rent allowance to apply to the operator, the person entitled to the capital allowances must make an irrevocable election to disclaim the capital allowances.

This avoids excessive Exchequer costs while still providing a substantial incentive for hotel development on a lessor/ tenant basis in designated areas. The existing urban renewal scheme has been successful and I am confident that the new scheme, which will operate on a more targeted basis, will be equally successful in promoting urban renewal in the cities and towns involved.

Part II of the Bill confirms the budget changes regarding the increases in excise duty on cigarettes and other tobacco products, alcoholic drinks, road fuels and heavy fuel oil as well as the reduction in the rates of vehicle registration tax on cars and motorcycles and the other reliefs for waste oil and mobile cranes and the like. It also increases the threshold above which the higher rate of VRT applies from 2012 ccs to 2500 ccs.

The Bill provides for the legislative framework to introduce a tax stamp regime for cigarettes. The provisions, which are mainly technical, deal with the control and collection of the excise duty on cigarettes, deferred payment arrangements and related offences and penalties. In the vehicle licensing area, the Bill contains a number of provisions with the primary aim of safeguarding road tax revenue. They are designed to remove any doubts about the legal status of the national vehicle file regarding vehicle ownership and related matters and to confirm the validity of information contained in certificates taken from the file for evidential purposes. At the trade's request, the Bill changes the high season period of the limited annual licence, previously from 1 March to 31 August, to 1 April to 30 September so as to better reflect seasonal trading patterns for the amusement machines licences duty.

Regarding betting duty, the Bill includes an enabling provision which will relieve bets placed at a horse race-meeting, in respect of events taking place elsewhere, of the existing betting duty when the proposed Horseracing Authority, as envisaged in the Horseracing Industry Bill, 1994, is established. Under the latter Bill, it is proposed to apply a levy for the benefit of racing to such bets at the same rate as the existing betting duty, and this provision avoids the double taxation of such bets.

Part III of the Bill deals with VAT. It confirms two important measures for business announced in the budget, the increase in the VAT registration thresholds and the change in the availability of the cash receipts basis of accounting, as well as the extension of VAT to the services of loss adjusters.

Regarding travelling shows and funfairs, the Bill streamlines the VAT regime applicable to travelling shows and funfairs through providing that all funfairs will be liable at the reduced rate of 12.5 per cent with the exception of gaming and amusement machines which will be standard rated.

The Bill introduces provisions which will considerably simplify the arrangements relating to VAT due on long term leases in cases where the lessee is entitled to full deductibility. The initiative, which requires EU approval, will reduce significantly the cash-flow burden on such business, particularly in a start-up situation. The Bill also provides for a number of technical changes in order to clarify existing law and to confirm present practice and also to bring Irish law into line with EU VAT law.

The Bill reduces the RPT house value threshold to £75,000 and the income threshold to £25,000. The single 1993 RPT rate of 1.5 per cent is replaced by three tiered rates — 1 per cent for houses valued between £75,000 and £100,000, 1.5 per cent on the value between £100,000 and £150,000 and 2 per cent on the value in excess of £150,000. A value banding system is introduced and is included for houses valued at up to £100,000. The Bill introduces concessions for those aged over 65 years, widowed and incapacitated persons along with a provision to deal with hardship cases and an easy payment scheme. The limit for marginal relief is extended from £30,000 to £35,000 generally and to £40,000 for those aged over 65 years.

Regarding measures to assist employment and enterprise, the Government is committed to putting conditions in place that will encourage the development of Irish businesses in the interests of promoting employment. The Government is pursuing this strategy across a number of fronts, not least by prudent and responsible management of the nation's finances, with the resulting positive effects on business confidence and on interest rates and in improving mainstream taxation.

The Government's employment strategy also involves making the tax code more supportive of employment and enterprise. This is evidenced by the wide range of pro-jobs measures contained in this year's and last year's Finance Bills. These measures will no doubt reinforce the already high level of business confidence and will play an important part in the Government's strategy of maximising the employment potential of the economy.

I would like to turn briefly to the relieving measures in this year's Bill in respect of capital acquisitions tax and capital gains tax, which, I believe, will have a particularly beneficial impact on employment by improving the incentives for entrepreneurs and encouraging them to expand and diversify their businesses.

The new capital acquisitions tax relief for business assets which I announced in the Budget is a positive recognition of the important role played by family businesses in our economy. The relief will involve a reduction for CAT purposes in the market value of trade-related business assets which are acquired by gift or inheritance. The first £250,000 acquired by a beneficiary will be reduced in value by 50 per cent while amounts in excess of £250,000 will receive 25 per cent relief. The Budget proposals in relation to the terms and conditions of the relief have been relaxed in a number of important respects with a view to ensuring that the relief is effective in alleviating the impact of CAT on the transfer of family businesses. The proposal that the beneficiary must work on a full-time basis for the business for a specified period after the gift or inheritance has been dropped. Also, the requirement that the beneficiary must hold a minimum 25 per cent interest in the business has been modified to enable a beneficiary with a minimum 10 per cent interest to qualify where his or her family has a controlling interest, and also where he or she has worked on a full-time basis for the business for at least five years prior to the transfer. The new relief, which will cover most business activities within the industrial and services sectors, will serve as an important complement to the general reliefs already available for the transfer of businesses from one generation to another. It will enhance the incentives for those trying to build up businesses and so encourage greater enterprise and effort on their part.

The Bill provides for a reduction from 40 per cent to 27 per cent in the rate of capital gains tax for equity investments which are held by individuals for at least five years in small and medium sized trading companies. It will apply as well to equity investments in companies holding shares in trading companies. I have been particularly concerned to apply the 27 per cent rate very widely in order to maximise its beneficial impact on investment in job creating enterprises. Thus, all trading activities, with the exception of those dealing in land, buildings and certain financial assets, will be eligible to qualify for the reduced rate. So also will all individual investors, whether they are full-time working directors or non-active minority shareholders. The reduced rate will apply not only to unquoted shares but also to quoted shares which were unquoted at the time they were acquired by the individual investor.

I have also introduced provisions to cater for shares acquired on foot of a company reorganisation or takeover. The introduction of the 27 per cent rate for equity investment has been warmly welcomed by the business sector and it should serve as a valuable incentive for individuals who invest directly in risk capital in new and developing business ventures.

The Bill provides for a considerable widening of the scope of capital gains tax roll-over relief to include most trading activities. Up to now this relief has been confined to activities falling within the scope of the business expansion scheme. The extended roll-over relief will operate on similar terms to the existing relief and will continue to be targeted at entrepreneurs who work in a full-time capacity for a business in which they have a material interest. It provides for a deferment of capital gains tax where the proceeds of a disposal of shares in an unquoted company are reinvested in new share capital in another unquoted trading company. The extended relief will facilitate entrepreneurial mobility and new business start-ups.

Another measures in the Bill which will enhance the availability of risk capital for Irish business is the increased flexibility provided for special investment accounts. Senators may recall that these accounts were introduced last year in order to provide a competitive equity based investment alternative to the 10 per cent special savings accounts made available to cater for the new situation created by the abolition of exchange controls on foot of our EU commitments. They enabled life assurance companies, unit trusts and stockbrokers to offer collective investment products with a strong Irish equity content on terms broadly comparable with special savings accounts.

Under the present arrangements an individual investor can put up to £50,000 in either a special savings account or a special investment account or, alternatively, up to £25,000 in each. This trade-off situation has tended to inhibit investment in special investment accounts, given the general preference for more secure deposit-based products.

To facilitate a wider take-up of the equity based products, I have decided to allow investors to invest up to £25,000 in a special investment account — or £50,000 in the case of a married couple — without losing any entitlement to deposit money in a special savings account. I have also eased the requirement to invest a minimum proportion of the special investment account in companies with a market capitalisation of less than £100 million from 15 per cent to 10 per cent. Taken together, the changes provided for in the Bill should, given a positive response from the institutions concerned, help to increase the pool of funds for investment in shares of Irish companies, including smaller companies.

The Bill contains a number of measures which, in conjunction with the EU early retirement scheme, will greatly improve the environment for early farm transfers and will be of substantial benefit to farmers. The measures include a substantial improvement in agricultural relief under capital acquisitions tax, relief in respect of probate tax and a new stamp duty relief for young trained farmers.

The House will already be aware of the significant increase in agricultural relief under capital acquisitions tax which was announced in the budget. By virtue of this enhanced relief, agricultural land and buildings valued over £460,000 may transfer free of gift tax from parent to child. In the case of inheritances, the comparable tax free entitlement is about £406,000. Relief, at the rate of 25 per cent, is also being extended to livestock and machinery. The impact of probate tax on farmers has also been eased considerably with the introduction of 30 per cent relief for land and buildings and a full exemption for spouses.

In line with the commitment given in the Programme for Competitiveness and Work, the Bill provides for a two thirds reduction in the stamp duty chargeable on the transfer of agricultural land and buildings to farmers under 35 years of age who have completed an approved training course. This will entail a maximum stamp duty rate of just 1 per cent — down from 3 per cent — for transfers between relatives and a maximum rate of just 2 per cent — down from 6 per cent — for transfers between non-relatives. The new relief will apply to both gifts and sales and will be operative from 7 January of this year, which is the commencement date for the early retirement scheme.

The Bill provides for a range of relieving measures in relation to stamp duty which are aimed generally at improving the administration of stamp duties and reducing compliance costs for taxpayers and their agents. The Bill provides that where both stamp duty and VAT are payable on a property sale or lease, the stamp duty is to be based on the VAT exclusive amount payable rather than on the VAT inclusive amount. This will have a particularly beneficial effect on commercial property leases. The stamp duty appeals procedures are being updated so as to ensure that all appeals may be heard in the first instance by the Appeal Commissioners. This will make it easier for taxpayers to exercise their rights of appeal.

The Bill simplifies the valuation of unquoted shares in private family controlled companies for stamp duty purposes. This will help family businesses. The Bill provides for a substantial reduction in the surcharges which apply when property transferring by voluntary disposition is undervalued for stamp duty purposes. I am satisfied that stamp duty compliance can be maintained with more moderate surcharges.

The Bill also contains provisions which will enable the Revenue Commissioners to introduce more user-friendly information requirements in relation to property transfer deeds which are presented for stamping. It is also proposed, after full consultation with the Law Society on operational matters, to require the tax reference numbers of the transferor and transferee to be provided where appropriate. The Bill broadens the scope of the present range of stamp duty exemptions for foreign marketable securities. This will benefit business and employment at the IFSC.

Under Chapter I of Part VII of the Bill, I am introducing a major reform of the rules governing residence for tax purposes. Up to now, these rules and arrangements were based on a mixture of old case law, administrative practice and some statutory provisions. The various rules and conditions are now being put into legislation for the first time, which will be a great help to the taxpayers affected as well as to tax practitioners and the Revenue Commissioners.

As part of this process I have made a number of changes to the existing regime. The provisions in the Bill represent a carefully constructed and balanced package. On the one hand, there is a major simplification of the various tests on residence, which are being reduced from five to two main tests and which involve an easing of the look-back test. These changes will enable wealthy foreigners to own homes and spend longer periods of time in this country, thereby deepening their economic association with Ireland, which could have significant spin-off benefits. On the other hand, I have closed a potential loophole whereby Irish residents could avail of a facility to effect a clean break of their Irish residence and ordinary residence status so as to immediately avoid a charge to Irish capital gains tax on gains which had built up over a number of years.

I am also ending the discrimination which has existed between two categories of Irish employees who work abroad. Up to now, where such employees were paid from here their remuneration was fully subject to Irish income tax, whereas if they were paid from an overseas source the remuneration was only taxed here if it was remitted. In place of this remittance basis I have introduced a new relief, subject to appropriate conditions, for employees working abroad.

Finally, in response to points made, I introduced a number of amendments to the residence provisions on Report Stage in the Dáil. These amendments include transitional arrangements allowing the old rules to apply for 1994-95 in certain situations. The new package of changes will take full effect for all situations on 6 April 1995.

I thank the Cathaoirleach for taking this legislation this week. Since we debated the 1993 Finance Bill here, the economic situation has continued to improve in line with what I predicted fairly accurately at that stage.

This year's Bill was widely welcomed by all parties in the Select Committee. Needless to say, there was debate on some measures; but the Bill in general and its pro business content was welcomed by all parties, for which I am grateful. The business community is equally important, where the 21 reliefs— as they are known in the various business magazines — have been widely welcomed. More has been done for the agricultural sector in this Bill, in addition to what was done last year, than has ever been done for agriculture and I am glad to see that that is widely acknowledged.

We focused on the small business sector because of the two reports — the report on the services industry and the task force on small businesses. We have been able to recognise, in a way which did not happen previously, the importance of that sector. Last year, with the Government's initiative and the efforts of the Taoiseach to generate activity in this area, we spent the entire year talking to them and working out initiatives which would help to stimulate activity. I am glad that we have been able to do that along with what is effectively a tax package of £330 million with no VAT increases except in one small area.

This Bill will substantially help to generate an economy which has already gained great momentum. It is nice to oversee an economy where one month money in the interbank market is at 5.5 per cent, inflation is still less 2 per cent, the balance of payments are in substantial surplus, the budget deficit is on line, and the lowest in the European Union except for Luxembourg, and employment growth is still about third in the European Union. We still have the acknowledged problem of high unemployment rates because of our demographics and the fact that we have not always turned as much growth as we could into jobs. However, I think we have a healthy position.

I know that this Bill, from the comments and analyses which it has received, will continue to generate more employment and activity. All of the measures in this Bill must be viewed and reviewed in the light of what they achieve for employment. It is no good giving tax reliefs — as I know the Cathaoirleach would appreciate — if there are not jobs. If it only increases profitability without creating employment, then it is not achieving its intended aims. We are not interested in spreading the wealth in just one direction; it is the wish of this Government for it to be refocused right throughout the community. This Finance Bill reflects that wish and has been welcomed as such. I look forward to the debate and to participating on Committee and Report Stages.

I welcome the Minister to the House. There are some aspects of the Bill with which we agree. Listening to the confident manner in which the Minister spoke, one would think all is well throughout the country. However, that is not the case and that message will be brought home to the Minister next month.

I will deal with most of the income tax issues on Committee Stage. There should be some other method for the passage of this Bill through the Seanad, because one or two days are not sufficient. The sections of the Bill that are not being changed could be introduced earlier and we could then deal with the other sections in the final days.

As I said at the outset, I will deal with income tax on Committee Stage. The Minister gives the impression that people are better off in regard to income tax since the last budget, but that is not the case. When one takes account of the changes in mortgage relief, the majority of people paying tax in this country are much worse off.

Over the last few weeks the Minister for Finance and the Government have made numerous references to the need for our system of taxation to be fair, just and equitable. I share those sentiments. If a system of taxation is to enjoy widespread support, it must be seen by citizens to be fair and equitable. Sadly, many of our citizens do not believe that the Bill either represents or will contribute much to equity, justice or fairness.

There are three criteria for a fair and just taxation. First, those with equal wealth should pay the same taxes. Secondly, those with most wealth should pay most tax; and, finally, taxation should not drive people out of business but enable businesses to thrive. The present tax code does not meet these criteria. Those with equal wealth do not pay the same taxes; the most wealthy do not pay the most tax, and the tax code positively injures small businesses.

Some 80 per cent of Irish businesses pay corporation tax at 10 per cent and the remaining 20 per cent pay tax at the higher rate. The unfortunate 20 per cent of Irish corporate taxpayers, who proportionately pay more than half the total corporation tax yield, are not the big manufacturing corporations or the wealthy multinationals. They are small indigenous Irish businesses, which are largely concentrated in the service sector. They represent the business sector which, if subject to a less hostile and unjust tax code, could create the most jobs in the most viable sector of our economy.

We are often told by doctrinaire and ignorant commentators that the native Irish business sector has failed the Irish community. There has been no such failure; indeed, the opposite is true. Native Irish businesses, especially in the service sector, have done remarkably well in the face of a hostile, unfair and inequitable tax code which requires them to pay five times the tax demanded of other businesses.

The Finance Bill does nothing to ensure that all businesses pay the same level of tax on the same profits. Those with the same wealth from profits should pay the same tax regardless of the source of that wealth. If it is right that most businesses pay 10 per cent, then justice requires that all businesses should pay 10 per cent. This is far from the utopian ideal. The situation demands a universal corporation income tax rate of about 20 per cent. This would achieve current yields and maintain the principles of equity in taxation.

While our tax code has numerous inequalities, I propose to deal with two specific examples of the failure of the tax code to meet the principles of fairness and justice. One is a sin of commission — the Minister is doing something he ought not to. The second is a sin of omission — the Minister is refusing to do something he ought to do.

I will deal with the first briefly because I am certain that events next June will satisfy the Government that they were wrong. They ought to have conceded in justice, but they will be compelled to concede in fear of the electorate's hostility. I speak of the residential property tax. This tax does not meet the requirement that those with equal wealth should pay the same tax or that the most wealthy should pay the most tax.

The manner in which the market operates means that two people may live in identical homes, both as to size and quality, and have the same income, but one citizen may pay property tax on their home and the other may not. This essentially happens because one must live in an urban area and the other in a rural area. There are other faults with the residential property tax, but the single fault I have just described renders this tax unjust and inequitable. The Government has wooden headedly refused to acknowledge what every dog in the street knows to be true, that is, the residential property tax is an unjust tax which penalises urban dwellers.

Was it the Senator's party which said "Too late, too late" when they introduced it?

The former Minister will see when he goes canvassing in west Mayo in the weeks ahead——

I am touched by the residential property tax. Did the Senator's party say it was an unjust tax when they were introducing it?

The Government has guaranteed that next June——

How many people in west Mayo pay property tax?

Senator Burke without interruption, please.

I assure the Minister that the Government will pay a hefty penalty. The residential property tax is an unjust and inequitable tax. It deserves to go and should be removed from the Statue Book now. I assure the people of Castlebar, Mayo West and Dublin South Central, the Irish people and the home owners of this country that when we get back into Government we will remove the residential property tax.

Which the Senator's party introduced.

We would like the Minister to announce that when he arrives in Mayo West during the——

Big in Ballyhaunis.

——campaign to put the Commissioner's daughter in the Dáil. We have other plans and I assure Senators that we will win that seat. We are very confident.

I want to discuss another tax, which on the face of it is a smaller issue than the residential property tax. It is the cruel taxation of indigenous Irish service enterprises. It is a serious issue which raises many important questions about the Government's attitude to tax reform. It is a classic demonstration of the Government's failure to put in place a just and equitable system of taxation. It also raises questions about the usefulness of the new Select Committee on Finance and General Affairs.

Politics is a resolution of conflicts. It is not so much about securing the greater good, but maintaining public repose. It is the same in matters of taxation. One can restore repose by either ensuring that all benefit equally from a tax law or that none benefits. Either will restore public repose by maintaining equity and fairness. The Minister was offered both alternatives in relation to a most unfair and inequitable part of the income tax provisions but he failed to accept either. As with the residential property tax, the Minister has singularly failed to maintain the public repose.

At present the tax treatment of a worker's workday meal, the meal he or she must have during the course of their working duties, may seem a trivial matter. However, it fails to meet the criteria that equal wealth should pay equal taxes, that the most wealthy should pay the most taxes and that taxation should not injure businesses. The Minister is aware of these points but on the advice of the taxation unit in his Department or the Revenue Commissioners, or both, he has refused to reform the law to remove inequality and render just what is unjust.

The issue is simple. A meal provided in a work or an office canteen by an employer is entirely exempt from taxation. A meal provided elsewhere — in a restaurant, a cafe or even taken from home — is not exempt. Most employers who have canteens make full use of this exemption and rightly so and they pass it on to their employees in the form of subsidised meal costs. The result is that employees with access to a canteen for their workday meal enjoy a considerable tax advantage over those who do not. Although the benefit varies from employee to employee, the general order of benefit is conservatively estimated at the equivalent of a tax free concession of £2 per worker per working day or half the cost of a meal. Over the year, this amounts to a tax free concession of at least £440. It is not a large sum but it is most helpful in some cases to people who are in need or not well off.

In recognising this, the Revenue Commissioners in 1967 allowed workers, who did not have access to a canteen but who received luncheon vouchers from their employer in lieu, a tax free concession of three shillings; that was about half the cost of a midday meal in those days. The concession ensured justice and equity; the same wealth paid the same taxes. Today, almost 30 years later, the cost of a worker's workday meal has risen to more than £4, with a corresponding tax benefit of £440 to the worker fortunate enough to have access to a canteen.

By how much did the voucher concession rise? Was it by 10-100 per cent to keep pace with inflation? The voucher concession did not rise by a single penny or a fraction of a penny in those 30 years. The concession remains at three shillings, exactly as it was in 1967; there has been one change, three shillings is now 15p. Is this not a remarkably generous concession? What would have paid for half the cost of a meal almost 30 years ago will today pay for a cup of coffee.

Last year, the Minister was asked to raise the concession on vouchers but he refused. Among other reasons, he claimed that the Revenue might lose too much money and that a change would be discriminatory. The second point is an argument based on justice, equity and fair play. By using it, the Minister is attempting to maintain the public repose. If he would not reform the law last year by raising the 15p to £1, he would restore equity by reducing the value of the canteen benefit this year. Such a solution was proposed by Deputy Yates but it was refused. Equity has not been restored. Discrimination remains because the same wealth does not pay the same taxes.

The Dáil Select Committee on Finance and General Affairs has a special role in resolving issues such as those I mentioned. Unfortunately, the experience of this Bill and the Finance Bill, 1993, makes it unlikely that the Select Committee can perform this role satisfactorily, primarily because insufficient time is allowed. Its deliberations are rendered unsatisfactory because it is subject to a guillotine. As a result, financial legislation is adopted but its details are not properly tested by the committee. The Minister should invite the Select Committee to go into special session in order to consider in detail the many issues raised in this and the other House. If necessary, the Select Committee should be empowered to call witnesses, especially people from the small business community who have personal knowledge of the bad effects of the tax code on indigenous industries. Such an inquiry would be most useful.

Despite the Minister's anxiety to be fair, the Bill is seriously unfair. It does not ensure that equal wealth pays equal taxes or that those with the most wealth pay the most taxes. Most assuredly, it does not enable businesses to thrive. Many of the provisions may be good but just as the curate's egg was spoiled by the bad parts so too is the Bill spoiled by its bad parts, whether by commission or omission.

The Finance Bill, 1994, is a major disappointment. It represents a substantial increase in the tax payable by home owners and in such cases it will substantially increase the tax take from those in the middle income sector. We will oppose this Bill because it does not set out any serious strategy to enhance employment prospects through tax reform. We have the highest level of emigration and the second highest unemployment rate in Europe. Our performance will have to improve dramatically if it is to be considered adequate. The Bill deals only with these issues in the context of closing the odd loophole, accompanied by the marginal shifts and technical adjustments.

The Minister in his budget speech made small changes in relation to bus operators reclaiming VAT on buses. I raised this issue during the debate on the Finance Bill, 1993. I thank the Minister for making those small changes but it is obvious that they only go part of the way. The reclaiming of VAT should be extended to all types of buses, whether they are second hand or new. It should also be extended to bus operators to enable them to reclaim VAT on diesel.

I regret the Minister has made no change to the tax treatment of benefit in kind. The provisions of the 1994 budget were savage. I ask the Minister to redress this in the 1995 budget. Prior to the last election, Fianna Fáil and the Labour Party gave solemn promises that they would not tamper with mortgage interest relief. They accused each other of being unreliable on this issue. These promises have been disregarded. I assure the House that the electorate will deal with this on 9 June.

Those on middle incomes feel under siege from this Government; middle income can be defined as those with a joint income in excess of the average industrial wage. The first assault was on the entitlements of insured workers under the PRSI system. They are being asked to pay more PRSI for fewer entitlements. There was an aborted attempt to means test contributory widows' pensions. Pay related benefit has been abolished for those who become ill or unemployed. The taxation of unemployment benefit is particularly insidious for those who have one spouse working and one unemployed. Those on short time or seasonal work have been devastated by the changes. They will soon conclude that they should not work any longer. Middle income earners do not have medical cards but try to provide for their own health care costs as best they can. They are part of the 1.3 million people in the VHI who have to pay their own doctor and pharmacy bills. Section 8 of the Finance Bill raises the threshold for claiming medical expenses for a single person from £50 to £100 and for a family from £150 to £300. This will restrict tax refunds on medical care and can only be construed as a tax on illness.

The provisions in section 7 to standardise VHI tax relief over the next two years is another attack on self-reliant people. It will make VHI membership more expensive at a time when the VHI faces the prospect of competition and increasing charges by the Government for private health facilities in public hospitals.


The combined effect of the mortgage and VHI standardisation provisions sends out a clear message to those on middle incomes which is that they could and should pay more tax. Any review of the tax system over the last decade shows that the impact of the income tax code on parents has been particularly harsh when combined with the social welfare system. A disincentive has emerged against those in employment. Poverty traps have been created through the entitlement to fringe benefits based on gross pay for those at work, while gross and net incomes remain the same for those on social welfare. There is no recognition of the cost of rearing children in the income tax code in the form of basic tax free allowances. The role of the spouse who has given up employment to work full time in the home is totally ignored in the tax treatment of the spouse at work. All these factors need to be changed. Fine Gael believes that families must be supported through tax reforms with the cost of families formally acknowledged in our tax system.

The Government is only partially implementing the recommendations of the Tax Force for Small Businesses. It is estimated that three out of every four new jobs created will be in small enterprises. It is a great pity that the Government could not have lowered the rate of corporation profits tax for companies with profits of less than £80,000 to the standard rate of 27 per cent. Similarly no concession was made in the case of dividend income up to £7,000 per year for full-time directors.

The modification of capital gains tax on business assets held over six years is wholly inadequate. Small businesses are at a distinct disadvantage even when it comes to banking terms. Special concessions should be given to small businesses especially in rural areas and in small towns, and particularly to those businesses which are family owned.

They have been.

They have not; you closed them all right.

They are not happy. The small rural family business, whether it be a shop, pub or other form of small concern, will soon be a thing of the past. The Minister should seriously consider providing special concessions for these people, otherwise there will be no small rural businesses left.

The Taoiseach has stated that he is now in favour of a third banking force. This Government gives the impression that it clearly does not understand where it is going because only a few weeks ago the Minister was in favour of selling the partly State-owned Trustee Savings Bank. Surely there would be no logic in this. On the one hand, you would be setting up a third banking force while, on the other, selling a State-owned bank. To my mind, the two things do not go hand in hand and that is a great error on the part of the Government.

We see from this week's papers that the Minister for Enterprise and Employment, Deputy Quinn, wants to meet with the banks to set up a policy review committee comprised of officials from his Department and bank representatives. It is time for the Minister for Finance to get the State-owned bank, the ICC, to lead the way and reduce its interest rates on loans to small businesses. The reason interest rates for small business are so high is that there are more small businesses than large ones. The risks and failure rate of small businesses is much higher than with big business; and the banks have to make provision for this. The Minister should introduce measures to give guarantees and reduce the risks to the banking fraternity in relation to small businesses. The banks will then be in a position to reduce their rates for small business loans in line with what they charge the larger businesses otherwise this will be seen as a cosmetic exercise for the pending local and European elections as well as the two Dáil by-elections.

The Taoiseach made a big announcement calling on the banks to reduce their interest rates knowing full well that the Central Bank was about to reduce its rate. People will not be fooled by this because everybody knows that money rates are market driven.

Soft-soaping Labour.

No reference has been made to the State-owned bank reducing its rate while at the same time the other banks are called on to reduce their rates. The Minister should look seriously at that, and both the ICC and the Government should lead the way on this.

There is no research and development policy in this country and the ISO 900 is of little importance to the majority of companies. We need a strong Department of Industry to give money directly — with no agencies involved — to the manufacturers, the people who will improve our manufacturing base and our industries. Between 200 and 300 patents go through the Patent Office each week. What happens to them? It takes years to put a patent through. The other day I was in the Belmullet area where three industries are manufacturing items that will be world market leaders when they are developed. One is a prototype tent based on a lorry and was used by U2's stage manager in America. It accommodates 200 to 300 people seated at round tables, can be erected in 20 to 30 minutes and transported to any part of the country. The Minister will probably be able to hold his next ard-fheis in one of those tents in any part of the country. It is ideas like this the Government should be examining and they should provide capital directly to those manufacturers rather than going through agencies. That company got a better response from Údarás na Gaeltachta than from the IDA. I know it is in the Údarás area but they latched on to this idea much more quickly than the IDA, and I want to give them credit for that.

A mobile round table?

That would have been needed around this House recently.

A big one.

It could only happen in Belmullet.

The time it takes people with ideas to get patents was brought home to us and that suggests that there needs to be a shake-up in this area.

The tax treatment of investments still militates heavily against enterprise. Our rate of new businesses established annually is half that of Europe and America. Value added tax remains our second most significant tax with receipts of over £2.5 billion this year. The Minister said he is raising the tax threshold for both goods and services thus relieving very small businesses of the obligations associated with tax registration. I will discuss this provision on Committee Stage. The thresholds have been raised from £15,000 to £20,000 and from £20,000 to £40,000. The business with a threshold of £20,000 should be exempt from VAT because a person who earns £21,000 is at a distinct disadvantage to the person turning over £20,000. There should be a system to help those below a certain limit.

I regret that the Minister has still not seen fit to give any concession to the clothing and footwear industries despite their employment, at retail level, of 30,000 people. The top rate of VAT at 21 per cent is simply too high. The Minister will have enormous problems with VAT harmonisation in 1996 if the current proposals are implemented and progress is not made in reducing the top rate. We have a good clothing industry and the Minister should look seriously at this matter. John Rocha, one of our clothing designers, won the British Designer of the year Award and that was a significant help to the Irish clothing industry but that industry is hampered by this unjust VAT rate of 21 per cent. It puts our clothing manufacturers at a distinct disadvantage because those who import such goods no longer have to pay VAT at the point of entry.

We are told that the Department of Finance is working on the introduction of rates by the back door. It is common knowledge that this Government intends to introduce a tax on every house in the country. I am delighted that the writ for the west Mayo by-election was moved this morning. The people of west Mayo will not accept the introduction of rates and they will give the Government that message on 9 June.

In 1993 Ireland attracted over 3.25 million overseas tourists who spent an estimated £955 million. This is an increase of £451 million since 1987 and a growth of 60 per cent in real terms. Since 1987 tourism has created over 28,000 new jobs in the economy. This represents more than one third of all new jobs created in Ireland. In many studies the tourism industry in the west has been highlighted as an area of great potential and the recent bishops' initiative in the west called for proactive Government policies in that regard. Recent public comment from the Minister for Tourism and Trade suggests less Government intervention and this is a cause of concern to disadvantaged areas such as the west where the infrastructure remains underdeveloped compared to other regions.

The loss in registered accommodation has been compensated for by the growth in home and self-catering accommodation. However, the registered sector has potential for higher value added and provides more employment opportunities. The cause of the loss of registered accommodation should be examined and an instrument incentive should be introduced to address this situation. If the Minister for Tourism and Trade adopts the policy of reducing Government intervention and expects the tourism industry to intervene on its own behalf, it follows that those regions with a well developed tourism product and large private sector players will intervene on their own behalf. This policy will only serve to exacerbate the present imbalance. In addition, such a policy is contrary to the policy called for in the bishops' initiative and the response of the Taoiseach. More regional marketing is required to enhance the profile of the west and relieve congested areas in peak season. We should be allowed to develop under-developed regions with Government incentives. The playing pitch is not level.

An article headed "£3m marketing campaign aimed at increasing US tourist numbers" was published in The Irish Times yesterday. It stated: “The campaign is being managed by a Dublin based consultancy, Tourism and Leisure Partners, which is to be paid £60,000. It is overseen by a committee chaired by the Department of Tourism and Trade”.

More consultants.

We will find a job for you.

The Government must have no confidence in Bord Fáilte. This arrangement will cost £57 per person attracted to this country. It is another case of jobs for the boys. The Minister would be better paid if he looked at the small hotel sector and grant aided it rather than doing what was stated in the newspaper. He should grant aid small hotels by a small amount per head——

Give them a fiver each.

——instead of grant aiding large conference centres. The Government must have no confidence in our State agencies.

What do the agencies cost?

The high profile members of the Civil Service were replaced with programme managers. Now we have consultancy firms representing State agencies. It must be a real bore to work in any Department within the State sector.

The Minister for Finance should not attempt to campaign in the west Mayo by-election unless he gives a commitment to the establishment of a regional technical college in Mayo and gives——

I am glad the Senator reminded me. We are looking for the same in Thurles.

Are there still people in the west?

——the go-ahead for the second phase of Mayo general hospital. He must also give a commitment that we will get our proper share of Structural Funds.

I will not take 40 minutes, although if I had four hours I could not adequately express the comprehensive detail the Minister for Finance has included in this particularly positive Finance Bill.

The Finance Bill is the third leg of the autumn-spring treble. The first leg is the annual expenditure review and control in the allocation for public expenditure is a very important part of that exercise. The second leg is the budget which gives effect to tax adjustments made on the basis of the Government's decisions on public expenditure. The third leg of the treble is the Finance Bill which gives legislative effect to the provisions in the annual budget. The third leg of the treble which the Minister has introduced today is perhaps the most successful of the three stage treble. It contains the most comprehensive list of instruments and incentives for the promotion of the enterprise culture, particularly in small businesses.

Senator Burke appears to have overlooked the details outlined by the Minister in his Second Stage speech.

I must be living in another country.

The Senator was not even here; he should have been here to listen to the statement.

I was outside listening to the people.

If the Senator is not here to listen to the Minister, he cannot complain that he did not hear what the Minister said. When Senator Cregan has the opportunity to study the speech, he will see the Bill contains the most comprehensive package of incentives and aid to enterprise to have been introduced for a considerable time, especially incentives and aid to small businesses. This is important at a time when Ireland has one of the best economic performances in the industrialised world, with strong growth, low inflation, a balance of payments surplus and a radical improvement in public finances. Some people might say we have heard all this before.

We have.

The significant achievement is to combine the level of growth consistently obtained in recent years with low inflation. We have avoided hyper inflation, and that is a central priority of good Government.

There are no jobs.

We have achieved that and we have consistently and vigorously maintained it. I take some small, modest credit for these achievements because I was happy to be a member of the Government in which the foundations for this healthy condition were firmly laid; the economic and fiscal policies of the 1987 Fianna Fáil Government.

It has not been sufficiently recorded, much less adequately recognised, that the current Minister for Finance, in his role as Minister for Labour in that Government, played a huge role in bringing to fruition our effective strategy under the Programme for Economic and Social Progress, part of the overall correction of the public finances. No other person in Government would have been able to establish the relationship with the labour unions, maintain discipline and partnership with them and make them part of the successful economic development programme now firmly in place. I think it was the view of all his colleagues of the time, including myself, that no one was as well equipped to do that as Deputy Ahern.

Having been in the forefront when the difficult decisions were made, it is appropriate that he is now able to develop the economy. Those decisions were hard but they were necessary and they have released the economy from the overburdening weight of public expenditure and ever increasing borrowing which were crucial problems during those years. Before we can have a Finance Bill such as that introduced by the Minister today, we must regulate and control public expenditure. That has been a successful criterion of this Government and of the Government which preceded it, which initially took those difficult decisions.

All international bodies and commentators recognise that Ireland's performance has exceeded that of every other European and western economy. That is a matter of great pride and it has also been a major incentive for external investment. Investment consultants around the world meet every day to examine the fiscal parameters of every country and the decisions they make in advising their clients will be influenced by the economic conditions in the countries they observe.

All sources indicate that signals about Ireland are extremely positive. By comparison with almost any other country in the developed world, we have achieved great consistency in maintaining low inflation, stable Government, strong growth patterns and a positive balance of payments. These are the parameters which influence investment decisions.

There are no jobs, however.

I will come to that. I am concerned about jobs, as is Senator Cregan. I notice he has not contradicted me about the performance under the criteria mentioned. We share the view that if the jobs crisis is not tackled, economic performance is of no consequence.

It should be of concern to everyone.

The trends in 1994 look even healthier than those in 1993. Even last year Ireland had the strongest growth rate in the EU, with GDP growth of between 2.25 and 2.5 per cent compared to a decline of 0.5 per cent in GDP in the EU as a whole. Not for the first time we were out of line with the rest of Europe. Previously when we were out of step, other countries were growing and we were contracting. Senator Cregan will remember the dreadful 1970s and the even more dismal 1980s. I am happy to say we are still out of line but for different reasons. Now other countries are contracting but we are growing and expanding under all known criteria. It is quite clear from the pattern of this Finance Bill——

They are still well ahead of us.

We are now at 80 per cent of the level of other EU countries as against 62 per cent; we have gained 18 percentage points in five years.

I do not deny that but we are still behind.

The Minister will be aware there is sometimes a rational consensus in this Upper Chamber where we can look at things in a more objective and detached way.

I was never irrational. Let us talk about jobs.

I will come to jobs. As a man involved in business, Senator Cregan knows that, before we can talk about jobs, we have to ensure the conditions for investment in jobs.

The conditions are not mentioned in the speech or in the Finance Bill as Senator O'Kennedy knows.

The Senator and I know, and the IMF, the OECD, the Government, the EU and the European Commission all acknowledge, that Ireland is the healthiest investment base in the developed world. The IMF and the OECD predict a gradual upturn in the world economy, with growth doubling to approximately 2.5 per cent. The expectation is that even the EU should return to modest positive growth after the GDP decline in 1993 and this economy is poised to take advantage of the EU upturn. Government actions over the years have laid the basis and this Finance Bill will further secure that position.

Senator Cregan has raised an appropriate and relevant question. When will we see this translated into extra jobs? Everyone has a role to play here and when Government does its job, all other institutions must play their appropriate role. It is especially important for the banking sector and other financial institutions to contribute. We have had effective Government action but it must be supported and sustained by consistent moves from the financial institutions and the banking sector.

It is clear that the healthy economic climate, with low inflation and a strong balance of payments position, has created a positive climate for the financial institutions in Ireland. This positive climate is reflected in the buoyant profits of all the major banks in recent times. No one is about to sharply criticise those profits but that could not happen without Government action over the years; almost all of these have been record profits.

The consistent pattern of improved performance in shareholder dividends and bank profits is reflected in a statement by the chief executive of one bank in today's newspapers. This is an extraordinary statement but highly significant. Reporting a 39 per cent increase in pre-tax profits, he referred to his bank as a "boring profitable bank". Is it not lovely to be a "boring profitable bank"——

Whose fault is that?

——reporting an increase of 39 per cent?

It is our fault because we allow it.

I am sure Senator Quinn, who has experience in the enterprise sector, would love to be able to say that his successful enterprise is a boring profitable one.

It has been that way for the last couple of years.

Part of the reason for this boring profitability may be that the climate for profitability is so positive that one does not have to work too hard to earn the profits. Profitability may be a feature of the banking scene these days but it is not a consistent feature of the most vigorous, sophisticated and determined enterprise, particularly in the manufacturing sector.

I have great regard for the services sector in which Senator Quinn is involved. It also has a major role to play, but it will never talk in terms of boring profitability. One of the reasons for this is that the enterprise sector, whether manufacturing or services, and particularly small businesses, is experiencing difficulties raising adequate working capital at reasonable rates to finance their growth plans. They will never complain about boring predictable profits.

It is significant that all the European surveys of the enterprise sector acknowledge that in Ireland the climate for investment is top of the league as a positive boost to profitable investment. However, we need and we are entitled to vigorous support from the banking sector to ensure that the healthy environment for profits will also be converted into a positive environment for employment. As Senator Cregan correctly suggested, that is the only significant test as far as the people are concerned. Anyone who has experience of dealing with the public will know that it is of little relevance to talk in terms of fiscal aggregates and parameters unless job security for the wage earner or the family is at the base. That is why we all have a role to play. I will discuss the details later because I do not want to repeat what the Minister has outlined.

The funding operations in Ireland, through the financial institutions, are limited and expensive, particularly for small business and those on overdrafts or involved in leasing. While this short term arrangement may be profitable for the banks, it is costly and onerous for the enterprise sector, particularly the small sector on which we rely to generate much needed employment. The banks and financial institutions must develop an enterprise promotion culture and a partnership attitude to the enterprise sector.

I want to refer to my time as Minister for Agriculture when there was a crucial need in the agricultural sector, which was the base of the productive manufacturing sector, to increase our national breeding herd. This was critical for our economy. I had consultations with the banks, the industry and the then Minister for Finance to ensure that we could give special incentives, by way of reduced interest rates, to that sector to build up our national herd in which they had an interest and where they had made their profits over the years. One of the major banks — I will leave it to the people to find out which — refused to co-operate in that vital national programme and, as a result, the other banks felt they could not participate.

They should have been made co-operate.

I would have made them co-operate if I had had the power. I would like people to inquire which bank it was.

It cost us a £1 billion in valuation.

When I outlined to this bank that it had made its profits over the years from the productive agricultural sector, it still would not play its appropriate role in building up our national asset. We did it without this banks' help, although we experienced some difficulties. Now it enjoys the benefits and profitability of a healthy cattle and beef sector. The partnership of risk and investment is an essential feature which has not been a factor in Irish financial institutions. If one is a big customer, one can negotiate terms, but the small customer, who is trying to improve his situation, is not in that privileged position.

I want to refer to the Japanese economy, among others, because, over the years, its success has been firmly rooted in an enterprising and risk taking culture in the financial institutions. Each one has an enterprise manager involved at every level of its operations. They are partners in risk and in profit and they have been the foundation of the Japanese success. The same can be said of Germany. It is time our financial institutions took the same approach because all the objective reports on the Irish economy underline the anomaly between strong economic performance and continuing record levels of unemployment. No one wants to overstate or aggravate their significance, despite recent improvements. Spain has a higher level of unemployment than we have; the Greeks and the Portuguese have a different way of calculating it.

Our own is not much better.

I am not an enthusiast for many of the massaged training schemes. I would prefer to give the enterprise sector the opportunity to do things themselves rather than having State intervention through a range of agencies and schemes. The incentive for business is the opportunity for reasonable profit and reinvestment in successful enterprise.

As the Taoiseach recently pointed out, the gap between the interest on large demand deposits, for example, and the interest paid on loans for working capital for small business has widened from 2.75 per cent in 1979 to approximately 10.75 per cent recently and now 10.5 per cent. I was the Minister for Finance in 1979. We made some mistakes collectively, but we laid the basis for some things which were right. I was concerned to ensure that as far as possible a reasonable relationship between interest paid on deposits and interest paid on loans for working capital, in particular, would be maintained. We have come a long way since then. It is right and proper to remind that privileged and protected sector of our economy that the economy is not only there to maintain its profitability on the basis of such disparities.

With such a buoyant economic climate and such generous profits for the banking sector in particular, it is time to radically review the role of the financial institutions in the economy, particularly their protected positions in relation to interest rates and banking charges. Small businesses, people who are trying to start-up a business, or people looking for loan funding are aware of this.

It is significant that there is disaffection for banking services at a time of unprecedented economic growth and stability; that is an extraordinary criticism. It is equally significant that disenchantment with the banking system is reflected in the growth of the credit union movement. I have nothing but admiration for the credit union movement. It will continue to grow because people believe credit unions share the commitment and the deposit responsibility but it also shares the reduced level of interest on borrowings. It is one of the huge growth areas in the community. The credit union movement is now a feature of Irish life.

It is big business.

Of course it is big business. We will also see growth in community based financial co-operatives. We cannot ignore this. Although I admire those involved in enterprise — there are two Members on the other side of the House at present involved in business — I could not have been a successful businessman. However, I had some notion as to what made that particular creature and what gave him the incentive to expand. That is not being provided by the financial services sector at present.

It is reasonable to assume — it would be unthinkable to change policies which are now firmly in place — that if the Government adhere to the programme of the prudent management of public finances in operation since 1987, the level of external confidence in the economy will continue and it will guarantee continued and even increased levels of investment. Indications I get from sources outside suggest that is a positive signal at this time. To achieve continued and increased levels of investment it must, as a matter of urgency, be reflected in a real and sustainable increase in employment. If that is to be achieved, the profits which have been a consistent feature of the banking sector must become a characteristic of the efficient enterprise sector. Those involved in that sector are taking the risk but this can only be done with a more supportive and positive policy on the part of the banking sector toward new and small business in particular.

Even if this was done I do not believe that small indigenous industry could present itself as a boring and profitable business. It is essential that it should be able to present itself as a productive and employment creating enterprise and it is entitled to support from the banking system rather than the frustration it experiences in the pursuit of the national priority — employment creation.

I would like to refer to a number of areas in the Bill. The Minister targeted the areas where we need to indicate our continued support by way of tax concessions. I agree with a lot of what Senator Burke said, but he was mistaken when he said there was no mention of an incentive for research and development, particularly by way of relief on patent royalties. With others, I lobbied the Minister in relation to relief for patent royalties. I made a strange case to him; my proposal would target relief on patent royalties more effectively to ensure those who use it for bona fide research and development programmes would benefit as distinct from those using it for purposes other than what it was intended.

If one dissipates the results of reliefs or incentives of this nature, they become less effective for those for whom they were intended. Significantly, it was the financial institutions, not all the banks, and others which used that provision in existing legislation to get a benefit intended for those who invest in research and development and employ graduates. One such company is located in the Cathaoirleach's home town and it is important to employment in that sector.

I am happy the Minister amended the legislation to ensure selective targeting of enterprises engaged in vigorous and constant research and which are developing important patents and earning significant royalties. I hope that, because it will no longer apply willy-nilly to others, it will be an incentive to the manufacturing sector to engage in appropriate research and development and to earn effective royalties from patents which will continue to enjoy relief.

The tourism sector is of vital importance to the economy and it provides a major employment quota. The Minister has made significant proposals in respect of tax breaks for hotel development. In spite of what we would like to think, we do not have a hotel sector in terms of accommodation or services comparable to what is available in other countries.

I am happy that Egon Ronay recently recorded that we have some hotels at the top setting a standard which many others are trying to emulate. While this will guarantee continued development and expansion, that standard must be followed and emulated by others which are not at that level. France, Italy, and Switzerland, for example, have built their tourism industry not only on the basis of the sun — we may like to believe that — but also on quality service at all levels. The Minister's targeting of the hotel sector is on the button. I have no doubt that given the positive attitude to Ireland, its culture, its climate in every sense of the word and its people, who are usually good humoured, now is the right time to target the hotel sector.

Because of my most recent experience in Government, I would be expected to refer to the farm sector. I am happy this sector has been specifically targeted because allowances cannot be spread all over the place. The improved annual allowance for farm buildings is important. This is an area about which I was concerned in terms of animal health, which is of crucial importance, and hygiene standards, which is equally important when developing a food sector. We cannot have an effective food sector — this is a priority for many Members — without a healthy, efficient and hygienic production sector.

I welcome the improved annual allowances the Minister has introduced. The measures exempting spouses from probate tax will have a very positive effect in rural Ireland. It was a matter of major contention and great concern and I hope that, together with the other income tax changes — which I do not propose to go into detail now — which apply to everyone, it will have a significant positive effect.

There is an enterprising group in the agriculture area called the Farm Relief Service Group. They are a group of young people from Macra na Feirme who saw a need to provide a service to farmers who may want to take a holiday or who may be ill. These young people — I had the privilege of meeting and working with them — launched the farm relief services, which has been a great success. Anyone who has dealings with them will recognise they are providing a vital service in rural Ireland. They are also injecting a level of knowledge and professionalism into those farm enterprises.

I am selecting certain elements of the Bill because I could not go through all of them. I am happy the Minister has selected this service for exemption from corporation tax on the basis of payments earned from Government. That is of considerable significance.

We have tried to maximise the advantages of what we have. Clearly the confidence of our people in terms of our culture in the broadest sense is a great new feature. I have always appreciated our culture and the more I came into contact with other cultures the more I appreciated our own as being part of the universal culture.

People are now aware of the contribution our music, song, dance and particularly our film making industry can make to the future of this country and I am happy to see that recognised in the Finance Bill. Most people will say the Finance Bill does not have much to do with it, but I welcome the role of the Minister for Arts, Culture and the Gaeltacht who is enthusiastically committed to promoting our culture in its broadest sense. The fact that he has been given a new role in relation to tax relief for investment in Irish film making companies in consultation with the Minister for Finance will create a confident environment.

I have become very conscious, through my contact with people from other countries, that they see great prospects in Ireland, particularly where culture related activities are concerned. It is right that the Minister for Arts, Culture and the Gaeltacht should have a role in defining which film making companies should benefit from the very special tax exemptions that have been introduced. That is a very important feature of this legislation.

I suppose I will be forgiven, as others have been, for being a little parochial. Senator Burke, with the by-election in west Mayo in mind, made a plea for further support for the college in Castlebar. There is to my knowledge, no by-election pending in north Tipperary, but there is an institution there which has been researched and developed with all the best advice not just in Ireland but from other countries as well — the Tipperary Rural Business Development Institute. I hope that in terms of national priority, not just because Thurles needs it, although God knows it does, but because of our need for an enterprise attitude in rural development, the concept will be supported vigorously by the Government as has been the development in Castlebar.

The Minister for the Environment will look after Senator O'Kennedy.

Senator Burke said that the Minister has a role to play — I hope I do not quote him out of context — in helping small business by reducing the risk to the banking fraternity in their funding of small businesses. There he and I are diametrically opposed. I do not see it as a role of the Government to reduce a risk to the banking fraternity in their dealings with small business or any other business. I hope I did not misunderstand what Senator Burke said, the way to reduce risk to the banking fraternity — and that is important — is to create the right climate for investment, inflation must be reduced, public expenditure must be controlled, and the Government must not respond to every demand for funding. The risk to the banking fraternity is not reduced by giving them extra money or subsidies to pass on to small businesses. There Senator Burke and I are in direct confrontation, at least on what I understood him to say. We will have an opportunity on Committee Stage to go into detail. I am glad of the opportunity to welcome the consistent and positive trend which is evident once again in this Finance Bill.

I am glad to have this opportunity to speak on the Finance Bill. I listened carefully to Senator O'Kennedy's, to Senator Burke's and to the Minister's speeches. The Finance Bill is one of the most important and complex pieces of legislation to come before the Oireachtas each year. We need to look at how this law is now being handled because it gives rise to some concern. A massive and highly technical Bill of 74 pages is disposed of in the Seanad in less than two days' debate, and the guillotine at the end.

It was never done that way.

We cannot give this Bill meaningful scrutiny in that limited time. Let us look at how the Bill is treated in the Oireachtas as a whole. We are entitled to do this in general terms without encroaching on anybody's privileges. There should be concern about the extent to which the detailed scrutiny of this Bill in the other House has become virtually invisible to the general public as a result of it being debated in a Special Committee. That is an unexpected side effect of the Special Committee arrangements, which in general are very good. A substantial amount of totally new material was introduced by way of Government amendment at relatively late stages in the process in the other House — on Committee and Report Stages. An example of this was the new chapter on taxation on residences. That meant that a great deal of the very limited time that was available was spent dealing with this new material, and it created a highly undesirable impression of legislation being passed without proper attention being given to it.

I am aware of the difficulties involved here. Some of this crowding is clearly due to the Government's very heavy legislative programme but that presumably will not go on for ever. I am talking about the legislative programme, not the Government. We will have to find a better way of coping with the increasing complexity and the sheer length of the finance legislation.

It is not like me to make a complaint without making a concrete proposal to solve it. This Bill falls into two broad areas, one is fairly straightforward which puts into effect the provisions in January's budget with regard to the rates of tax and exemptions. The other element is the more detailed, more technical and more obvious matters not dealt with in the budget. A good deal of the Bill is new legislation, some of it involving quite important principles and all of it deserving far more scrutiny than either House can give it under the present arrangements.

I propose that from now on we should split the Finance Bill into two Bills — Finance Bill No. 1 and Finance Bill No. 2. The first Bill could be introduced soon after the budget and would deal with routine matters. That part of the legislation is relatively easy to draft; I suggest, with due respect to the draftsmen, that a good deal of it could be done by a word processor. A precedent would be the annual Social Welfare Bill which gives effect to the relevant provisions of the budget. It appears fairly smartly and gets adequate scrutiny in both Houses. Soon after the budget, side by side with the Social Welfare Bill, we should have the first of the Finance Bills to deal with the relatively routine matters. That would relieve some of the time pressures.

All the other provisions could be dealt with in the second Finance Bill. This could be taken at this time of the year or in the autumn with the provisions, perhaps, not coming into effect until the following year. It could be slotted into the legislative schedule in a way that would allow quite detailed scrutiny and a full discussion of matters that would involve important principles. Under this new arrangement the second Bill could be initiated in this House. I am aware that the power of this House to amend the provisions of such Bills are limited if, indeed, they exist at all, but that does not matter greatly. This House has the expertise to make a real contribution to the passing of finance legislation but it cannot do so in the context of the mini debate we try to squeeze into two days.

My comments on this Bill will be mostly of a general nature. It is desirable that a clear trend be established in Finance Bills over a number of years. Citizens should get a clear and consistent message as to where policy is going in its approach to taxation. I am concerned that, when we look at this Bill in the context of its predecessors, we come across a message — if we can see one at all — that is, at best, muddied. I do not have to tell the Minister or his officials that there is an inexorable logic about the arithmetic of taxation. Unless we suddenly strike oil, and we seem to have given up hope of that in recent years, the amount we have to raise from taxation in the future will not be significantly less than we need now. On that basis we have two options. We can have a wide tax base at low tax rates, or a narrow tax base at high tax rates. We cannot lower tax rates without widening the tax base. There are two ways to do that — more taxes and/or fewer exemptions to taxes or no exemptions at all.

What message does this Bill send out on the trend in taxation? Successive Finance Bills should give the same message year after year, which is that the long-term consistent trend is toward widening the tax base and lowering rates. Unfortunately, the message is a little muddied — it is a question of one step forward and, sometimes, two steps back. Even within the confines of this year's Bill we have attempts to widen the base and attempts to narrow the base uneasily sitting side by side. One of the difficulties created is that the people who stand to lose by any particular widening of the base feel they have been hard done by.

Blue murder has been screamed at the Minister over the past few months. People are not against tax reform when it applies to them, rather they are against it when it seems arbitrary and unfair and when the principle of widening is being contradicted by narrowing at the same time and by the creation of new exemptions and new reliefs. After the budget the Minister was heard to observe rather bitterly, and understandably, that if people could not swallow the relatively modest extension of the residential property tax there was little hope for general tax reform. I disagree; tax reform can be sold if it is seen to be fair and consistent. Consistency is the key; picking a principle and applying it year after year until the job is done.

Part of the problem is that the debate on tax reform has been about lowering tax rates instead of convincing people that the only way to lower tax rates is by widening the tax base. That is what the discussion should be about. If it was about that people could eventually be persuaded that a wider base is a worthwhile price to pay for lower tax rates. As long as we restrict the debate about taxation to the sole question of lowering taxes we are building up expectations on which we cannot deliver now or in the future.

I am not arguing totally against using the tax system to stimulate economic activity. The urban renewal incentives have been quite effective in speeding up a process that might never have taken place without them. What we have done to attract inward investment, most recently in financial services, is worthwhile and the Minister is to be congratulated on it. This is all right when it happens on the margins but when incentives and exemptions start to erode the tax base — as has been the case for many years — the time has come to put the process decisively into reverse and clearly signal that as the direction which is being taken. It is a point of principle of which the Minister is aware and I urge and encourage him to strengthen his resolve in that regard. It is a sales job that has to be done.

I would highlight a few aspects of how easy it is for the tax system to become dysfunctional and end up doing exactly what it should not do. It springs from the fact that every distortion entered into the system usually has a bad as well as a good effect and sometimes the bad effect can outweigh the good. One distortion which made sense at one time but which now seems downright dangerous for the future is the favourable treatment which has been given for over 30 years to manufacturing at the expense of services. I was interested to hear Senator O'Kennedy speak about this matter, so I hope I am not just speaking as a vested interest.

Service companies pay corporation tax at a rate four times higher than manufacturing companies. That made sense when it was introduced originally. However, it does not make sense any longer because the service sector is where the jobs will be created in the future. Indeed, all present growth in employment is in this area. This system penalises the areas that can address our most serious national problem. There must be something wrong with that principle. How long will we go on perpetrating that out of date policy? I do not know, but it should be tackled.

The second distortion that this Finance Bill is in the process of introducing is putting a premium on businesses staying small. This discourages them from growing. I have long been a champion of small businesses — I have spoken often about them in this House — and I am glad to see they are getting some of the attention they lacked for many years and I congratulate the Minister for that.

The Minister was clearly impressed by the report of the Task Force on Small Business — he often referred to it in his speech — and has taken steps to do something about it. In reaching out to encourage small business, we are in danger of thinking it is worthwhile to encourage small business only because they are small. The reverse should be the case. We want to encourage small businesses to become bigger and to grow. Our emphasis should be on growing businesses, not small ones.

I am concerned that the provisions in this Bill extend concessions to businesses only as long as they stay below a certain size. Of course that is not the intention of this Bill, but it will have the effect of discouraging growth beyond a certain point. As anyone in the development agencies will say, a major problem is that many companies are not motivated to grow because they are doing well at their present size. The State has a vested interest in encouraging them to grow, instead of confirming and endorsing their reluctance to do so, and we have to be careful not to encourage the wrong approach. This provision must sound to somebody thinking of investing and taking on more people that they are okay as long as they do not get any bigger because if they do, they lose those benefits. That is not the intention of the Bill, but there is a danger of it happening. I know the Minister is aware of it and he will try to do something about it.

The last distortion is an area in which I have direct personal experience and a vested interest. I raised this matter on last year's Finance Bill and I got the impression the Minister listened sympathetically to my point of principle. I want to return to it now because not enough has been done in this area. This distortion arises with family companies as they compete with other kinds of companies — public and foreign. Family companies, even after the concessions in this Bill have to provide for passing on their shareholding in a way that is different to other companies; on the death of the holder. The State, in section 60 of the 1985 Act, encourages families to be prudent and to take out insurance to cover the tax liability. The distortion arises because it imposes an extra running cost on that family business which reduces its ability to compete on a level playing field with non-family businesses. The world marketplace is getting increasingly competitive and the family business is competing with one hand tied behind its back. Each year the owner has to take money out of the business; public companies do not have to do that. The Minister has taken steps to remedy this but it still places that family business, which is another growth area, at a disadvantage.

First, the expense of the insurance has to be met each year. That cost is, in effect, almost doubled because it is not allowed as a business expense and has to be paid out of net rather than gross income. I am not making any special plea. The State has an interest in helping family businesses to make the transition from one generation to another as smoothly as possible. That is the only way we will maintain those businesses and jobs. That was recognised in the 1986 Act. The inadvertent consequence of that provision is that it handicaps family businesses competing with other types of companies, including foreign ones. That is yet another case of how easy it is for the tax system to have consequences which were not anticipated or intended but still could be the outcome of a well intended measure. We penalise the area where the main jobs are — services; we encourage companies to stay small when the real objective should be to make them grow and we make it harder for the family firm, which is the backbone of the economy and job creation, to compete effectively in the marketplace. I am concerned about these areas, and so is the Minister. I believe he will take steps to ensure these anomalies do not have the wrong effect.

I welcome some of the provisions of this Bill; I have concerns about others, but we should find a better way to deal with this crucially important legislation year after year.

I welcome the Minister's speech and the general trend of the Finance Bill. I can see in it measures that will encourage employment and enterprise. Unemployment and emigration have bedevilled this country through our history, and not only today.

When discussing the budget we are referring to broad multi-part units. There is no manna from heaven here as far as giving concessions is concerned. They have to be financed from taxation. The focus of this year's Bill is a series of policies to assist in the creation of sustainable employment. That is done through tax reform, especially in the personal income tax level, and in a variety of measures the Minister has introduced to build up competitiveness, to promote the use of our natural resources and to stimulate and reward genuine enterprise. I am glad the Minister took into account the views expressed by the Task Force on Small Business and the Task Force on Jobs in Services.

The Minister has made special concessions with regard to the special capital gains tax rate for individuals in respect of shares in unquoted trading companies. The aim of this measure is to provide funds to develop job creating businesses to keep our people in gainful employment and off the dole queue.

I also welcome the roll-over relief by way of capital gains tax and the business assets relief under capital acquisition tax. All these measures will help to stimulate employment and encourage employers to take on more workers, as will the seed capital scheme with its easier income qualification tests for new start up businesses by employees and the unemployed. I welcome the raising of the VAT thresholds for the goods and services sectors. Many small businesses, such as shops, which have been hard hit by various circumstances will benefit from this relief.

I especially welcome the incentives for urban renewal. People in rural areas do not often see the decay in our cities. The nearest cities to me are Cork and Limerick, but this decay can also be seen in Dublin. While incentives are in place for the bigger towns and cities, consideration should be given to the smaller towns and villages — down to the crossroads trading areas where the small pub, the shop, the store, the school, etc. were a hive of activity before the advent of the motor car.

There are buildings, or parts of buildings derelict in some smaller villages and towns which require attention and they could be converted into houses for the elderly so that these people would be near essential services. New houses should be built in town centres rather than on the outskirts and there should be urban renewal in towns and villages which have vacant rooms over shops, etc. These rooms should be converted to provide homes for the elderly, the young, lone parents, etc. Such developments would benefit everyone — those living there, the owners of the buildings, etc. — and they would add to the attractiveness of the locality. This, in turn, would benefit the tidy towns sector and the local tourism industry. In view of this, urban renewal should be considered in a general way and it should not be confined to the cities and larger towns as is the case at present.

I welcome the improved annual capital allowance for hotel development and farm buildings and the granting of capital allowances for the purchase of computer software or the right to use such software. The computer cannot be ignored in the development of any business, big or small. Highly technical services are required, and anybody developing a start up business must have the necessary software and technical equipment.

The new provisions by way of relief on investment in the film industry and the assistance provided to low budget Irish films are to be welcomed, as are the reliefs provided in respect of stamp duty, including the new appeals procedure which will benefit those involved in the transferring, inheritance, making of gifts, etc., of property. At present such transactions can be a considerable financial worry and burden for those involved.

I welcome the major steps forward in the Government's tax reform programme as set out in the Bill, especially on income tax. Many taxpayers have been removed from liability to pay income tax at the higher rate. Consideration must be given not only to the person paying income tax at the 48 per cent rate, but also to those providing employment. If an employer wishes to give his employee a rise of £1, it will cost him more than £2 in real terms.

The increase in the tax free allowance from £2,175 to £2,350, with pro rata increases for married people, widows and single persons, is to be welcomed, as is the increase in the standard tax rate band of £525 for the single person, and, where the exemption limit applies, the increase of £100 per child. I especially welcome the reduction in the marginal rate of income tax from 48 per cent to 40 per cent with regard to the exemption limits.

These limits affect people on modest incomes. Often a retired person with a contributory old age pension may have a pension from the county council, forestry or whatever. When the two pensions were combined the person could have been entitled to pay income tax at the 48 per cent rate. This created difficulties and, in consequence, such people became the new poor. In this respect, this reduction in the rate of income tax is of great importance because it provides these people with a proper stand of living in the latter part of their lives.

Often a deduction of £1 or £2 from these pensions caused considerable hardship. For example, I recently met an old man, a friend of mine, who showed me his county council pension cheque. The cheque contains a number of boxes representing deductions for superannuation, income tax and so on. There were many blank boxes on my friend's cheque, but he noted that PRSI had been deducted previously, but not on this occasion. He asked me if himself or his wife was admitted to hospital would they be covered for health services because there was no PRSI deduction. I advised him that anyone earning under £9,000 per annum was now exempt from PRSI deductions. In his case it meant he had an extra £1.83.

This sum may appear small but it illustrates this man's concern. He knew why he was paying this amount weekly and he thought a service would be taken away from him if he stopped paying it. At least the matter has been clarified for him. He knows that anyone earning less than £9,000 is exempt from paying the health contribution and the employment and training levy. This provision is of great benefit to the average taxpayer.

I welcome the tightening up of the section regarding the artists' exemption. There are many young people in the country who, arising from the changes in the education system had the advantage of developing their talents in arts and crafts. In previous years those students would have taken academic subjects — Irish, English, Mathematics, History and Geography. This change has led to the emergence of many gifted artists. These people are providing employment for themselves and their helpers and these exemptions are welcome. I am pleased to note that the loopholes have been closed and that the artists' exemption must show the benefit for which it was introduced.

As regards the co-operative farm relief service, I welcome the help for contractors who provide the farm relief services. Until the five day cow is introduced, farm relief schemes will be required to enable people get away from the land.

I am glad tax relief on investment in Irish film making companies is being amended and that the Minister for Arts, Culture and the Gaeltacht will certify all films on which relief is claimed in accordance with guidelines laid down with the agreement of the Minister for Finance. It is important that we see the amount of employment generated or value added to the economy resulting from relief. There is no use giving relief on a once off basis to someone who will pocket the money and then be gone.

Film making in Ireland is in its infancy and has tremendous potential. I saw the making of two films in recent years in my area. "Broken Harvest" was made in a small village about eight or nine miles from me; "Buttons" was made in a village near Skibbereen. These films generated tremendous local interest. These villages became tourist attractions because people came from many parts of the country to see the films being made. There was also an employment factor. Many local people had to supply costumes. Young people were employed in the making of one film and were paid a certain amount each day; others were hired to do work on the sideline. These examples show that the development of film making could generate a large amount of part-time, and eventually fulltime, jobs.

Urban renewal schemes should be extended to towns and villages so that they can be made better places in which to live and better facilities can be provided for old and young people and those in need of housing. Such an extension would provide more work in areas where it is badly needed because it would result in the construction and refurbishment of houses.

The Finance Bill is doing everything to encourage the development of Irish businesses so as to promote employment, to take more people off the dole and to stop emigration. The Bill is pro-jobs and the Government's strategy is to maximise the employment potential of the economy, especially since it is performing well at the moment.

Many retired people saved money during their working lives; these savings often resulted from the sale of their businesses. Some widows and widowers have to survive on these savings. They do not qualify for pensions because they ran little businesses. Since they did not pay voluntary contributions they do not qualify for contributory pensions. However, because their savings are above a certain figure they do not qualify for non-contributory pensions. These people are often poor because they may have to spend their savings at the age of 60, 65 or 70 and then they have nothing left.

I welcome the special savings accounts interest on which is subject to 10 per cent deposit interest retention tax. The Minister is also introducing special investment accounts. Special investment policies are offered by life assurance companies, special investment units by unit trusts and special portfolio investment accounts by brokers. If people have £50,000 in special savings accounts they can invest £25,000 in special investment products. This will yield interest which may give them a reasonable living as only 10 per cent is deducted from this interest. This is very important for retired people, pensioners, widows and widowers who have no other income in their golden years.

I am glad relief is being granted in respect of the capital acquisitions tax, probate tax and stamp duty paid by young, trained farmers. In line with the commitment given in the Programme for Competitiveness and Work, the Bill provides for a reduction of two-thirds in the stamp duty chargeable on the transfer of agricultural land and buildings to farmers under 35 years of age who have completed an approved training course.

I welcome the Bill and commend it to the House.

It is unfair that the House has only two days to debate the Bill, because we cannot do it justice in that time. This Bill is being rushed through unnecessarily. Over the years the Seanad has devoted a fair amount of time to the Finance Bill. I congratulate the Minister on the Bill. He knows what is happening throughout the country. However, I do not agree with the Bill generally. I am my party's spokesperson on Social Welfare and am concerned about taxing social welfare payments. There is a tendency to try to get money back on payments made by all Departments. There is a view that payments made to people relying on social welfare, particularly pensions, should be taxed. I want to make sure this does not happen. There is also a view, which has not been denied by the Minister for Social Welfare, that in years to come it may be decided people will not be entitled to social welfare pensions if they are receiving other pensions.

I regret that I only have 15 minutes to speak because there are many things I wish to say. Rushing this Bill through this House is very unsatisfactory. We should be able to say what we wish on this Stage so that Committee Stage is confined to discussing amendments. Senators will broaden the debate on the next Stage and this should be noted by the Minister for future reference. A person who has something to say should be allowed say it.

It is said that the country is doing well. I do not deny that we have strong economic growth. In 1994 our GDP will be 4 per cent, the highest in Europe. I am a simple person and work in a simple way. That is my way of doing business. However, I seriously question whether the right people are gaining. Senator O'Kennedy deserves great credit for the way he spoke today about priorities. I would like to speak about priorities and incentives. There is a general impression that good incentives are being given but, if that is the case, I must be living somewhere else. It is not the case outside this House.

Interest rates are, on average, 10 per cent but should be at least 2 percentage points lower to compare with the basic cost of money in Europe. The financial institutions should be seriously questioned. I am thrilled that at long last our Taoiseach spoke about this matter last Thursday. The Minister for Enterprise and Employment spoke about it yesterday. I do not know if it is a tactic between the two of them in connection with the selling of the Trustee Savings Bank, but that is another argument.

At long last we are getting our act together to help people who want to get moving in business. I do not want to be negative or to knock anybody who will do well for the country. However, I want to give some examples. Many people are now questioning the number of requirements for people who want to set up in business. Anybody who is not aware of that is living in another world. There are too many Department asking questions of people who want to do something for themselves.

I am a member of an enterprise board in Cork city and a former Lord Mayor. I would gut the Minister for one job for Cork city and I make no apologies for saying that. We must never forget that we are a service country. We can create a great deal of jobs in the services sector. We have well educated people who want to create jobs but we are not giving them the opportunities to do so; instead we are doing the opposite.

We should look at our planning regulations and the amount of documentation needed before anyone can start up in business. The incentive is to not employ and nobody can tell me otherwise. Any manager will say they want to take people on but do the opposite. There is a view that it is not worth creating employment.

This is very important to small businesses. America is built on small businesses, not multinationals. If one walks down a street in Manhattan one will see many people working in small places; all the big concerns do not create the same amount of employment. There is tax relief provided in this Bill for software, a measure with which I disagree. Software eliminates jobs and results in my son or somebody else's son emigrating. Our unemployment rate has risen from 87,000 in 1986 to over 300,000 today, not counting those who emigrated. It is an awful record, irrespective of who is in Government. What annoys me is that these people have ability. I can see opportunities which are not being taken because there is no incentive to do so.

I could speak for an hour on this and I mean every word I say. It is very unfair to give the impression that things are going well; they are going well for multinationals and people who want to create less employment but there is no incentive to do the opposite. For example, with regard to tourism, what incentive is there when we are now questioning whether people who provide bed and breakfast should pay taxes? We should slow down. It costs £57 a head to bring every tourist in and then we want the person who will look after them to pay. Visitors want to be comfortable and get a nice meal. They do not want to be rushed; they want to play golf without it costing a fortune, they want to go fishing, etc. I welcome the initiatives the Minister mentioned in his speech. However, I worry that we are too interested in getting in more money to pay people who do not want to do anything. That is sad.

The Minister can rest assured that on Committee Stage tomorrow I will question in detail whether we are doing the right thing. We can speak about 4.5 per cent growth and say that the rest of Europe is delighted with us but how we honestly say that we are doing well? For example, 86,000 people were unemployed in 1986 and inflation was running at 12 per cent. I do not deny the importance of keeping inflation low or that the work done by Ray MacSharry as Minister for Finance or by Deputy Bertie Ahern as Minister for Labour was very important in getting us onto the right track but we must ask if we created a situation where we unnecessarily eliminated jobs and undermined the infrastructure of the country.

In local authority areas we abolished jobs where there was no need to do so. We moved people from one place to another and gave them the same money. We took 550 jobs in Cork Corporation from general operatives who were receiving £112 a week and sent them to the labour exchange where they got £110 a week, and we gave them redundancy money. There is no logic in that.

There is no incentive for somebody to employ an extra person. Instead employers are faced with PRSI, tax, insurance costs, etc. We must create an incentive to employ. This Bill does not do that and that worries me. It gives relief for capital gains — the vast majority of people about whom I am talking could not spell capital gains, but they could create jobs. I know of one person who took over a little business which was privatised — the company decided to privatise their trucks. In the middle of June last year this person was working for the company as a truck driver and he took over the business and started delivering for himself under contract to the company. At the end of August a sheriff's messenger was at his door with an estimated demand for VAT. He got the fright of his life. His family could not understand this. Such people should be left alone and let work where they will create other jobs.

When I started in business I did not know who were in government. I just wanted to work, rear a family and pay my taxes. There was never the pressure which exists today. Before the average person starts up in business today, 16 different Departments will call on them. The Minister must sort this out because there is no incentive to create jobs.

Interest rates are currently at 9 per cent which is not bad, although I would like to see them down to 8 per cent. A person can borrow £100,000 and pay back £9,000, which is all he is interested in. However, it is unlikely that he will invest that money in creating employment because it is not worth it. There is too much hassle and too much is asked of such a person. It is too much trouble to take on two employees and if one of them is unsuitable, he cannot get rid of him. This must be stopped. We must create an atmosphere where people can be asked to do more and where less will be asked of Government.

That, unfortunately, is why we need the tax system.

Let me answer that.

It is a great position and I would love it, but unfortunately if everyone is left to do their own thing and pay no taxes——

I am not saying that.

But one has to give the other side of it.

I am not saying that at all. Whether we like it or not, taxes have to be collected. Some £11 million a day is given out in social welfare payments, which is £4 billion a year. That is many votes one way or the other. It is not a question of priorities; it is a question of votes. I do not want to expand on that point now because I would like to speak on the Bill. I really want to be positive.

Unfortunately Senator, you have only one minute left.

That is the problem. It is sad that I do not have another ten or 15 minutes because I would like to get my points across. However, I can do it tomorrow. We should not be rushing the Finance Bill through the House or rushing speakers. I listened to Senator O'Kennedy, who was very positive and deserves great credit for opening up, as our Taoiseach did last Thursday and Deputy Quinn did yesterday. I seriously question what the Minister, Deputy Quinn, is about.

We must ask if we can create the incentive for people with money to do more. Much of the money made by the Irish financial institutions is made in Ireland. They might say that it is 1 per cent of their total turnover. However, the banks are making £430 million a year. That is £1.1 million a day, which a large amount of money. We should not forget that they are only open for five hours a day.

Acting Chairman

I am sorry, Senator. Your time is up.

Just one moment. Senator Burke made a good point earlier in the context of discussions about ICC, ACC and the Trustee Savings Bank. If we are to involve the semi-State banks in structures where they have no rights and where they would naturally be lending money at cheaper rates than other banks, they are obviously going to be undermined and will be out of business in a few weeks. What we should be doing is——

Acting Chairman

You must conclude, Senator.

We must demand of the banks——

Acting Chairman

You are in injury time.

If the banks are prepared to lower their interest rates, we should do likewise in the semi-State institutions and assist everybody accordingly. I would like the Minister's views on that.

Over the past number of years the budget has been treated as just another day out in the Dáil. So many changes took place during the year that the budget speech became slightly irrelevant.

Not here.

This year significant changes have been made and the Finance Bill emphasises this. Since the budget speech was prepared, it has been brought home to many people that there are significant changes in personal tax, company tax and tax reliefs. This year's budget and the Finance Bill extends the idea of simplifying the tax system.

During every year every single interest group in the country comes into the Minister for Finance looking for concessions for their trade or profession. In many cases one would think that their trade, profession or job was the most important and could be separated from the totality of Irish society and business. There seems to be a view that if huge concessions are given to a particular sector, it will not impact on other sections of society. This is not true. A change in one sector cannot be effected in isolation as it impacts on other sectors as well.

For many years I have been lobbying various Ministers for Finance on aspects of the motor industry and what was considered to be an over burden of taxation on the industry. Concessions were made at the behest of the motor industry to bring VAT on the service element of the motor industry down from 21 per cent to 12.75 per cent. There is no doubt that helped eliminate problems associated with the black economy operating in the motor industry. When there was a 21 per cent tax on service, it was much cheaper for somebody to go to the someone with the tools in the boot of the car rather than have the car serviced in a registered garage. When I say a registered garage I am not talking about a garage registered with SIMI but a garage which is within the tax net.

In this Bill the Minister is reducing the rate of vehicle registration tax from 31.8 to 29.5 per cent in respect of category A vehicles exceeding 2,012 cc and from 25.75 to 23.2 per cent in respect of category A vehicles with a lower cc. This has had a significant effect on the motor trade and will also have a huge effect on the revenue the Government will receive. It was argued in the past that if there was not a high rate of vehicle registration tax, too many vehicles would be brought into the country and that this would increase the foreign debt as so much money would have to paid out. This is not quite true and it has been proven that the sale of cars since the reductions were announced has been very significant. It has not increased to what it was eight or nine years ago, but the impact has been significant. It would appear from the newspapers today that there is going to be a reduction on vehicles up to 2,500 cc.

For a Senator's car.

No Senator could afford to drive such a car unless you implement——

The Gleeson report.

——the Gleeson report. Then we might be talking about 2,500 cc cars.

I hope the Minister got his own car back.

I presume the Gleeson report will be implemented so we can get into the new category.

Running on pure alcohol.

One would never know what we might run them on. The motor industry suggested that if certain things were done, there would be consequences. The budget, section 84 and particularly section 85 of the Bill have had the impact the industry suggested they would have.

In section 21 the capital value used in determining capital allowance and deduction for running expenses is increased from £10,000 to £13,000.

Acting Chairman

I am sorry to interrupt the Senator. It is now 6 p.m. and in accordance with the Order of Business, I ask you to move the adjournment of the debate.

There should be no interference with the Finance Bill.

Debate adjourned.