Finance Bill, 2001 [ Certified Money Bill ] : Second Stage.

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

I am pleased to present my latest Finance Bill to Seanad Éireann. The Bill is fully in line with the reforming approach to the taxation system that the Government has pursued since taking up office. The Bill implements measures announced in the budget delivering Government commitments on personal taxation, reductions in indirect taxation as part of the Government's anti-inflation programme and a range of other important tax measures.

The Bill builds on earlier measures to continue to reform and develop various aspects of taxation to help achieve a range of objectives over the long term. One such objective is in the area of providing for future needs. In earlier Finance Bills I overhauled substantially the taxation provisions dealing with pensions for the self-employed. I also reformed the taxation of life assurance and collective funds. In addition, the Government has established the national pension reserve fund. Continuing in this direction, the Bill provides for important new measures to encourage greater levels of individual savings. It also provides for tax relief for contributions to insurance policies for long-term care needs. Taken as a whole, these measures show that this Administration is firmly focused on the longer-term needs of our community.

While thrift may help to safeguard our future prosperity, we must also have an economic environment in the present which encourages and rewards work and investment. The taxation system can play a highly significant part in terms of rewards and incentives and all the Finance Bills I introduced to date have been very positive in that respect. Quite apart from an individual's personal needs and sense of security, we are also aware that there is an altruistic spirit that runs deep in many Irish people. To support this the Bill reforms and extends in a major way the tax relief for charitable donations.

The annual Finance Bills usually contain provisions necessary for the Revenue Commissioners to administer the taxation system. The Bill before the House is somewhat larger than its predecessors because of the need to cater this year for the change to a calendar tax year and the conversion to the euro. Both will take place with effect from 1 January 2002. The reason we had the 6 April start to the tax year has old origins and harks back to an adjustment made in the 18th century. There is no logical justification for it in our modern society. The revised arrangements will mean that, starting from 2002, budget day changes to income tax and social welfare payment rates will apply with effect from 1 January each year, three months earlier than at present and six months earlier than when I took office.

I realise that moving to the calendar year basis imposes an extra burden in the year that it happens and in the planning that leads up to it, not least for the legislators who must examine the legislation. It has taken considerable effort to produce the large volume of legislation to effect the change to the calendar year. I am sure the House will join with me in thanking the staff of the Revenue Commissioners and the parliamentary counsel for their work on this matter.

I will now set out the more noteworthy features of the Bill for Senators. The main personal tax changes which I announced in the budget are contained in sections 2 to 4. The House will be aware that the budget had the effect of removing an additional 133,000 taxpayers from the tax net. The chief delivery mechanism for this is the system of personal allowances which are now converted to tax credits.

In addition to tax credits, the two other major components of the personal income tax system are tax rates and the standard rate band. In the budget, I announced a reduction in the standard rate of tax to 20% and the top rate to 42% and an increase in the standard rate band. These aspects are dealt with in section 3.

I would like to put a few key statistics before Seanad Éireann that highlight the success of this Government's income tax policies and, indeed, our overall economic success. When the Government came into office the Revenue Commissioners had 1.44 million income earners on file. Approximately 22% of these, or 319,000 persons, had been exempted from paying tax. Revenue now has 1.769 million earners on the tax file of whom 668,000 will be outside the tax net as result of this Finance Bill. In absolute terms, the number exempted by this Government has more than doubled while in percentage terms it has gone from 22% to 38%.

In regard to tax rates, when the Government took office some 442,000 of the 1.44 million income earners were paying tax at the top rate. That was around 31% of all income earners. The measures in this Bill reduce the proportion of income earners who pay at the top rate to 23% or just over 400,000 taxpayers. Of course, both the lower and top rates of tax have each been reduced by six percentage points.

For single persons the Bill means the point at which the top rate becomes applicable is £20,000 which is in excess of the average industrial wage. This Bill continues the Government's policy that ordinary people on ordinary incomes should be allowed to keep more of their income for their own use. In section 4, I am providing for an increase in the income tax exemption limits for persons aged 65 years or over.

Section 2 together with Schedule 1 completes the switch over to a tax credit system. An significant earlier phase in this process was the conver sion of standard rated allowances to tax credits. I am sure Senators concur that tax credits are fairer than tax allowances because they provide the same relief to all taxpayers regardless of income. Most Senators should by now have received their notice of determination of tax credits and standard rate cut-off point which replaces the old tax free allowance certificate. It will take a little time for people to get used to the new format but I am confident that once they become accustomed to it they will see the essential simplicity and fairness of a tax credit system. A tax credit is simply a fixed amount which is subtracted from the amount of tax calculated on income for the relevant period at the standard rate and the top rate, where appropriate.

In the context of the switch to tax credits and to help simplify the system, provision is also being made for tax relief for health contributions to be granted on a net pay basis similar to superannuation contributions. Also in this context, sections 19 to 24 make arrangements for the introduction of tax relief at source for long-term care and medical insurance relief and mortgage interest relief, as well as certain administrative aspects of the new savings relief which will also be granted at source. Tax relief at source brings with it a number of significant advantages: it eases the pressure on the tax offices and it means that taxpayers get relief automatically. It also allows in these cases everyone to get the maximum entitlement to relief, even if they have insufficient income to absorb the relief. Relief for medical insurance moves to the at source basis from April 2001, while mortgage interest relief will also be dealt with in the same way from January 2002.

Section 7 increases the allowance for family members who employ a carer to look after an incapacitated relative from £8,500 per annum to £10,000 per annum. Section 8 alters the arrangements for claiming medical expenses for a dependent relative. Under the current system, a person can claim medical expenses relief only if he or she also qualifies for a dependent relative allowance. An alternative but complex approach involves the use of covenants. This section allows a taxpayer to claim medical expenses relief directly for designated relatives. It also removes the restriction on relief for routine maternity care. To support parents of children with special needs. medical expenses relief is being extended to cover expenditure on educational psychology and speech therapy services for children.

Section 11 acknowledges the role of trade unions by providing a flat rate allowance of £100 at the standard rate of tax in respect of subscriptions to unions. Some £100 is roughly the amount that the average union member pays per annum.

Section 13 changes the ESOT legislation so that an ESOT will be allowed to give either shares or cash tax free to the estate of deceased beneficiaries in circumstances where the shares are encumbered or the holding period has not expired. There has been much discussion in recent years on how we should proceed with the tax treatment of share options. I have reflected on the points made by all parties to the issue and I firmly believe I have found an appropriate balance that suits our needs. The arrangements that are to apply here are set out in section 15. They allow employees, as shareholders, to identify more closely with the fortunes of the company. They also put companies based here on a competitive footing in attracting and retaining talented staff who have skills to trade in a very competitive labour market.

The effect of the changes contained in the section is that gains from share options granted under an approved scheme will be taxed at the CGT rate of tax rather than at the taxpayer's marginal rate of income tax. As is the case for other employee share schemes, a share options scheme will have to be approved by the Revenue Commissioners in order to qualify for favourable tax treatment. Schemes must be open to all employees on similar terms. However, schemes may contain a key employee element which does not meet the similar terms condition, provided at least 70% of the total amount of share options is made available to all employees. Sections 16 and 17 amend the employee share scheme provisions. The former is an anti-avoidance measure; the latter facilitates the schemes being established in the TSB and ICC banks.

Section 19 extends the relief for medical insurance to cover premia for primary health care. As I said at the outset, this Government is concerned for sound policy reasons to encourage greater provision by individuals for their future needs. In this spirit, section 20 provides for a new tax relief, at the standard rate, for insurance premiums for long-term care. In the 1999 Finance Act, we provided an exemption from benefit-in-kind tax to employees for employer provided child care in order to boost the supply of child care. Section 25 extends this provision to cover schemes where employers finance capital costs but do not manage the facility.

Section 29 amalgamates the existing tax reliefs for third level education fees and standardises the conditions attaching to the relief. The section removes a number of restrictions which currently apply to the reliefs. It also extends the relief to cover postgraduate fees paid in the US and other countries which are outside the scope of the existing scheme.

Seafarers are currently entitled to avail of a special tax allowance of £5,000 per annum. To qualify, the seafarers must spend 169 days on voyages to or from a foreign port in an EU flagged ship. Section 30 reduces the number of days to 161.

Section 32 introduces the rent a room scheme. The section provides an exemption from income tax where a person lets a room or rooms in his or her principal private residence as residential accommodation. In order to qualify, the gross annual rental income must be less than £6,000. A person who avails of the new scheme will retain full entitlement to CGT relief on his or her princi pal private residence. Similarly, the entitlement to mortgage interest relief will be unaffected. In addition, section 108 later in the Bill ensures that availing of the scheme will not trigger a stamp duty clawback.

Senators will have noted that this Government has not hesitated from using fiscal instruments to target aspects of the housing market. I will now outline the various housing provisions in different parts of the Bill rather than dealing with them in different parts of my speech. The priority must be to boost the supply of housing. At the same time there is need for a supply of good standard accommodation in the private rented sector. Recognising these factors, the Bill provides for various tax incentives announced by Government arising out of the recommendations of the Report of the Commission on the Private Rented Residential Sector.

Section 34 restores the relief for interest on borrowings used to finance the purchase, improvement or repair of certain rented residential properties subject to conditions, including that the property concerned must have been converted into multiple residential units before 1 October 1964. The tax relief will apply to the tax liability on rental income only. Section 63 provides for a general 100% capital allowance over seven years against rental income in respect of capital expenditure on the refurbishment of rented residential properties. Section 92 provides that landlords can avail of CGT rollover relief where they reinvest the proceeds of a sale of rented residential property in new accommodation. The overall effect of these provisions should be to improve the standard of rented accommodation by encouraging landlords to refurbish their properties and by providing an incentive for investment in the sector.

I have provided capital gains tax and stamp duty relief in sections 93 and 206 where a parent transfers a site to a child to enable the child to build a principal private residence. Section 94 removes the capital gains tax rate of 60%, which was introduced in 1998 for disposals of certain residential development land on or after April 2002. If the 60% rate were to apply from 6 April 2002, the rate of CGT on zoned residential land would be three times that on zoned commercial land which could result in land being diverted from residential to commercial developments.

A number of changes were made to the taxation regime for non-owner occupied residential properties in the Finance (No. 2) Act, 2000. At that time the Government promised to keep the matter under review. The imposition of the 9% investor stamp duty rate on non-owner occupied residential properties has resulted in some negative impact on developers and potential investors. There is evidence that this could have had adverse consequences on the prospects for overall housing supply, particularly for apartment developments, because reduced investor demand makes apartment developments unviable. There is also evidence that applications are being made to local authorities for a change in planning permission from residential to commercial. These are problems in so far as they affect supply.

Section 209 reduces the 9% stamp duty rate for investors in respect of new residential property. The new rate will be 3% for properties up to £100,000 and the same rate as for non first-time owner occupiers for properties above that. This change to the stamp duty regime will leave the investor rate unchanged in the second-hand market while reducing it somewhat for new property, thus providing a supply incentive in this area. Limiting the concession to new housing maintains the relative advantage of first-time purchasers in the second-hand market which accounts for two thirds of first-time purchase transactions. There is also some evidence that the stamp duty rate is a disincentive in selling section 50 student accommodation units to investors. The reduction in the 9% stamp duty rate will help improve the attractiveness of investments in the provision of such student accommodation.

Section 230 provides that the anti-speculative property tax due to come into effect next April will not now go ahead in view of developments in the housing sector since last summer. Sections 202 and 213 provide for an increase in the stamp duty exemption threshold for mortgages from £20,000 to £200,000. Section 210 provides a stamp duty exemption for approved voluntary and co-operative housing bodies for land acquisition coming within the ambit of the Housing Acts. Similarly, section 211 provides for a stamp duty exemption for the National Building Agency for land acquired for social and affordable housing.

The Finance (No. 2) Act, 2000, provided certain reliefs from stamp duty on first-time house purchase subject to conditions, where the second home is acquired following a marriage break-up under a decree of divorce or a judicial separation. Section 208 extends these provisions to circumstances where there is a deed of separation or a decree of nullity of a marriage. Under the Finance (No. 2) Act, 2000, investors in residential property who have a contract evidenced in writing before 15 June 2000 can avail of the duty rates in existence prior to 15 June where the conveyance or lease is executed before 31 January 2001. This deadline is extended to 31 July 2001 in section 214.

The new special savings scheme is set out in section 33. Our recent welcome economic success allied with taxation policies has seen a rise in disposable incomes for most people. This affluence may have led some people, particularly younger people, to believe that they can provide for all their needs from their current income without reserving some of that income for future years, including events in life that we all encounter and which require recourse to sums of money in excess of regular outlays. The objective of the scheme is to encourage regular savings by individuals.

The scheme will commence on 1 May 2001 and accounts must be opened before 30 April 2002 to benefit. Every individual who is resident in the State and is 18 years of age or over will be allowed to open one account. It will be open to financial institutions generally to participate. The Exchequer contribution will apply for a five year period only. Where a saver puts an amount of money into one of the new special accounts for the purposes of the scheme, the Exchequer will contribute an additional 25% of that amount. This is effectively a tax relief on savings at the standard rate of income tax.

Any income or gains from the savings investment will be taxed at 23% and this will be deducted by the participating financial institutions at the end of the five years. The Exchequer's contributions to each account will be paid directly to the account manager and added to the savings in the account. It is worth stressing that the Government will not operate or guarantee the accounts or the return under them. This will be a matter between an individual and an account manager. Individuals who plan to open one of these accounts should assess any level of risk they wish to undertake.

There will be an overall maximum limit of £200 on the amount that an individual can lodge to an account in any one month. If that amount is lodged, the Exchequer's contribution to the account will be £50. The minimum monthly amount that must be saved in the first year is a modest £10. However, the scheme provides for flexible arrangements so that an individual may save more, subject to the £200 limit. The savings must be left for the full term, which is five years, for the saver to gain maximum benefit from the savings in the scheme. However, if there is an earlier withdrawal from an account other than on death, the full amount withdrawn, including both the savings and investment return, will be liable to tax at 23%. Savings must be funded from a person's own resources and there is a prohibition on funding an account from borrowings. The Bill also includes provisions for declarations by the saver and the institution and various Revenue powers to assist in ensuring compliance with the terms of the scheme.

Irish people have long been noted for their contributions to good causes at home and abroad. The Government is anxious to support those who give to charities and good causes and to encourage others to do likewise. Section 45 introduces a new uniform tax relief scheme for donations. Almost all the existing reliefs will be merged by the section. The new relief will be available at a taxpayer's marginal rate of tax for both personal and corporate donations. The minimum donation which can attract relief will be £200 in a year. There will be no upper limit on the total amount of relief available to individuals or companies.

Beneficiaries of existing schemes, including those for Third World charities, will be covered by the new scheme. It will apply to donations to all charities which have tax exempt status for three years and to first and second level schools and third level institutions. The new provisions considerably expand the scope of relief in this area, for example, for personal donations to domestic charities and educational establishments. We can see from the example of the United States that tax relief can lead to significant increases in charitable contributions. It is envisaged that for most taxpayers the Revenue will pay the relief to the body receiving the donation rather than to the donor for reasons of administrative convenience. Individuals on self-assessment will be able to claim the relief directly. The donation will be treated as a trading expense in the case of companies.

Sections 46 to 48 provide for an extension of the existing 25% general stock relief for farmers. There is little need to elaborate here on the difficulties facing the farming community at this time. While there are generous 100% stock relief provisions in existence for circumstances of compulsory disposal, they are restricted to cattle. Section 49 extends these provisions to other categories of livestock subject to certain conditions.

Senators will be aware, as part of the Government's policy in reforming the regime for taxi licences, that it was announced that the existing taxi licence owners would be able to write off the cost to them of their licences as a capital allowance against trading income. Section 51 makes the necessary provisions in this regard.

Section 52 continues the special capital allowances arrangements for the whitefish fleet. These arrangements will require clearance by the European Commission before they can commence.

Section 53 shortens the write-off period for the annual wear and tear capital allowances for plant and machinery from seven to five years. This measure takes effect for expenditure incurred on or after 1 January 2001. It will operate on a straight-line basis. However, taxi and short-term hire vehicles will retain their 40 per cent reducing balance arrangement.

I have provided for the measures that I announced in the budget regarding the tax treatment of credit union dividends and interest, including, in particular, tax exemptions for certain medium and long-term accounts held in credit unions, in section 57. The section also provides that the latter exemptions apply also to similar accounts held in other relevant deposit taking institutions.

Sections 58 and 59 make changes to the reliefs for park and ride facilities, multi-storey car parks and the rural renewal scheme. Relief for qualifying commercial premises located at park and ride facilities is restricted to facilities that provide local services only. This is to conform with requirements arising under EU state aid rules. Various parameters of the schemes are also being amended.

Section 60 introduces tax relief for the provision of residential accommodation in the vacant space over commercial premises in certain streets in the five cities of Dublin, Cork, Waterford, Lim erick and Galway. The incentives under the scheme are broadly similar to those currently available under the urban renewal scheme. There is also relief for expenditure incurred on refurbishment and construction of the associated commercial property. To comply with EU state aid rules, the qualifying commercial services must be involved only in local services.

Section 64 provides for capital allowances over a seven year period for the construction of private hospitals. A qualifying hospital must be operated by a body with charitable status for tax purposes. A number of other criteria must be fulfilled, such as the necessity to provide a minimum of 100 in-patient beds. It will be a condition of the relief that 20 per cent of the bed capacity be available for publicly funded patients at a discount of 10%. The extra beds capacity created under this measure will be matched by the Minister for Health and Children designating a corresponding reduction in private beds in public hospitals, thus adding to capacity for public health patients in public hospitals.

Section 80 provides for the introduction of the commercial and industrial incentives for the business element of the town renewal scheme. That scheme involves the provision of residential and commercial incentives for new build and refurbishment at selected sites in 100 small towns throughout the country. While the residential element of the scheme was allowed to commence at the time the scheme was announced last July, the business element of the scheme required clearance from the European Commission to proceed. Agreement has now been reached with the Commission, which will enable the vast majority of the projects envisaged under the scheme to commence immediately.

The scheme, as agreed, will enable small and medium-sized enterprises to avail of incentives in respect of new build projects and certain categories of refurbishment projects. In addition, capital allowances will not apply in respect of expenditure incurred, on or after 6 April 2001, where any part of that expenditure is met by way of grant assistance. Similar amendments on non-eligibility of grant-aided expenditure have been provided in respect of the urban and rural renewal schemes. The qualifying period for the entire scheme has been extended from 31 March 2003 to 31 December 2003 because of the delay in securing EU approval for the commercial and industrial incentives. Qualifying floor areas under the scheme have also been increased.

Sections 65 to 75 make various changes to the taxation of life assurance and collective investment funds, mainly following on the arrangements introduced last year. Section 67 provides that the same tax rate will apply to investment in both Irish and certain foreign life assurance companies. Section 72 mirrors these arrangements in the case of persons who hold an interest in certain offshore funds. The other changes largely reflect discussions with the insurance industry. They clarify issues that have arisen under the new tax regime. They also make certain changes to special investment schemes and special investment policies, recognising that the tax rate applying to these is now the same as the standard rate of tax.

Capital allowances are available for expenditure on certain buildings used for the purposes of third level education. Section 76 extends the provision to cover third level institutions which provide courses in the area of health and social services education. Approval for tax relief will be granted by the Minister for Health and Children, following the consent of the Minister for Finance.

I referred earlier to the alignment of the tax year with the calendar year from 1 January next. Specifically, the taxes involved are income tax and capital gains tax. To effect the move, a transitional tax period or "short tax year" is required, running from 6 April to 31 December 2001. Section 77 and Schedule 2 make the required changes to the tax code, consequent on the changeover to a calendar year of assessment. For the purposes of the short year allowances, credits, reliefs, thresholds, qualifying days, etc., are being reduced in that year to 74% of their full year equivalent. There are a few exceptions to this general approach, including the special tax relief for widowed persons in the five years after bereavement, which will remain at 100%. To coincide with the move to the calendar year, section 78 also provides for a common return filing and payment date of 31 October for those on the self-assessment system.

Section 81 results from discussions with the European Commission on the capital allowance scheme for hotels, in the context of state aid rules. It was suggested by the Commission that the option now arose for small and medium-sized enterprises to be exempted from the notification process through the use of the provisions of a recent Commission regulation on state aid to small and medium-sized enterprises. This section, accordingly, introduces a certification process to be operated by Bord Fáilte which is now necessary as a result of the decision to use this SME regulation. To ensure that the scheme complies with the European Commission's regional aid guidelines the section also provides that capital allowances will not apply in respect of expenditure incurred on construction or refurbishment work on hotels on or after 20 March 2001 where any part of that expenditure is met by way of grant assistance.

Profits from shipping are currently charged to tax at the 10% rate. In the absence of a change to these arrangements, shipping would be subject to corporation tax from 1 January 2001 at the prevailing standard rate of corporation tax, that is 20% in 2001, 16% in 2002 and 12.5% in 2003. Section 82 provides for the 12.5% corporation tax rate to apply from 1 January 2001 for shipping activities. CGT rollover relief is available on farmland which is the subject of a CPO for road building. In section 95, I have provided for an extension of the time for the reinvestment of proceeds from such CPOs and I have also provided for the extension of this provision to all land compulsorily acquired for road building.

Sections 96 to 153 contain provisions to consolidate and modernise general excise legislation. This continues the process of updating excise law undertaken in the last few Finance Acts. Sections 154 to 156 confirm the budget day decreases in rates of excise duty in unleaded petrol and auto diesel and the increase in duty on tobacco products to compensate for the VAT reduction. Sections 157 to 162, inclusive, and sections 177 and 178 increase various penalties on the excise side to £1,500. Section 233, later in the Bill, applies this new limit to all summary tax offences. Section 167 removes the requirement for the special advance payment of excise duty in December and instead provides that in future all payments in respect of December must be made by the end of the subsequent month. This is the practice for all other months during the year.

In section 168 provision is being made for a 50% repayment of vehicle registration tax in respect of certain hybrid electric vehicles. This should encourage the purchase of new technology vehicles that have lower levels of emissions. The scheme is to operate for a two year period from 1 January 2001 to 31 December 2002. Section 169 amends the rules governing the classification, for VRT purposes, of certain vehicles, mainly jeep-derived and car-derived vans, to ensure greater evenness of treatment. Sections 170 to 176 deal with imposition of excise duty and definitional and other procedural matters in relation to excise duties and licences.

Sections 187 and 189 reduce the rate of VAT from 21% to 20% and increase the farmers' flat rate VAT from 4.2% to 4.3%. Section 188 makes a technical change to the VAT rules arising from the recognition of the Department of Agriculture, Food and Rural Development as a taxable person for the purposes of the cattle testing or purchase for destruction schemes.

Section 199 contains three significant provisions. First, it clarifies that the supply of research activities is not an exempt educational activity. It applies VAT at the standard rate to research provided for a fee by educational institutions. This will help to ensure a level playing field in tendering for research services and assure compliance with EU rules. It will also enable Irish third level bodies to reclaim VAT on taxable services provided under EU and other research programmes. Second, the section gives effect to the European Court of Justice ruling that existing tolled facilities – tolled roads and bridges – operated by the private sector in Ireland are subject to VAT. Such tolls will be subject to the standard rate of VAT from 1 September 2001. Third, the section exempts adjusters and claims handling services from VAT, which is the way services supplied by insurance companies and related services by insurance agents are treated.

Section 212 abolishes the £1 per policy stamp duty on permanent health insurance policies and critical illness policies. The 0.1% stamp duty on life assurance policies is also being abolished.

I referred earlier to changes to the capital gains tax code where land is acquired under a compulsory purchase order. As a parallel to this, section 217 changes the capital acquisitions tax code to extend the period during which the proceeds must be reinvested from one year to four years.

Section 218 provides for an exemption from CAT for works of art which are lent to cultural institutions in the State by non-Irish resident individuals. A CAT liability could have arisen if the lender died during the period of the loan as the asset would be situated in the State at the date of death.

The House will be aware that fostering of children is a relatively long-standing practice in this country. While fostering has been on a regulated footing for some time, many inheritance situations arise from fostering arrangements that predate the formalised structures. Section 221 provides that foster children will be treated the same way as other children for the purpose of CAT rules. Section 222 allows an adopted child to avail of the group 1 threshold for gifts or inheritances received from a natural parent.

At present, where an amount exceeding £5,000 stands in a joint deposit account in the names of a deceased person and another person, the bank concerned cannot release the account into the name of the survivor without a clearance from the Revenue Commissioners. Section 223 increases this clearance threshold to £25,000.

Section 225 provides for the abolition of probate tax which has applied since 1993. Section 228 amends CAT business relief to allow the relief to apply in the case of businesses which are carried on either within or outside the State. The change acknowledges the increased overseas diversification of Irish businesses since the relief was introduced in 1994. Section 232 abolishes the requirement that electronic record keeping systems be approved on a case by case basis by the Revenue Commissioners. Instead, the Revenue Commissioners will set out standards for such systems and the taxpayer will ensure that the system used complies with the published standards.

Sections 236 to 237 strengthen tax collection procedures. Amounts in tax legislation are converted in section 240 and Schedule 5 into convenient amounts in euro. The principle followed is that amounts are smoothed in favour of the taxpayer.

Seanad Éireann will note that the Bill addresses a number of distinct economic priorities and social needs, both long term and short term. Of course, these fiscal measures should not be considered in isolation from the Government's substantial spending programme which also addresses social concerns and infrastructural shortcomings. Our previous three budgets and related Finance Bills have eased – indeed, in many cases have removed entirely – the tax bur den on ordinary people as well as creating a climate for investment and enterprise. This Bill continues that trend but it also adds a number of new measures to those already in place to encourage personal provision for long-term needs. This Government has an appreciation of how and where fiscal measures can help shape economic activity and society for the better.

I commend the Bill to the House.

I wish to share my time with Senator Coghlan.

Is that agreed? Agreed.

Once again we are faced with the complexity of the Finance Bill. It is daunting legislation for both Houses of the Oireachtas to deal with in such a short time. This Bill comprises 243 sections and is nearly 400 pages long. To make this a meaningful debate, Members, especially spokespersons, should have independent expert advice upon which they could rely in making their contributions.

The Bill is larger than usual because of changes in the income tax and capital gains tax year. From January 2002 the tax year will start on 1 January and will correspond with the calendar year. The year 2002 will also see the euro brought into circulation.

The fiscal landscape in Ireland has changed dramatically over the past decade. For many years this country had a budget deficit and there was great pessimism about prospects for the future. Today, after a long period of strong economic growth, the financial position has changed dramatically. The Minister has been privileged to preside over this period of prosperity in the economy. The pessimism of the past has disappeared and now the debate is about how best to utilise the surpluses we enjoy.

The Government is committed to cutting taxes. Tax reduction is a good thing but the Minister has consistently given more tax relief to the rich than to the less well off in society. Cutting taxes in that fashion merely fuels demand in the economy and the impact of excessive demand on house prices and mortgage repayments is forcing stay at home spouses back into the labour force, where they often become the lowest paid workers in the system.

We must decide as a nation how to utilise future budget surpluses. Is it possible to continue cutting taxes, thereby fuelling demand in the economy, or should we look at other choices, such as using the surpluses to improve the quality of health, education, public transport and our road network? Despite our economic prosperity, there are long waiting lists for public hospital beds. Is there any benefit in getting a £10 per week reduction in taxes as a result of this budget while having to wait six months for a bed in a public hospital? We must get our priorities right and I believe the quality of life must be our overriding concern. Cutting taxes in an appropriate manner may offer obvious short-term political gain but it would be more desirable to have good roads, reliable public transport and high quality health services.

I regret the Government has abandoned plans to penalise landowners who fail to put sites zoned for residential development on the market. Residential zoned land sold after 6 April 2002 was to have a rate of 60% capital gains tax applied as part of a drive to boost residential development and ease the property price spiral. This measure was introduced following recommendations in the first Bacon report on housing. It was designed as a stick to increase the supply of development land for housing.

Regrettably, this Finance Bill removes this incentive to sell land before the April 2002 deadline. Instead, all disposals of land will now incur a rate of 20%, regardless of when they are made. The explanation given by the Department of Finance is weak. The Department claims that if the penalty were not abolished, landowners would have an incentive to sell their lands for commercial rather than residential development. There is now no disincentive for developers to hoard lands that are badly needed for residential development. This will have the effect of driving up land and house prices.

The Minister said that the higher rate of capital gains tax had done its work and that land had come on stream. He said it had served its purpose and that there are now thousands of planning permissions. I do not know which local authority provided the Minister with that information but it was not one of the greater Dublin local authorities. In Dublin almost 70% of first time buyers bought secondhand homes and nearly 30% bought new homes, probably because there are more houses available at the cheaper end of the secondhand market in Dublin. In view of this, it is hard to see the justification for not removing the 9% stamp duty on secondhand homes.

Some aspects of the Bill are welcome. I welcome section 53 which introduces a scheme of tax relief aimed at providing residential accommodation in vacant spaces over commercial premises in the five major cities. In Dublin there remains untapped potential for residential development in the under utilised upper floor space in buildings in many city streets. The conversion of such accommodation to residential use would not only reinforce the social and economic success already achieved but would add considerably to the economic, environmental and physical development of the city. The conversion of these premises would also help to sustain the existing fabric of the city.

To encourage the proper refurbishment of upper floor space for residential use it is necessary to introduce a tax incentive and this Bill provides for that. Indeed, the tax incentive is similar to those which are available in urban renewal schemes and we saw how successful they were. I have no doubt that this scheme has the potential to release a significant number of residential units of accommodation in the private rented sector in the city over the coming years. An increase in the private rented sector of this magnitude would considerably reduce the demand for local authority housing, especially in a local authority where there is little or no building land remaining.

I support the principle of share options and financial participation by employees in their companies. This should motivate people to bring greater productivity to their firms. However, I have a difficulty with the proposal in the Bill. The share option will only be available to a limited number of companies. The employees who will benefit are those who work for publicly quoted companies or for companies that might go public in the near future. There has been little or no market in most private companies' shares. As a result only a small number of employees will benefit. It is a pity that so few will benefit from what is a good scheme. Having said that, the tax treatment of share options will be attractive to employees who will now pay capital gains tax at the rate of 20% rather than income tax. This will assist in the recruitment and retention of staff which is of importance to the economy.

The savings scheme introduced on Committee Stage is a radical one aimed at encouraging people to save. When I spoke on last year's budget and Appropriations Bill I stressed the need for financial institutions to provide a range of products that would encourage people to save. The Government has made this attractive by agreeing to top up savings by 25%. It is now up to financial institutions to provide products at low cost to the consumer. The Minister must be vigilant to ensure the public is not overcharged as previously experienced in the banking sector.

I regret that the scheme is not tailor-made to attract young savers. In schemes such as this we should be addressing people between between the ages of 18 and 30 years who have most disposable income. I hope the scheme will encourage them to save for future needs. My own experience in raising teenagers is that the last thing they want to do is provide for the future.

This is an opportune time to introduce the scheme as the economy is still strong which I hope it will remain for many years to come. Last evening I watched a television programme about the financial situation in America. The problem was that they did not save when they could afford to do so. Now they are desperate to put a programme in place to encourage people to save.

My only difficulty with the scheme is what it will cost the Exchequer at the end of five years. By 13 April 2002 the Government will be able to ascertain the number participating, the amount saved and what the scheme will cost the Exchequer. Will provision have been made each year for these payments? The scheme may also dampen demand for credit in the private sector which has risen yearly by over 20%, a matter about which the Central Bank's Governor expressed concern recently when he addressed the Joint Committee on European Affairs.

The child care crisis should be addressed in a more imaginative and meaningful way. It is widely accepted that continuing economic improvement is dependent on an increased labour supply. A large number of immigrants are required, both returning Irish emigrants and non-nationals. Given the housing shortage, it is desirable to encourage stay-at-home parents back into the labour force, but this will be easier said than done. While many couples with children want to work, pursue careers, earn extra income and maintain their chosen lifestyle, it is not always possible to find someone to mind one's children at home. It can be expensive, unless relatives can be relied upon. Crèche places are limited and costly.

Following the case in Limerick, questions have to be asked about the standard of care provided. To encourage high standards, the Government should consider providing additional tax relief for properly run crèches, such as improved capital grants. The cost of child care eats up the after tax income of the lesser earning parent. Ways must also be found of encouraging stay-at-home parents to take up employment, either full-time or part-time.

Parents who wish to remain at home, especially with children in their formative years, should not be penalised. The Minister raised again the principle of individualisation. It is wrong that he has penalised the people concerned further. As soon as resources allow, the State must provide support for parents who choose to stay at home.

On the issue of child care in areas of social exclusion and deprivation, I visited some of the areas concerned in Dublin recently where I was impressed by the work done by experienced child care workers in providing child care through education. They educate parents let down by the primary and secondary school system and train their children from an early age. The work done at these child care centres is to be commended. In the 1999 budget the Minister provided £40 million for this type of crèche. I hope he will be able to tell me if the money was allocated and, if so, where.

I draw attention to the outbreak of foot and mouth disease, the global turmoil in the information technology industry and the slow-down in the US economy which will affect the economy for which the foot and mouth epidemic is a set-back. Its impact will be felt beyond farming communities and food industry employees. I am also concerned about the tourism industry which was affected before the County Louth outbreak. I support the request by the Minister, Deputy McDaid, that Irish people holiday in Ireland and hope the hotel industry will offer packages to encourage them to do so.

The fall of the IT sector and the slump in the US economy, our second most important export market, will decrease trade's contribution to growth. Many US giants in the hi-tech industry issued profit warnings recently and implemented staff cuts, although their Irish operations are relatively unaffected. The point must be made, however, that there is a vast difference between what happens to the shares of hi-tech companies and the real world of buying and selling products.

Economists were worried recently about the economy overheating. Our growth rate was exceptional. It was difficult to see, however, how this could be sustained with our infrastructure, of which two examples are the increase in traffic and the housing shortage. As a result of these international difficulties, instead of overheating the economy may ease the pace of growth. The opportunity to pause for breath could be positive.

The fundamental underpinning of the economy is strong. Domestic demand remains robust; unemployment is below 4%, while interest rates are low and continue to fall. It was feared that the economy was overheating, but events beyond our control conspire to dampen this. Given the economy's competitiveness and the gains in disposable income, I hope we will continue to enjoy superior growth for many years to come.

I welcome the Minister and compliment him on the worthwhile measures in the Bill. I welcome, in particular, the novel rent a room scheme whereby a person's principle private residence may be utilised to earn gross income up to £6,000 without paying tax. This will assist third level students in finding suitable accommodation. It is also welcome that the business element of the town renewal scheme has received clearance from the European Commission. This will allow projects to proceed in many of the nominated small towns where there was a hold up.

Will the Minister comment on an article inThe Sunday Times of 25 March 2001? It reported the opinion of Mr. Noel Smith, chairman of Dunloe Ewart, who said:

The change in legislation and short term thinking is adding further confusion and uncertainty to a market where long term planning is essential. There is a view akin to this that the government has been seeking a solution to a problem which was always going to look after itself on the basis that market forces will level things off and any attempts to interfere therewith have ended in disaster.

As I thought that this was close to the Minister's view, I wondered why various attempts were made to intervene.

Is it true that meddling has resulted in a situation where housing starts are greatly slowed and the rental market has been given something of a knockout blow? Official figures show that new housing starts are down by between 20% and 40%. The most serious cutbacks are in Dublin. With fewer houses being built, this is bad news for first-time buyers and runs contrary to the Government's declared aim. The problem is even worse for those dependent on renting property.

The article inThe Sunday Times to which I earlier referred stated:

Figures from the Central Bank confirm the slowdown. The underlying year-on-year growth in home loans in January was 24.1%, compared with 24.3% in December. What is worrying is that this slow-down is at a time when consumers are being influenced by negative international news on the economic front. This has led to added caution, as reflected in private-sector credit growth, which has slowed to an annualised 20.9% in January from 21.3% in December. Leading economist Colin Hunt, of Goodbody Stockbrokers, predicts credit growth could be an annualised 15% this year. It is now accepted that eliminating mortgage interest relief on properties held by investors, and introducing a 9% stamp duty on second properties has been a disaster. The moves conspired to shrink the new housing market where investors had shown themselves to be active buyers while at the same time pushing up rental costs by squeezing out landlords.

It would be interesting to hear from the Minister and to ask if he agrees that his attempts to resolve this matter in the Finance Bill have only gone halfway. If so, I would encourage him to complete the other half. He has shown that he is a reforming Minister, unafraid to do things he sees as good for the economy. While I welcome what he has done, I am slightly puzzled and would like to see him complete the job.

Stamp duty for investors buying new property will revert to a sliding scale that begins at 3% and moves to 9% for properties valued at £500,000 or more. In addition, the anti-speculation property tax of 2% has been removed. The Minister has declared this will provide an incentive for increasing supply in the newly built renting sector, while leaving the relative position of owner-occupiers and investors in the second-hand market unaffected. Would the Minister agree that the situation would have been made better if measures were applicable to all properties, rather than confined to new ones? The Minister is concentrating on the newly built sector at the expense of the second-hand market, thereby discriminating in favour of builders while ignoring the investments made in the rental sector.

The difficulties in that sector can be traced back to the original Bacon report, and the Government decision to eliminate mortgage interest relief for investors. Surely there is a strong case to be made for allowing those who rent property to treat their borrowings on the same basis as any other business. In other words, they should be able to have their interest on bor rowings allowed as a business expense. This would enable them to let their properties at keener rates. The imposition of the 9% stamp duty had the same effect as kicking a man when he is down. The piece in last Sunday's edition ofThe Sunday Times continued: “Scrapping interest relief was an attack on the small business sector, but the increase in stamp duty caused alarm in the far more important, politically-speaking, building sector.”

I wish to make a brief point on the outbreak of foot and mouth disease, which concerns us so much. As I come from Killarney, the hoteliers and guesthouse owners would be displeased if I did not address their concerns. The Taoiseach may have meant well, but he was too hasty in his rebuff to the tourism sector. I do not want to be too critical, as I know he was thinking on his feet when he spoke on this matter in Stockholm.

He had other problems on his mind.

I plead with the Minister, who is aware more than most of the level of investment that has been made in the tourism sector. None of us would like to see such an important part of the country's economic infrastructure face financial ruin, and through no fault of its own. We may well lose most of our tourists from Britain, which is by far our biggest customer. The Minister should seriously consider a financial relief package to meet the exigencies of the situation. Vital tourism amenities and interests will be unable to survive this crisis if the Government does not act.

I welcome the Minister to the House and congratulate him on his budget and the Finance Bill. Only a few years have passed since we had the creditors at the door and many decisions were taken along the way to rectify our financial position. Now, happily, this country is envied by many countries across Europe as a result of our economic policies. Our balance of payments is envied, we have practically full employment and we are putting away money for the rainy day, such as the national pensions reserve fund. These are positive indicators of an economy which is well looked after and promoted by the Minister for Finance, Deputy McCreevy. In recent times, including today, it has been claimed this Minister supports tax cuts for the wealthy and ignores those on lesser income, but I refute that argument absolutely.

When the Government took office in 1997, the Revenue Commissioners had 1,440,000 income earners on file, approximately 22% of whom – 319,000 people – were exempt from paying tax. The commissioners now have 1,760,000 earners on file, of whom 668,000 will be outside the tax net as a result of the Finance Bill. That is a clear indication of the Government's policy of supporting those who earn a low income by removing them from the tax net. It is at odds with the Opposition's comments today and recent remarks by a number of other politicians, particularly from the Labour Party. I refute such comments and suggest it is an election ploy by both Fine Gael and the Labour Party. They have tried to denigrate the Minister in other ways, and this seems to be the latest tag they wish to give him. It is totally inaccurate and cannot be substantiated by either party.

This is an innovative budget, as were the three preceding budgets and Finance Bills presented by the Minister for Finance. He has addressed a number of other areas, showing that he is in touch with economic realities. I am extremely pleased that the Minister has responded to the widespread call to vary the 9% stamp duty that was imposed some time ago. It was having an adverse impact on development, especially residential development in the BMW and Shannon tax corridor regions.

Many organisations and groups, including local authorities and politicians, called for that 9% rate to be varied in the Finance Bill. I am pleased that the Minister has reduced the stamp duty to 3% for those investing up to £100,000 and that he has removed the 2% penalty altogether. It is a very welcome decision and gives the needed kick-start to the development of residential properties, particularly in regions which have not had the same level of development as other parts of the country, for example, the region known as the Shannon tax corridor. This is a boost to those two areas and the whole country in terms of residential development.

Another innovative development that will be particularly helpful to young couples and those who need an extra income to educate their family or for another reason is the rent a room scheme. It affords people the opportunity to earn up to £6,000 in rental income tax free and with no ramifications for their capital gains responsibilities or stamp duty requirements later. This is very innovative and is an incentive to young people in particular to go into the housing market and then to rent a room to a friend or work colleague. Those people will not be penalised for that rental income but I hope the scheme will be in place for at least five years, as that is what is required for it to be effective. I suggest no less than five years because in that way those who commit to purchasing on the basis of an income that is provided for in this Bill can be sure that the income will be maintained for a reasonable period.

In debates on two previous Finance Bills I raised the issue of medical insurance for long-term care. This matter has been examined in a number of ways over the years but I have always felt other countries had a better approach. I raised the issue in 1999 and am pleased with the Minister's response. More and more people will be involved as the population ages and, given the cost of long-term care, it is vitally important that people can afford to avail of long-term medical insurance. They should make provision for themselves for the future but to do so there must be incentives such as those provided for in this Bill.

Medical insurance companies, other insurance companies and financial institutions should come forward with appropriate schemes. There is now a responsibility on the private sector to look at schemes not just on the basis of a large financial return but in terms of national well-being. Many of those who might avail of such schemes might be customers of theirs through a primary health scheme or through a particular bank or other institution. This area should be tapped into by both medical insurance companies and other financial institutions. If companies in the State are not interested then this should be advertised to companies outside the State in Europe and beyond.

The town renewal scheme has been mentioned already. This scheme is particularly important for my county town, Roscommon, and up to 100 other towns around the country. The scheme provides tax breaks for commercial and residential property and enables the building up and enhancement of town centres. We in Roscommon town are pleased that for the second time the town has been included in the town renewal scheme, albeit in a slightly different scheme from the last occasion. We are pleased the Minister for Finance has received sanction from the European Commission for relief on commercial and industrial sites, which was not available and which needed EU sanction. The residential side was a national decision. This can bring major benefits to towns such as Roscommon and certainly has the potential to refurbish old areas where buildings have become dilapidated over the years. In many areas there were no incentives and owners did not have the capital necessary for private commercial developments. This scheme is very important and the Minister's is to be complimented on having this cleared at European level.

I welcome the Bill's innovative savings scheme. As Senator Doyle said, many US commentators are now complaining that during their boom years there was no emphasis on individuals saving. They forgot about it and it is now a source of annoyance that they did not push savings schemes enough. Our Minister is to the fore with this scheme, which affords people the chance to start a savings scheme that will be complemented by the Government. They can also avail of the commercial opportunities which arise with different interest rates.

There is nothing more appropriate than a Government telling its citizens, particularly young people, that saving is something it wants them to get into and providing a further incentive to do so. I hope there is a major uptake of this scheme. A number of financial institutions have already come forward with templates for appropriate schemes but there is only a month or so left for the start-up of the scheme, so time is run ning short. The scheme gives young people in particular the chance to put in place a savings plan over five years so that they will have a large nest egg to help them set up a home for their families in the future. That is an appropriate and responsible way to address people's future needs.

I mentioned the national pension reserve fund earlier and I have checked this issue in the European context. Ours is one of the few countries to invest so much in this area. It will be to the future credit of the Minister for Finance that, when money was coming in to the Exchequer from the sales of semi-State companies and other sources, he decided to invest £5 billion in one go in this pension reserve fund, which will be topped up on an annual basis by a percentage of our growth. History will look on this decision very favourably and people will say that here was a Minister who looked down the road and thought of people's pensions 20, 25 and 50 years into the future. I complimented him when that legislation went through this House some months ago and I do so again today on the basis that many other European countries look with envy at what has been done in this field. The Government has done a good day's work on this matter.

The most pressing issue is the outbreak of foot and mouth disease in County Louth. There is both a danger and a worry that it might show up somewhere else. The farming community is in fear of what might happen in those circumstances. While they have put up with major inconveniences, difficulties and financial problems to date, if foot and mouth were to appear in any other region then the implications would be of national consequence and would bring the country to its knees. It is very important that we maintain our vigilance in this area.

Section 188 involves farming and in particular the cattle destruction scheme. Whatever steps are taken by Government in the national interest, individual farmers should not be left to carry the can. If flocks and herds anywhere are wiped out under this scheme, then appropriate support measures should be provided to re-establish and re-stock at a future date. That is the very least we could ask for the farmers involved. There are other categories, particularly those in the tourism industry and other areas that are also feeling the pinch. We do not want to undermine any of the industries affected and I am sure that is not the intention of the Government. I hope all restrictions can be lifted in the near future and those industries can then be promoted and supported.

We are in the final stages of the introduction of the euro. Many Senators have spoken on this matter over the last year or two. New coins and notes will be with us from 1 January 2002. I am not sure all is well in this regard. Even though there have been announcements and advice has been given by Government and individual Ministers, by bodies such as IBEC, ISME and the trade union movement, there is a reluctance to face up to the fact that this is just around the corner. While we will not have a debate on it now, I hope we will do so some time in the near future.

This is fine legislation and I commend it to the House. The Minister is doing an excellent job. He has an excellent track record in his portfolio as Minister for Finance. He has brought us to a state of economic advancement that few would have thought possible some years ago. We have practically full employment. We have a level of investment in infrastructure and in services that we never had before. We have reached true economic independence to the extent that we are able to advance policies to meet most circumstances that confront of us. I wish the Minister well with this Bill.

With the agreement of the House, I wish to share my time with Senator Quinn. I will speak for five minutes and he will speak for 15 minutes.

Is that agreed? Agreed.

I thank Senator Quinn for allowing me to lead off. I have a number of recommendations down for Committee Stage tomorrow.

Two things disappointed me about the Minister's speech. He did not paint in broad strokes either the national or global context in which the Finance Bill is presented. That is particularly important considering how open our economy is and how vulnerable we are to various fluctuations both in the world market and in the national context. There is a strong hint of a global downturn in many of the market leaders, particularly in the IT sector. The Minister for Finance should have acknowledged this. Inflation remains stubbornly high and last month showed a slight increase again to 5.2%. This is 100% higher than was expected in the Minister's budget a year ago.

We have the very immediate threat to our entire economy from foot and mouth disease, which could have a huge bearing on our quality of life and the economy as a whole. The Minister should have painted that into the picture and given us some idea of his contingency measures. He should not penalise the less well off if we find ourselves in difficult circumstances because of the number of negative factors that are bearing on the economy.

The second topic that the Minister should have presented in broad terms is the quality of life. It is fortunate that we are awash with money and I hope that will continue. The Exchequer funds are better than ever. At the same time there are huge problems with waiting lists and medical care is very poor. There are serious problems with public transport. Crime and vandalism are not being addressed. We have developing industrial strife. There has been no let up in the housing crisis for young couples trying to buy their first home and there is a growing level of homelessness. These are matters that must be addressed.

In the Second Stage debate on the Finance Bill, we are talking about the broader well-being of the people. There is not much sense in the Minister having statistics in order and being able to argue a point logically if at the same time he is not able to indicate that he is improving substantially the quality of life for all the people in the more vulnerable sectors of the economy. Those are the areas he should have addressed.

My party has always contested that we should be slowest in reducing the top rate of tax. Indeed, any reduction to be given in that area should be ring-fenced for something of very pressing need such as a waste management policy. Local authorities are being penalised for not developing a policy in which the Government has shown no direction. The Government will experience many problems collecting service charges in many areas of Dublin which have indicated their difficulty with this issue. The development of a proper national waste management policy could be dealt with by way of a ring-fenced element of Exchequer funding rather than imposing the very cumbersome and bureaucratic new system of service charges which successive Governments and the Taoiseach were very quick to do away with in my local authority. I will address many more issues tomorrow. I thank Senator Quinn for sharing his time with me.

I think it was Mr. Harold Wilson who said, "A week is a long time in politics." For the second year in succession, we have seen a radical transformation in our economy in the few shorts months following budget day and the introduction of the Finance Bill.

Last year that radical transformation was the onset of inflation. At the time of the budget, it was only a small cloud on the horizon, so small that the Minister pretended not to see it, but by the time the Finance Bill was introduced that small cloud had grown to the extent that no one could deny its existence and its continued growth determined the rest of the year. This year, at the time of the budget it looked as if the most serious risk we faced was one of overheating. I criticised the budget provisions on that account. Only a few months later, the foot and mouth crisis has virtually overnight, as mentioned by Senator Finneran, transformed our economic prospects. Foot and mouth disease has not thrown the economy into recession and I hope it will not do so. What it will do, and has done, is take the steam out of the growth. It is a reminder to us of the thin thread upon which this economy hangs. We have been very successful in recent years but there is no guarantee that success will continue.

The danger now is not that the economy will overheat but that we will accelerate its slow-down through the policy decisions we make. In doing so, we will make the situation worse than it need be. The foot and mouth crisis will affect the national accounts in two ways. It will involve the State in greatly increased expenditure, the full extent of which we do not know and can only guess at. At the same time the State's income will be reduced by an amount that we can, again, only guess at. We are just beginning to get an idea of the impact on tourism – we discussed this with the Minister of State at the Department of Agriculture, Food and Rural Development earlier. Already business is being lost all over the country and jobs are on the line. This will feed through very quickly into reduced receipts from VAT and income tax. The State will simply not have the same level of income to play with that it would have had without the crisis. Meanwhile the demands on the State will continue to increase.

We are, however, fortunate that the challenge has come at a time when our national accounts are in surplus. This is where our policy choices come in. We should cope with this crisis by using that surplus. We should accept that the surplus will be lower because of reduced Government income and also that we should pay for the increased Government expenditure out of that reduced surplus instead of making cuts in other areas of Government spending to compensate. If we cut other areas of Government spending, the effect will be to accelerate that slow-down in growth. My guess is that the slow-down will be enough to cope with without our making it worse. We will be surprised to find how far-reaching the impact of the crisis will be as the effects feed on each other and work their way through the economy. We should use our fiscal surplus to control that impact, not to make it worse. A surplus is there to be used. There is no particular virtue in running a surplus, especially when one has other good uses for that money.

It is important to realise that the foot and mouth disease entirely changes the name of the economic ball-game and we must quickly adjust our national policies to fit the new situation. The last thing we should do is reduce Government spending, especially on the very infrastructure the country so badly needs. I would roll back tax cuts before I would reduce spending if I had to make that choice. However, I do not believe we need to do that. The amount of surplus will provide us with the slack we need even though that is now going to be much reduced compared to what we expected only a couple of weeks ago. If we use that remaining surplus properly, we can reduce the economic impact of the crisis and by so doing we will have put the money to the best possible use. Though I suggested it is fortunate for us that the foot and mouth crisis should have come at a time when the State coffers are in surplus, from another perspective, it could not have come at a worse time.

Another radical change we have seen since the Minister's budget speech in December is the sharp downturn in the US economy, especially in the technological sector which we are so dependent upon. The European Central Bank continues to be optimistic, over-optimistic according to some people, that the downturn in the United States will not spill over into Europe. Whatever about that, even if Europe in general escapes the brunt of it, Ireland will not escape in the same way. We cannot expect to escape it because we are more dependent on the United States high tech economy than is the case for most European countries and the European economy in general. That has worked in our favour in good times, and we cannot expect that we will escape the consequences when the times turn bad.

I do not think we will enter a recession. We will see a slow-down in the level of growth. Some investment projects in the pipeline, like Intel's expansion at Leixlip, will be postponed. Other companies will put off coming to Ireland in the first instance. Much of the froth which has been overflowing into Irish service companies on the back of the technological boom is now certain to dry up. Yesterday's closure of the Irish Internet consultancy company, Nua, is a straw in the wind, and a most unfortunate one because this was a firm that had successfully carved out a worldwide niche from its Irish base. We can only hope that enough momentum has been created to keep our high-tech sector on the growth path even though it may be growth at a reduced rate. We must remember that the effect of any slow-down must be added to the impact of the foot and mouth crisis. A combination of these two challenges add up to a situation which is totally different from that we faced a few short months ago. In the new situation, the benefits of saving for the rainy day suddenly become more obvious. People who were spending like there was no tomorrow are now being given a dose of reality. I am sure this factor will give an added boost to the Government's new savings scheme, which I wish every success.

The need to combat the risk of overheating in the economy by providing incentives for people to save was something which I put forward almost a year ago during the Second Stage debate on the Finance Bill. If that advice had been taken many people would now be in a much stronger position to face the current situation. I warmly welcome the Minister's savings scheme, while at the same time wishing it had been introduced earlier. It shows a great deal of imagination and creativity in its conception as it needs to do if it is to reach beyond the relatively small group of financially independent persons and have an impact on the vast majority on relatively modest incomes. Unless it reaches would be savers and – this is the real problem – beyond those who will use it to divert savings from one mechanism to another, it will have failed in its central purpose which is to remove spending power from the economy, the point we made last year.

For this reason I have mixed feelings about the State standing back from the running of the scheme. On the one hand, this approach is welcome; allowing private sector institutions to compete for savers' business will ensure the scheme receives maximum publicity at no cost to the State. The State will also save hugely on administrative costs. My only reservation about leaving it to the private sector is that commercial considerations will dictate that the financial institutions concentrate on the largest source of business, that is, those customers who can afford to save the maximum amount under the scheme. That is what we do in business. Those with smaller amounts to save, the very people it is important to involve, will be lesser commercial prospects.

I have some experience of this through the bank involved with my supermarket and can see that smaller customers, those who might not have thought of saving, can be approached more readily by the smaller banks. The big banks will, certainly, opt for the biggest customers. As it will cost the financial institutions the same to service both the big and the small saver, there are no prizes for guessing whom they will target. They will, certainly, target the easier ones. It would be better to provide for some State involvement in the running of the scheme to ensure the smaller saver is properly targeted. This should be borne in mind in devising a successor scheme. I hope there will be such a scheme because there is a need to encourage savings and get the national savings rate back to what it used to be. It is not a flash-in-the-pan idea. There is an ongoing need which must be addressed in the long term.

I welcome the Bill. Its concept and the direction in which it is headed must be supported. I am aware that we are on Second Stage, not Committee Stage, but there is one issue that I wish to raise, that is, employee share ownership which is dealt with in section 17. There is no clause which will allow employees to avail of any shares distributed under a employee share ownership trust within 18 months of the termination of their employment. This point was made last week on the Trustee Savings Banks (Amendment) Bill, 2000, in which we could find no reference to the matter. It is actually dealt with in section 17 of this Bill. This will have financial implications for many of those who have worked for less than 20 years, particularly married women. The Equality Authority has decided to look into the matter in the belief that it may have to be changed. I do not intend to table an amendment tomorrow, but it is a matter at which the Minister should look.

I congratulate the Minister on the abolition of probate tax, a horrid tax, a tax on death, a tax on people at their lowest ebb. I am delighted to see it being removed. It is just one of the many steps in the Bill on which the Minister is to be congratulated.

I welcome the Minister of State at the Department of Health and Children, Deputy Hanafin. For one awful moment I thought that Senator Quinn was worried about severance from Superquinn and what it might do to his share options, but I am relieved to learn that that is not the case. I almost always agree with the Senator in his general analysis of the economy and do not disagree with him in any fundamental sense on this occasion.

The foot and mouth epidemic will have an impact that will be and is being felt much more widely than in the agriculture sector. The economy is, nevertheless, resilient. I notice that in opining on the impact of the outbreak many independent commentators and the ESRI are suggesting that it should still not take more than 2% off the predicted growth rate, which is significant, but not catastrophic. We, therefore, need to keep matters in proportion. If there were to be further outbreaks, the position would deteriorate. I am encouraged, however, by the Government's relaxation of certain restrictions on travel and those entering the country. I hope I am not whistling past the graveyard in hoping that the problem has been solved, but the measures taken have been effective, particularly in the way in which the incident in County Louth has been dealt with.

The Bill gives effect to the fourth of the Government's five budgets. Fiscal policy over the past four budgets has been based on a clear and coherent strategy. Essentially, the Government set out to generate economic growth by reducing taxes and improving the incentives for people to go out to work and invest. It has sought to use the proceeds of that growth to improve social services and to provide for generous increases for those dependent on social welfare. Senator Quinn is right, there are funds which can be allocated to deal with the crisis and the Minister for Finance and the Government are to be congratulated on allocating significant moneys to meet future pension requirements. This is to be welcomed.

The Government has achieved great success in the pursuit of its budget objectives. Taxes have been cut significantly; social spending has increased substantially while, at the same time, the public finances have been kept in substantial surplus, something we did not believe was possible as recently as six or seven years ago. The importance of reductions in personal income tax in generating and sustaining economic growth has been underestimated. It is worth highlighting what has been achieved on this front over four budgets. The standard rate of income tax has been reduced by six percentage points to 20% having been reduced by only one percentage point in the previous five budgets. The higher rate of income tax has been reduced by six percentage points to 42% having remained unchanged at 48% since the Progressive Democrats were last in government in 1992. The earning point at which a single person becomes liable for tax at the standard rate has been increased to £144 per week compared to just £77 per week following three rainbow coalition budgets while the earning point at which a single person becomes liable for tax at the top rate has been increased to £20,000 this year compared to just £13,600 following the said three budgets.

The cumulative effect of these tax changes is staggering. Almost 40% of all earners are now almost completely exempt from income tax because of the huge increase in personal allowances over the last four budgets. A further 40% of all earners only pay tax at the standard rate because of the huge increase in tax bands over the last four budgets. The parties in opposition may talk about increasing bands and allowances, it is being done by the Government. The Minister spoke about the percentage of earners paying tax at the lower rate and it is obvious that, despite all the comments to the contrary, they have been well looked after. Many on or below the average industrial wage have been removed from the tax net, a matter Senator Finneran covered in his remarks.

When the Progressive Democrats were established 15 years ago we set ourselves a bold and ambitious objective in the field of income tax. There were many who thought that the philosophy was wrong. There were others who were of the view that the targets were unattainable and still others who believed that the approach would damage the tax base. There was a very large number who were of the view that tax cuts could have only one effect, that is, a reduction in essential public services. That opinion was widely held at the time and given as the reason for not providing for tax cuts. When tax cuts were introduced the revenue accruing to the Government increased. Fifteen years on we can fairly say that the critics have been proved wrong. There is no better advertisement in the developed world for the incentive power of low taxation.

How does the Senator explain the hospital waiting lists, which get longer every day?

Since the Government took office in the middle of 1997 the numbers at work have risen by almost one third of a million, a remarkable achievement for an economy this size. Over the same period the rate of unemployment has fallen from 10.3% to 3.9%, one of the lowest levels in the world. This proves that all sections of society are beginning to benefit from economic growth, including those referred to by Senator Doyle. The level of long-term unemployment has fallen dramatically, where the numbers have dropped by almost 70,000 since this Government took office.

The tax debate is not over. We must be conscious of what is happening elsewhere in Europe and in the countries with which we compete for jobs and investment. All the indications are that even in countries with nominal left leaning Governments the need for tax cuts is recognised. This is the road followed in France and Germany and it will almost certainly be followed in Italy after the May elections. It means we cannot afford to stand still. We must keep a sharp eye on the ball if we wish to remain competitive. We must continue the process of tax reform on which we are well advanced if we are serious about developing a high wage, high skill economy.

Section 15 provides for reform of the taxation of share options. This is one of the most significant initiatives in the Bill. It is the kind of action that must be taken if Ireland is to grow its indigenous enterprises in the new technologies, such as software development, electronic commerce and genetic engineering. It demonstrates the value of converging rates in the one direction, be they capital or income taxes. It also leaves people free to move from one area of investment to another.

We have long recognised the importance of low tax rates in encouraging foreign companies to set up here. They have provided high quality employment to thousands of people. We welcome that but we need to apply the same logic to indigenous high-tech industries. Talented, hard working, innovative and imaginative Irish people must be given the opportunity to flourish in this country.

No Government in the history of the State has achieved so much in the area of tax reduction. We have cut income tax, corporate tax and capital tax. It is not surprising that outside observers, most notably the European Commission, should be concerned about the risks of inflation. In a big economy like France or Germany, fiscal policy is one of the key determinants of domestic inflation whereas in a small economy like Ireland, with huge exposure to international trade, the real determinants of domestic inflation are external factors, especially the value of the currency, the euro and the price of oil. It is no coincidence that Irish inflation began to increase when both of these factors began to move against us.

The European Commission is placing far too much emphasis on fiscal policy as a measure of controlling inflation. This view was most recently supported by Newt Gingrich when he addressed the Irish-American Chamber of Commerce in Dublin. The day before the Commission admonished the Government for its fiscal policy, the incoming US President, George W. Bush, said he would reduce rates of personal taxation in America to stimulate economic growth. I doubt if the Commission admonished President Bush.

It is important that we put our case in as calm and reasonable a manner as possible. Co-operation, not confrontation, should be the order of the day. We have a good and convincing case to make. Already the inflation rate has fallen back from the high levels of last year. On the harmonised measure we are now at fourth place in the EU league table, not a bad performance for the fastest growing economy in the developed world.

Much reference has been made to the special savings incentive scheme, which has the capacity to take a significant amount of money out of the economy. Apart from the other benefits of the scheme, this will help to moderate inflationary pressures. Section 33 provides that in the month the account commences and in each of the 11 months immediately after that month an amount agreed between the qualifying individual and the qualifying savings manager shall not be less than £10. Can this amount fluctuate from month to month and what is the position after the 12 month period? If a saver stops investing in the scheme will the money saved, which must be left in the account for the five year period, accrue the benefits of the scheme? Perhaps this and other questions on the mechanism of the scheme can be addressed on Committee Stage.

There have been calls for price controls in parts of the economy, especially in the pub trade. However, in the long run competition is the only antidote to inflation. We have seen the benefits of competition in telecommunications and air travel and the sooner they spread to other parts of the economy the better. Independent economists forecast further reductions in inflation later in the year, with the annualised rate projected to fall to 3% by the end of the year. That would give considerable comfort to observers in the European Commission and would be the ideal context in which to introduce another tax reforming, tax reducing budget.

The net effect of the Government's tax cutting measures has not been to reduce the revenue available to the Exchequer but to increase it. The additional revenue has provided the resources to grow social spending. In 1997 the Progressive Democrats made a commitment to raise the old age pension to £100 within the lifetime of the Government. We have exceeded that target. Over four budgets the pension has increased by £28 per week, or 36%. Over three budgets the rainbow coalition Government managed to increase it by just £7 per week in total. In one budget the pension increase was worth 26p per day.

The rainbow coalition Government contained two left wing parties – some suggest it contained three. Many on the left believe they have a monopoly on compassion, that they are the only ones who care for the less well off. They try to portray their political opponents as uncaring. The Government's record on old age pensions shows that Fianna Fáil and the Progressive Democrats do not need lectures on looking after the less well off.

The Government has not confined its caring agenda to pensioners. It has delivered record increases in child benefit and social welfare payments and has made record levels of funding available for the care and support of those with mental and physical handicap, an area close to my heart. I can take credit for the fact that a decade ago allowances for carers were introduced. However, 75% of carers continue to have no State support or recognition. Significant action must be taken to address their needs. The budget made provision for allowances for respite care etc., but there is a considerable distance to go in addressing this area. It will be my principal appeal to the Minister when he is forming the next budget.

We cannot be complacent. There is much to be done. Senator Doyle pointed out one area where more action is required. However, there is a will to channel funding to those who need it. Ten years ago the Progressive Democrats took the initiative which led to the establishment of the carer's allowance. The special needs and burdens of cares were recognised but more progress is required.

We have shown how economic growth creates the opportunities which enable people to move from welfare to work. In most cases carers are not in a position to avail of them. Many of them find it difficult to move outside their homes. They have no jobs but they work 24 hours a day, seven days a week. This underlines what needs to be done for them.

I commend the Minister's amendment regarding tax relief thresholds on charitable donations. The original figure was £250 which the Irish Charities Tax Reform Group lobbied strongly to have reduced to £200 so as not to be excluded from much of the benefit. I am pleased that the Minister has agreed to do so.

Prosperity must have a purpose, part of which is to enable us to help those who are unable to help themselves. While the Government has made strides on behalf of carers and others, I would like more to be done for them with every carer receiving recognition for the enormously valuable work they do and the major personal sacrifices they make. I would like more to qualify for State payments and greater support to be given to those who provide care in the home. Progress can be made in all those areas provided there is a will to do so.

I say with confidence that the general election is still more than a year away.

I am not sure about that.

I am convinced that by that time the Government will have delivered its fifth budget and, once again, the Senator will be embarrassed by its scale and scope.

I do not think so. Certain factors will have to be taken into account. I am surprised that the Senator did not mention the foot and mouth problem.

I mentioned it at the start of my contribution. By then we will have removed all those on the minimum wage from the tax net.

What about those sleeping rough?

A total of 40% of earners are liable for tax at the standard rate. By that time we will have continued to progress the process of tax reform across a range of other fronts. I commend the Bill to the House.

Many Senators have gone carefully through the Bill. I am a little of the Séan Healy type whose views are well known. I am delighted to have an opportunity to contribute to the debate as I wish to speak about the issue of child care, the one area in which we have not been able to make much progress. I wish to tell Senators about a system I discovered recently in France and wonder if we could initiate a similar system here. There has been talk of a constitutional reason for not allowing tax relief for the cost of child care, elder care or care of handicapped people in the home. Such a system was introduced in France five or six years ago,cheque emploi service, under which an employer can pay a person up to a certain level to work in his or her home. He or she also pays their social welfare contributions and at the end of the year claims back half of the amount paid in tax. An employer can only claim relief on an amount of 45,000 francs, the equivalent of £5,000 or £5,500.

The Senator is using a good rate of exchange.

It is a fixed rate.

Yes, 8 francs to the pound. The introduction of a similar scheme here would be a start. The employer would be able to claim back part of the amount paid in tax. Under the system an employer obtains a special cheque book from a financial institution and pays the person concerned to work in his or her home. The system need not be confined only to one person, one could pay a person to do housework in one's home, another person to mind a child, an older or handicapped person for a certain number of hours work per week week, a teacher to give one's child a grind, a gardener and others to do minor repairs. Such persons would be pleased that they would be covered under the social security system.

I hope one could pay a butler as well.

I am sure that a butler would be covered. Butlers are in short supply, especially in Ireland. The person concerned would know that his or her social security contributions were being paid. I would have thought that it would be relatively easy to introduce a similar scheme here. I cannot understand why we have not done so. It would not involve a large amount of money on which tax relief would be allowed, but it would be a start and perhaps be of major help to those not in highly paid jobs and who have to work part-time. It would also ensure such people would be included in the social security system. It is fine when a person agrees to do housework or mind children when he or she is 30 or 40 years of age and not concerned about a pension, but when he or is older and realises the value of a contributory pension, they may not be in a position to do anything about the matter.

That is a suggestion the Minister of State should convey to the Minister for Finance. It is a simple request. Could we introduce a similar system here?

I welcome the Minister of State, Deputy Hanafin, and congratulate the Minister, Deputy McCreevy, on his four excellent budgets. While great noise was generated on the introduction of the process of individualisation last year which has been continued in this year's budget, there was not a bleep about it this year. It is a great day for the Government when there is no great debate on the Bill. Senator Costello, as the Labour Party representative, spoke for only five minutes and threatened to return tomorrow to talk about what he described as airy-fairy increases in various allowances.

I congratulate the Minister on the way he stood up to the European Commission. While we have gained dramatically during the years from our membership of the European Union, many items are arising by way of directives under which Europe has too great an impact on our lifestyle. The Minister said in the Dáil that economic stability and growth are at the heart of economic policy co-ordination in the European Union and that members states are being asked to commit themselves to a medium-term budgetary position close to balance or in surplus. He also said that the Government, through its four budgets, has sought to achieve economic stability through continuation of social partnership and wage modernisation by avoiding a wage price spiral; promoting measures to encourage increased labour supply; action to reduce inflation, and that it has delivered the largest physical surplus in the European Union using budget surpluses wisely by way of providing large sums for future pension costs.

Senators Dardis and Finneran mentioned the £5 billion in the pension reserve fund. The Minister said that the Government has reduced our unemployment rate to half the EU average, created 250,000 jobs and reduced the number on live register by up to 100,000. As Senator Dardis mentioned, the rate of unemployment has been reduced from slightly above 10% to just under 4%. There are, unfortunately, still parts of our country, such as my constituency, where the rate of unemployment is still as high as 17%.

It is 15% in Tallaght.

While a good deal has been achieved through the Donegal task force initiative, I am glad that the Taoiseach and the Tánaiste will meet a deputation from County Donegal in less than a fortnight to discuss the difficulties experienced in attracting investment and meeting infrastructural development requirements.

As the Minister has said on many occasions, all he has done in the past four budgets is given back to the people who suffered high rates of tax for so long their own money. In his Budget Statement he said that his aims were economic stability and continued prosperity to improve quality of life for the ordinary taxpayer who has had to suffer high tax rates for up to 20 years. When I started off as a tax practitioner 30 years ago, a tax rate of up to 80% applied if one was in the sur-tax bracket. Tax rates have since been reduced to 20% and 42%.

The Minister wishes to promote a fairer society and ongoing tax reform to reward work and enterprise. Our economic growth last year was 8.6%. While the Minister has forecast a lower figure this year, we also will suffer from the foot and mouth epidemic, or the case which has been discovered in County Louth, and the problems associated from being so close to our neighbours in Britain. We are in a very fortunate position that, due to our current economic prosperity, even with this unwelcome scourge, as economic commentators forecast last week, even though the Irish stock market has fallen by 5%, or about £3 billion, 50% of this year's surplus will enable us to deal with the problems arising from foot and mouth disease.

I welcome the comments made in the past few days by the Minister for Tourism, Sport and Recreation, Deputy McDaid, and the Minister, Deputy McCreevy, regarding the assistance which farmers will receive. It is not sufficient that farmers should receive the replacement value of their stock. Many of those people have built up that stock over many years of hard work and it will take many more years to build it up again. In the meantime their sources of income will be negligible. Normally in insurance cases damages are awarded for consequential loss if a business is disrupted by a fire etc. and the Minister must consider providing for some such measure.

There has been mention of other matters, such as the waiving of rates etc. I would have no difficulty with that, but I should point out that when there are difficulties in other parts of the country due to different matters and when special tax provisions are introduced in this House on special occasions because of difficulties in the housing market in Dublin, for example, the whole country should not be lumped with the penance which is needed to resolve those matters.

Returning to what I said earlier, one of the goals the Government hoped to achieve was a reduction in inflation. It has reduced the rate of VAT by 1% and the excise duty on diesel fuel and on petrol. It has also introduced the special savings scheme, which will not only curb con sumer spending but enable many people to save and make substantial gains on their small savings. Therefore if, down the road, there are difficult times, at least they will have something set aside.

I welcome the fact that the Minister resolved his conflict and difficulties with the credit unions. Like the Minister of State at the Department of Agriculture, Food and Rural Development, Deputy Ó Cuív, I come from a rural area. Credit unions provide a huge input into banking services in rural areas and I am glad that matter has been resolved.

I mentioned the outbreak of foot and mouth disease and the difficulties it would create for the agri-business sector, particularly in rural parts, and even here in the capital city in terms of tourism. I raise again an issue I have raised with the Minister, Deputy McCreevy, every year since I became a Senator. I have asked him to consider my constituency, or the western part of it, for the rural renewal scheme. I was in my town, Dungloe, yesterday and I discovered that one of the two hotels is closed and possibly up for sale due to the stringent implementation of an EU directive on food safety. I am not one who would promote the introduction of lower standards but when one may eat on the side of the streets in Spain and Portugal and they cook everywhere, we have gone overboard in implementing this. Certainly tourism is the only hope for a county like mine, particularly for the west of my county. I would like to see the Minister introducing the upper Shannon rural renewal scheme in County Donegal, particularly in the west of the county.

On the issue of tax reform, the Minister has given approximately £3.7 billion in tax cuts to the taxpayers. Having listened to Senator Dardis, no doubt the Minister will deliver another budget and, depending on the effect of the foot and mouth outbreak, he could possibly be in a position to provide further tax cuts next year which would bring the total reduction in the five budgets of his five years in office to £5 billion. When one considers that the Conservative Party in Britain is pushing an agenda by which it hopes to influence the people by stating that if it gets back into power it will provide £5 billion in tax cuts over the term of the next Government and when one compares the population and size of this country to that in Britain, one can see what the Minister, Deputy McCreevy, has achieved.

One of the first matters I raised in my contribution on the first Finance Bill was the high rates of tax which we, particularly those of us who live beside Northern Ireland, had to pay compared to the rates of tax in Northern Ireland, which were 40% and 20%. We are only 2% away from achieving those levels. When I raised that issue here, I did not think we would ever achieve those levels but we have. I will not advocate that the Minister should reduce the rates below those levels – we have reached a fair level – but he set out his promises in the programme for Government and I hope that by the end of the term of the Government he will have delivered on everything he promised in that regard and more.

The tax bands have been increased. The only issue I would raise in that regard has to do with individualisation. I am not a great fan of individualisation. As somebody who has worked through the system for the past 30 years, the only relief we had was the doubling of the single tax band. I raised this previously with the Minister. He raised the band for the couple with only one earner by £1,000 this year, increasing it from £28,000 to £29,000, but it would not have taken much to give another £1,000 to each married person.

We have reduced the tax rates by 6% and 4%, that is, 10%. Senator Dardis mentioned that the rainbow Government reduced the rates by only 1%. If my memory serves me correctly, in the 30 years in which I have been in practice, the only reductions in the tax rates were introduced when Fianna Fáil was in Government, although that 1% was achieved by those parties now in opposition who participated in the previous Government.

Corporation tax rates again have been reduced in line with the move to reach the 12.5% rate by 2003. I am glad the Minister acknowledged the small business enterprises with profits below £200,000 – he has increased the limit from £50,000 to £200,000 – because over the years many service industries paid the high corporation tax rate when manufacturing companies paid the low rate.

I also welcome the change in the capital allowances structure, where plant and machinery will be depreciated over a five year period instead of over a seven year period. These small breaks help small business entrepreneurs by facilitating greater cash flow in their companies.

I think the provisions regarding hotels in section 81 result from a European directive. I would like the Minister to elaborate more on this tomorrow on Committee Stage. The section states that if one is receiving grants, one is not entitled to capital allowances. I understood that that was always the position because with industrial buildings allowance, for instance, the grant was taken off the cost and one only got the allowance on the balance. I am not exactly sure how this impacts on the other sections regarding small and medium-sized enterprises. Perhaps the Minister will elaborate more on that tomorrow.

The number of days one must spend at sea to qualify for the seafarer's allowance is being reduced from 169 to 161. I raised this matter with the Minister on a number of occasions. I would like to see this allowance extended to full-time fishermen because the fishing industry is going through difficult times. The CFP is coming up now but this does not appear to offer any great redress for us. Fishermen, by their nature, work long arduous unsocial hours in a dangerous environment. Indeed, it is becoming very difficult now to get young men to go out in fishing trawlers. The west coast, from Dunmore East to Donegal, relies on the fishing industry. I ask the Minister to look at this. Previously he promised to do so.

I thank the Minister for dropping the 9% rate of stamp duty and the 2% anti-speculation tax. No doubt I was the first Member of the Oireachtas to raise this. The Finance (No. 2) Bill was initiated here in the Seanad and I was the first to oppose it. I had great difficulty in coming into the House on that day but I am glad at long last the Minister has seen reason. As I asked earlier, why should places like west Donegal, Galway and Mayo receive penance to ensure the ills of other parts of the country are dealt with? I am delighted to see this measure because there is no doubt that the development of new houses and holiday homes was totally curtailed over the past nine months to a year since the Minister introduced that legislation.

I could go on and on about the great Social Welfare Bill that was before the House last week. Will the Minister encourage the Minister for Social, Community and Family Affairs to increase the living alone allowance for people in receipt of small British pensions because I have come across many widows in receipt of these small pensions? People from our area went to Scotland and England to find employment and many of them returned home with small pensions but cannot get the living alone allowance.

There are many issues which one could mention. I have been greatly heartened by what the Minister for the Marine and Natural Resources, Deputy Fahey, and the Minister of State, Deputy Jacob, have done in relation to natural gas and the commitment and decision of the Cabinet to ensure that a gas line will go to Sligo and into the north-west. I know there are economic and commercial difficulties in doing that but the Taoiseach has given a commitment at Cabinet that a subsidy will be given to ensure that gas line comes into the north west.

I hope that when the new schemes are put in place, some grant system will be introduced for tourism. We are finding it difficult to get foreign investment in places like west Donegal and we will have to rely on tourism. The Minister for Tourism, Sport and Recreation, Deputy McDaid, has said he will look at this. We do not have foot and mouth disease but we have had very poor economic facilities. They were greatly improved when the Minister of State at the Department of Agriculture, Food and Rural Development, Deputy Ó Cuív, was Minister of State at the Department of Arts, Heritage, Gaeltacht and the Islands. I acknowledge the great effort he made and the attention he gave to Donegal south-west, in particular.

I wish the Minister for Finance well. I have no doubt he will be here next year for his fifth budget. Who knows but he could be here for five more budgets after that.

I always acknowledge the positives. I agree with the words of the old song "You must accentuate the positive", but if only we could eliminate the negative. The negatives are what I see in my role as a public representative in an area that has great needs. I represent people who have not had a glimpse of the Celtic tiger – it did not visit north Clondalkin, for example, at any stage.

While the Minister and his colleagues can bathe in a glow of satisfaction in regard to a booming economy, tax cuts and incentives, I wish the Minister would spend a Saturday at my advice centre. He will hardly come to my advice centre, but he might go to a Fianna Fáil or even a Progressive Democrats one. I now call it my lack of advice centre because I do not know what to tell the people. I am talking about people who are homeless. Homelessness is a recurring theme at my advice centre each week. The only accommodation we can give to young women with one child, or maybe two children, is in a hostel because the bed and breakfast accommodation is full. Many of these women are being evicted from private rented accommodation because in the past year, rent for such accommodation, which is usually reviewed yearly, has shot up by as much as 20%.

A woman came to me last week whose rent had increased from £400 to £550 per month. She will not get the balance in supplementary welfare to make her life liveable, so she must give up her accommodation. She has one child so she is approximately No. 5,060 on the housing waiting list – I exaggerate, but it is nearly as bad as that.

There is a new campaign to eliminate homelessness. I suppose we will never eliminate homelessness among people who choose to be vagrants, and I am not talking about people like that but about young children who are denied access to a national school because their mothers are living on the North Circular Road with people who are drop-outs and drug addicts. One might think I am exaggerating but this is a weekly feature at my advice centre.

I am a member of a health board and we have a plan. We are, however, still Dickensian in our approach in that we send people to Great Charles Street. If one lives in the back end of Blanchardstown or Tallaght, one has probably never been to Great Charles Street, yet we send people to this office which covers the entire Dublin area. The bed and breakfast accommodation is full and I would not send my worst enemy to some of the hostels. The Minister might do well if he spent a night in the Morning Star hostel or one of the other hostels.

I am trying to emphasise the difference between those who have benefited under this Government and those who have not. The gap is huge and it looks as if it is growing wider. I see no sign in this year's budget that we are closing the gap. I often wonder whether we realise how severe and grave the matter is.

With the new system, we will have locally based shelters in local authority areas which will serve the people of the area. I do not expect that they will appear overnight fully staffed and fully equipped. Will the Minister of State, Deputy Ó Cuív, convey to the Minister the grave distress of these people and that they are forgotten? I do not know what will happen. We talk about lack of responsibility among parents, but how can one be responsible when one cannot even get one's child into school? We are creating barriers because of the new wealth and the fact that we do not have rent controls. I am not necessarily in favour of rent controls but we cannot provide emergency accommodation, other than in a hostel, to young parents with children knowing that they will not be able to afford to buy a house. The Minister will say we are building more houses than ever. That is true but the waiting lists are ten times longer than they have ever been. I have never seen the waiting lists so long and that is because these people have been priced out of the market for ordinary housing.

We now have, and rightly so, an allocation of refugees awaiting certification. They are green card people, those who have come into the country and who have fathered a child who has been born in Ireland. Their status as a refugee will probably be allowed. They have been added to our housing lists but we got no money to house them. I do not think this Government has much of which to be proud in that regard.

The Minister of State, Deputy Ó Cuív, may know that my fear chéile's clann were from Connemara – the Mac an Iomaires – but I am from Dublin and I represent a Dublin area. I have written to the Minister for Justice, Equality and Law Reform on the subject of funding for the Garda in areas of known urban disorder. I got a letter back stating that he had deployed ten squad cars, two vans and 40 men but he did not say when they will be there. The Minister did not inform me that some of them would be deployed to a rapid response group for Clondalkin but that it would be based in Blanchardstown. I wonder whether they have to pay the toll crossing the Liffey. Gardaí have been sent to the Border, and rightly so, but in 1975 when the population of Clondalkin was about 2,000, we had more gardaí than we now have with a population of 28,000. There are ever-growing young thug terrorist groups in every housing estate, both private and local authority. We do not respect the elderly because we allow them to be terrorised. Gang warfare is allowed to flourish.

I am aware from the most excellent authority that the use of police vans was cut back on four nights a week in Clondalkin on the basis that those nights were usually quiet. However, even on Saturday and Sunday nights overtime will not be granted to man the vans. I wonder whether the Minister and I are living on the same planet.

The students who protested outside the House last Friday were not serious in their stated reason for taking the day off school because there were no Members present for them to lobby. However, the language on some signs was deplorable and their attitude was a little chilling as they used bad language and the two finger sign. A check has never been put on such behaviour. I do not wish to go back to the old days of the village bobby coming along and giving somebody a kick up the backside but there is no point in introducing special programmes with fancy names to save our youth from themselves when there is not the manpower or money to support them. Police superintendents in many cases are of the opinion that if they are good budget managers they are doing a wonderful job and will scale the ladder but at what cost?

I challenge the Government in the areas to which I referred. I hope the Minister of State will convey the issues I raised to the Minister, who I am sure will be impressed when he hears who asked him to do so. I ask the Ministers for Finance and Justice, Equality and Law Reform to spend one Friday night in beautiful downtown Clondalkin and then return to tell me how wonderful they are. I will be impressed when the Government shows me the proof of all its promises. There are programmes such as Dochas but they mean nothing. Clondalkin is taken over every Friday and Saturday night. I appreciate there are powers of arrest but the implementation of current laws is needed, not new ones.

People have a right to be housed and to live in peace, particularly if they are elderly. Their rights are being totally usurped. I am like a broken record but the record will keep on spinning. The Minister of State cannot be blind to the deaths of two or three people every weekend through violence. These incidents rarely involve murder but our youth are out of control generally because disorder has been allowed to reign supreme. A colleague of mine always says that without order one cannot have law and he is correct. Is anyone, other than myself and approximately four other people, aware of the awfulness of it all? Pontius Pilate is alive and well because everybody seems to wash their hands of the entire affair and turn a blind eye.

The Minister of State is taking note of my contribution and I am sure he will deal with it as soon as he leaves the House.

I know a great deal more about the Clondalkin area than the Senator might think.

Yes, but the Minister of State does not represent the area.

A close family member lives in that general area.

I am sure he or she will agree totally with my contribution. Tallaght Hospital is a fine, state of the art hospital but 70% of admissions are made through the accident and emergency ward and that is a scandal. It was obvious when the hospital was under construction it was in the fastest growing area in Europe, never mind Ireland. Harold MacMillan's saying, "We never had it so good", does not apply in my area. I acknowledge many people have benefited from the booming economy but the gap between the haves and have nots grows daily to the detriment of society. I hope somebody will throw an eye in the direction of the matters I have brought to the attention of the Minister and say that perhaps there is something in what I say.

Had I known we were debating housing, justice and health I would have been armed with different statistics.

My contribution related to funding.

The points raised by Senator Ridge are relevant to society, not this legislation.

Everything is relevant to the Finance Bill.

There is no doubt we face many challenges in the areas of justice, environment and health on a daily basis as a Government but we are doing a great deal. What would Clondalkin be like if we did not have the various initiatives mentioned by Senator Ridge? Her comment that two to three people are dying every weekend is overstated.

It is not.

I agree with the Senator that the level of violent crime in Ireland is entirely unacceptable. I hope the Garda will continue to make inroads in the delivery of justice and enforcement.

When the Minister announced the budget he referred to a number of key objectives. The budget was to be a tool to reduce inflation and we have been successful in this regard. He continued to deliver on the commitments on personal taxation and to examine savings and donations in an innovative manner. The Minister also outlined the changeover to the euro and the calendar year. The Bill has incorporated these objectives successfully.

The tax system has been revolutionised over the past three years. When we came into power in 1997 the entry point to the income tax system was £77 per week while following the enactment of the legislation it will have increased to £144 per week. Basic personal allowances have been increased by £800 to £5,500 per annum for a single person and by £16,000 per annum for married couples with one earner. The PAYE allowance has been increased by £1,000 per annum to £2,000. The standard rate band has been widened from £17,000 to £20,000 for a single person, from £20,000 to £29,000 per annum for married couples with one earner and to £40,000 per annum for married couples with two earners. The standard rate of tax has been reduced from 22% to 20% and the higher rate from 44% to 42%. I recall when I joined the workforce the income tax rates were 35%, 48% and 56%. I am proud of this achievement.

These measures mean that more than 130,000, including 5,000 people aged 65 or over, have been removed from the tax net while 107,000 people have been removed from the top rate of tax. The percentage of income earners on the top rate of tax has been reduced from 26% to 23%, which is also a significant achievement. That is highlighted when people take home their pay every week. The first £308 per week for a married, one-earner PAYE couple, with carer in the home, is free of tax. The first £144 per week for a single person is exempt from tax.

One of the ideals of this Government has always been that people who work will be rewarded for it and will benefit in terms of the quality of life for themselves and their children. Because we have focused on encouraging people to work, by supporting enterprise and by avoiding an excessively onerous tax burden, we have been able to deliver on the promises we made.

We have also looked at many of the different areas that affect people in the tax bands. For instance, we have reformed the PRSI and levy system. We have seen a greater distribution of income and the removal of more people from the tax net. We have made a commitment that, next year, people who are on the minimum wage will not be in the tax net. We have increased the income tax exemption limits by £1,000 for a single person and £2,000 for a married couple. These exemption limits for the aged have now been increased by up to 85%. We have increased the carer's allowance from £8,500 to £10,000.

It is important to encourage enterprise and bring in outside investment, as we have done for many years past, by means of very favourable corporation tax breaks to manufacturing companies. I am glad to see corporation tax being brought down to 12.5% over the next couple of years. I welcome the changes which the Minister is making in the operation of corporation tax for companies with smaller turnover, in an effort to ease the administrative bureaucracy as well as the tax burden.

The capital allowances system has also been simplified. A standard write-off period for plant and machinery has been implemented, on a straight-line method over five years, at 20% per year. The threshold for both new and second-hand cars has been increased to £17,000.

All of those changes may be relatively small in themselves, but cumulatively they make a huge difference to people who are striving, day by day, to ensure that the companies which they founded and which are providing employment in towns and rural areas will make a profit. It is also important that there is an equitable sharing of that profit between entrepreneurs and employees, as well as an equitable sharing of the tax burden which is required to pay for services such as health care, the justice system, housing etc.

I compliment the Minister on introducing the rent a room scheme. This is a very significant scheme for older people. It is also especially beneficial to younger married couples buying their first house, by enabling them to finance the house furnishing, or to take a holiday or whatever they may wish to do. They can now rent out a room in the house and quite legitimately earn up to £6,000 per annum, while at the same time increasing the availability of rooms in the rented sector. This excellent scheme is indicative of the innovative measures which this Government can produce.

Rent relief has been increased from £750 to £1,000 per annum for single persons and from £1,500 to £2,000 per annum in the case of married couples. The rate of relief for widowed persons has been increased to the married rate in all cases. All of those initiatives hit home where they are most appreciated, in terms of more disposable income in people's pockets.

I am glad the Minister continues to address the issue of child care, including the extension of the exemption limits for benefit-in-kind. It shows our commitment, though the Minister will understand when I say it is probably still not enough. However, we have seen improvements from year to year. This year's increase in child benefit, which relates to the Social Welfare Bill, deserves to be applauded. I particularly welcome the commitment to increase it further over the next two years. I have no doubt that it will also be welcomed by those households who will benefit from it for the first time later on this year.

The provision on medical expenses recognises that many people, while working, paying their taxes and making their contribution to society, are also paying their own medical expenses, some of which are not covered by private health insurance. I commend the Minister on the additional allowance which he has included for medical expenses such as speech therapy, routine medical care and educational psychology.

I congratulate the Minister on solving the issues in relation to credit unions. I know that people in the credit union movement throughout the country are particularly pleased with the initiatives which have been included in this Finance Bill. The special savings scheme, which will be implemented from 1 May, is also eagerly awaited. This scheme confounds those who were cynical about the whole idea last December. It has caught the imagination of the nation. Perhaps future Ministers for Finance, while welcoming the inflow of savings, may wonder how they will meet the commitment given in the year 2001 to repay £5 for every £4 which people put into the scheme.

The new Minister of State at the Department of Agriculture, Food and Rural Development, Deputy Éamon Ó Cuív, was in this House earlier today. I was delighted to see that the island grant, which we had discussed some years ago when we set out our manifesto and our programme for government, has actually been delivered on. I applaud the action of the Minister for Finance in recognising those areas and providing the necessary finance.

The VAT reduction was highly popular when it was introduced last December on diesel fuel, central heating oil and other relevant areas where its effects are applicable.

In the overall budgetary context, the Government has set out to address issues relating to the quality of life and to see that we have a fairer society for all. I do not suggest that we have yet achieved that, but we have improved the situation much more than anybody thought possible when this Government came into office four years ago. We now have much better living standards. Effort and enterprise are being encouraged and rewarded. People are being encouraged back into the workforce and are being given the tools, through education and employment, by which to improve and manage their own lives. I compliment the Minister on his handling of this Bill, which I commend to the House.

I thank all Senators who have contributed to this debate. Many Senators welcomed the savings scheme incentive. I agree fully with Senator Doyle on the difficulty of convincing young persons of the need to save and, like him, I hope this scheme will encourage the savings habit. He raised concerns about the possible charges and terms offered by financial institutions. Like Senator Quinn, I believe that market competition between providers of savings products will help to ensure that the best deal is given to consumers. As I have pointed out on numerous occasions, the principle ofcaveat emptor, or consumer beware, is applicable. The Government is not guaranteeing the returns, but is adding its part through the Exchequer contribution.

As I said when the scheme was launched, I believe that there will be strong competition between the financial institutions. Even though the scheme will not be operational until 1 May, the indications are that the financial institutions will try to outdo one another to provide better products. Some people made the case that certain types of products would not be suitable because of the bid and offer spread but many institutions intend to get involved in the scheme. Some of the major institutions intend to launch major campaigns and some have already done so. The competition will be hectic in this area and the consumer will get a good deal. I am pleased the Consumers Association of Ireland intends to rate the different products, which will also be beneficial.

Senator Doyle asked how the costs would arise. All these costs do not arise at the end of the five year period. There is a gain to the Exchequer at the end of the five years. The costs arise each month for the Exchequer. Let us take an example. Let us say, for the purposes of this example, Senator Doyle is the only person in the country who participates in the scheme. He makes the maximum contribution of £200 per month from his salary to a savings account, a savings product with his local bank. He did not get too adventurous and preferred to put the money into a straightforward demand deposit account at low interest rates.

The old firm.

Each month the Revenue Commissioners will send a cheque, by electronic transfer, to the bank and the bank will put the £50 into Senator Doyle's account. At the end of the first month there will be £250 in the account. That will happen every month for the five years if the Senator continues to save £200.

If the Lord spares me for five years.

If the Lord does not spare the Senator, his estate will benefit from the accumulated capital. At the end of the five year period, the Senator will have contributed £12,000, that is, five multiplied by 240. The Exchequer will have added a total of £3,000 or £50 per month for 60 months. There will, therefore, be at least £15,000 in the account. Let us assume there was a small rate of interest for that period and the Senator earns only £500 in interest.

There is £15,500 in the account and the Senator wishes to withdraw the money. He has decided to go to Las Vegas for a good time, to meet a few friends and to spend the money on the roulette machine. The gain in the account is the £500 interest so the bank will deduct 23%, which amounts to £115. The bank will forward to the Exchequer, on the Senator's behalf, a cheque for £115. The Senator can then withdraw £15,385 to go to Las Vegas and play the roulette machine.

The costs for the Exchequer arise each month but at the end of the five year period the gain is to the Exchequer. If the Senator has to give up saving the money after two years but decides to leave his money in the account, the money will gain interest each month. The Senator is not making his contribution so the State will not make the Exchequer contribution but at the end of five years the same thing will happen. The bank will tax the interest at 23% on the Senator's behalf. If, God forbid, the Senator passed on during the five years, whatever amount of money is gained will be sent directly to the Senator's estate without any deduction of 23%.

At the end of the period there will be a gain to the Exchequer because the 23% interest payments will be sent in. That is how the scheme will work, it is simple and straightforward. There are various sections in the Bill to ensure the person saves his own money and not borrowed money from another source and that there are no back to back loans. Sections of the Finance Act, 1999, which gave the Revenue Commissioners many additional powers on foot of the recommendations of the Committee of Public Accounts are tranferred to various sections of this Bill to ensure the financial institutions abide by the rules.

When the Senator opens his account he must give his RSI number, now known as the PPS number, and make a declaration that he is complying with the rules. The bank will also have to make a declaration and at the end of the five year period it must make another declaration. There are other points which can be dealt with tomorrow on Committee Stage, but that is generally how the scheme will work.

The Senator also asked what the cost of the scheme will be to the Exchequer. I made a tentative estimate that it would cost approximately £100 million in a full year for the five year period but I would be extremely pleased if the scheme was successful and cost considerably more. The Exchequer contribution will depend on the amount of money saved.

Senator Doyle stated that our tax policy favours the rich, but I must take issue with the Senator on that. The facts demonstrate otherwise, as was stated by Senator Finneran. I direct Senator Doyle's attention to page 40 of the budget booklet. It shows that for a single person on £10,000 per year, the tax rate is now 5% compared to 19% in 1997. The rate is one quarter of what it was in 1997. However, for a person on £50,000 per year the rate has been reduced from approximately 44% to 34%, a reduction of one quarter.

All the documents produced by the European Commission on this matter praise Ireland for its substantial achievement in reducing tax on the lower paid. We are the best in Europe in this regard. The massive job creation in recent years bears this out. This is my fourth budget and fourth Finance Bill aside from the two small Finance Bills I introduced following two separate Bacon reports. After the first two budgets there was constant carping by some commentators that the budgets favoured the rich and that the low paid were not favoured. Any study done by the EU, including the most recent, shows that Ireland is the best performer in the European Union with regard to the low paid. It is also better when compared to the United States and Japan.

It is easy to work that out. Of the 1.7 million income earners in this country, 668,000 will be out of the tax net from 6 April and only 23% of income earners will pay tax at the top rate of 42%. Deputy Jim Mitchell, before he was appointed finance spokesperson for Fine Gael, kindly asked me a question before I introduced the last budget about the take-out of tax and PRSI in Ireland at different strata of incomes compared to the tax and national insurance contribution take-out in the United Kingdom. That gave me an opportunity to show on a graph that at all levels up to and beyond the average industrial wage, Ireland takes out far less than the United Kingdom. Even when adjustments are made for the exchange rate, Ireland is better.

In a further press release following the parliamentary question from Deputy Mitchell, I included the documents which had been produced by the European Commission and which compared Ireland, the UK and all other member states in this regard. The impression had got into the public consciousness that my budgets had only favoured the rich but the facts proved that the people who were really favoured were the low paid. We had removed more of them from the tax net than any other country and had reduced the tax burden on them.

A leading member of the Irish Congress of Trade Unions, a person with whom I have had many dealings and one of the leading lights of a particular trade union, was asked to comment on my statement, which included the reply to Deputy Mitchell and the EU Commission figures. He said: "Well, we knew that all the time". However, I had not heard any of them saying it in the previous three years. They are the facts and they stand up to scrutiny.

Senator Doyle is a fair-minded person and I am anxious to put it on record, as I have tried to do on previous occasions, that what this Government has done for the low paid is better than what any other EU country has done, and the figures prove it. The EU has given testament to that in the past ten months in various written documents it produced following a study it conducted of what has happened in various member states. It compared what Ireland did, complimented the UK and Ireland – we are better than the UK – and compared us favourably with the United States and Japan.

I did not hear much talk in the past couple of months to the effect that I do not favour the low paid. I did the same in each budget. The figures were available before I made changes in budget 2001. I compared them with previous figures. Since we removed more than 100,000 in the budget, the situation in Ireland is even better.

Senators welcomed my move on the 9% stamp duty. Senator Coghlan raised an interesting question when he seemed to suggest that the Government should not intervene in the housing market. As he mentioned, while I do not believe in overly interfering with the market, Senators would not be happy if the Government had done nothing in recent years to tackle housing difficulties. We made a determined effort to increase supply. The Government was of the view that it was important that owner-occupiers and first-time buyers were facilitated in acquiring homes. Measures were taken to favour owner-occupiers over investors which affected supply. I refute the suggestion that the stamp duty change was not extended to second properties to help builders. The Government wanted to increase supply and took steps on new property.

Senator Coghlan called for the restoration of interest relief for investors for second-hand residential property. First-time purchasers tend to buy second-hand homes rather than new properties. We must preserve access to home ownership for young people. Those buying property to live in do not have unlimited mortgage interest relief. The relief proposed would place them at a disadvantage. Most economists agree that we should not subsidise interest payments.

The Senator was right about my attitude to the marketplace. Fiscal measures in the area of taxation must be introduced by the Minister of Finance. As a result of the Bacon reports, we introduced a second Bill in 1998 and also in 2000 to incorporate some more of Dr. Bacon's recommendations. I have often said in the lower House, as the notes supplied by the Department of Finance show, that it is dangerous to interfere with the free market, particularly in property, as there may be unintended results as has been proved.

The Bills in question had effects. The second Finance Bill deliberately aimed to distort demand. I said at the time that it would have a temporary distorting effect and that the only way to moderate house prices in the longer term was to bring supply into line with demand. As is well known, I do not subscribe readily to many economic theories, but there is one rule of economics which applies here as elsewhere – if the demand for a product, whether sheep or houses, is greater than supply, the price will go up in a free market. That happened with housing, and until supply is brought back into line with demand, we will experience difficulties.

In the fiscal area the Bacon report recommended that we temporarily distort demand. The Government attempted to do this. I said in 1998 that the restriction of the availability of interest relief would have the temporary distorting effect of removing the investor from the market. It did so. As a consequence, after eight or nine months the return on investment property increased. Investors returned to the market because they could discount that they were not receiving full interest relief. People did not need this relief because the return was so good.

In 2000, Dr. Bacon recommended an arduous regime of stamp duty for different categories of buyer. To be fair to him, it was the Government's decision to impose a rate of 9% straight across the board. He did not recommend such a move. He also recommended the anti-speculative tax which was set at 2% from 6 April 2002. It came as a sharp shock to demand. While we decided to keep the position under review, it had the desired effect. To be honest, when we re-examined the matter we discovered that it had had such an effect in some areas that the percentage of first-time buyers increased, but total supply was down. There are various suggestions about the number of houses needed over the next ten years – the latest being 55,000 per annum. What we were going to have in 2001 was an output less than that in 2000. The new house buyer had a greater share of a smaller market. We have to face up to this in 2001.

It may be as a result of our colonised past that each Irish person wants to own his or her own home, own piece of ground. Our ratio of home ownership is greater than anywhere else in Europe. If we need 55,000 units per annum, whether they are all owned by Senator Doyle or individuals, and they are not built, people cannot be housed. That will have long-term implications that we will have to face sooner or later. These units must be produced; otherwise, the bad housing situation will continue. The Government has reconsidered the matter and decided to redress some of the measures introduced last year. I am concerned that the number of houses built this year will not reach the targets we need to reach. The required units must be produced in some way.

Senator Doyle criticised the abolition of the 60% rate of capital gains tax from 6 April 2002 on the disposal of residential land provided for in the second Finance Act of 1998 as recommended by Dr. Bacon as part of the carrot and stick approach. Deputy McDowell, the Labour Party's finance spokesperson, said that he would eat the Act if I brought it into effect. I am glad to say that he will not have to do so. Senator Doyle is not alone in misunderstanding the changes. Many experts also misunderstand them. In the second Act of 1998 capital gains tax was reduced from 40% to 20% on the disposal of development land to a housing authority or the disposal of land with planning permission for residential development. It was provided in that Act that the 20% rate would be increased to 60% for land disposed of after April 5 2002. This was the carrot and stick approach recommended in the Bacon report to bring land suitable for residential development to the market.

Events have moved on since 1998, however, and the position now is that unless the 60% CGP rate is abolished, the CGP rate for the disposal of residential land after April 5 2002 will be three times the rate that would apply to disposers of non-residential land. This difference would lead to individuals seeking to change their planning permission from residential to non-residential land, which could not be defended.

It should also be mentioned that the stock of serviced residential land is set to increase significantly. Data on provisional planning permissions show that almost 86,500 units were granted final permission in 2000, representing an increase of 13% on the 76,500 units granted permission in 1999. These figures compare favourably to the target in the third Bacon report of 55,000 private house completions per year, necessary to bring supply into line with demand.

Comments were made that the 60% rate would benefit developers but in fact it did not. I made changes in previous Finance Bills which meant that developers were only paying 20% in any event. The only people paying 60% were individuals such as farmers who happened to own land for a number of years. The farmer would have had to have residential planning permission on the plot and to have disposed of it by April 5. It did not affect developers, whether they were companies or individuals, as they would have paid the 20% rate. Unintended people would have been caught.

Much misinformation was written about this topic. In any event, no more residential land would have come on stream after 5 April next. If someone was to be taxed at 60%, they would have either held on to their land or changed the kind of planning permission. If permission was for commercial development, such as new offices, the owner would only have had to pay 20%. The supply would have dried up quickly.

Many Senators asked about changes in the general economic climate. The US slowdown is having an impact on our economy. Our 2001 budgetary projections were based on US growth of 3.3% this year, and Irish GNP/GDP growth of 7.4% or 8.8%. The United States is one of our main trading partners, accounting for 17% of our exports and most of our direct foreign investment. The extent of the impact on Ireland will depend on the severity and duration of the US slowdown. Many commentators have said that a slowdown in the US would not effect Europe, but I do agree. The fact that the US is such a major global force means a slowdown there would have a world-wide effect.

Europe has much internal trading, but it also sells to other areas where the US sells too. While I would not like to overstate the impact of a slowdown in the US, 100,000 jobs here have resulted from direct investment from that country. One finds interesting statistics, which may be a cause of mirth to Members of this House, when one looks at US imports. Exports to the US have increased enormously in the past number of years in terms of value and volume. A lot of these colossal figures can be attributed to one major product produced in the south of this country. While the number of jobs involved is substantial, it is not as significant as some would have us believe.

Few of us need the product.

I agree with the Senator, but we do not need to be boastful.

We are not meant to say that.

It is a major contributor to export figures but in terms of jobs it is not especially significant. Much would depend on the length of a slowdown in the United States and if it developed into a recession. It is early to make predictions, but it would certainly have an effect.

Foot and mouth disease will also have a negative economic and budgetary impact, the extent of which will depend on whether the outbreak develops further, and the response of international markets. The Government is making every effort to deal with the outbreak that has occurred and has tried to ensure that it does not spread. I ask the public to do all they can to help achieve this. If the restrictions we have in place are successful, the economic and budgetary effect would be relatively limited.

The disease is having an impact in unexpected areas. All types of businesses are being affected, not just the agriculture and tourism industries, as some people think. I could reel off the names of seven or eight businesses that are having a downturn that no-one here would have dreamt of. Events have been cancelled, leading to less economic activity.

The horse-racing industry is a good example.

Yes, including many people employed in the industry. There are only a few jockeys' valets, but they have no work if there is no racing, and therefore no income. There are hundreds of professionals throughout the country, in all types of areas, who are affected. There has been a slowdown in the pub trade, which leads to less VAT. There will be less Exchequer income and increased Exchequer expenditure. Overtime for gardaí alone has increased significantly and is costing extra millions of pounds per week. There are also additional military costs for the extra people taken on, as well as overtime payments for civil servants, in the Department of Agriculture, Food and Rural Development and many other State agencies.

The negative effect on the Exchequer will come from both the decrease in Exchequer income and the increase in Exchequer expenditure. If that is allied to a slowdown, the situation will be somewhat difficult. The prevention of a severe outbreak of foot and mouth disease in the Republic will benefit us in the long term. There will certainly be a short-term downward effect, but the overall gain could be somewhat substantial.

My budgetary measures should have a positive upward effect on the economy. The commentators who criticised the expansionary nature of my budget have said in the last day or two that the stimulus given to the economy might transpire to be a good thing. The world-wide downturn and the negative economic effect of foot and mouth disease mean that a stimulus is now needed. I cannot claim to have foreseen the problems we face, and nor did anyone else.

My economic philosophy is grounded on a certain number of assumptions that have been long held dear to me and are sensible. Central bankers have the luxury of meeting every fortnight or every month to decide to change things if they are bad. Budgets cannot be formed in that manner, as a view of what one desires to achieve in the medium to long term must be taken and stuck with. My view has always been that economic policy should be grounded in some economic philosophy, even if it is one's own. One cannot be entirely subject to the political or economic beliefs of the time, like a tree swaying in the wind. I read a commentary this morning suggesting what the European Central Bank should do. Only one thing is proved by the variety of opinions – that economics is not an exact science. I am sick of saying that for many years.

If an economic commentator in Europe or in the United States had written last September that by March, Alan Greenspan would be reducing interest rates by 150 basis points and advocating that Mr. Bush's election platform of tax cutting is the recipe for the US economy, he would not have been given a job in a school magazine, never mind a serious financial newspaper.

That is the advantage central bankers have over politicians; they meet every week or fortnight to do that. Surely nobody is advocating that a Minister for Finance in Ireland, the UK or anywhere else would produce a budget every second week and say that something is a good idea one week and a bad idea the next week. One could not run anything like that. I am amazed that people in Europe are now talking in a totally different vein to two months or six weeks ago.

I emphasise that one cannot have a budgetary policy like that and in my time as Minister for Finance that is not how I have dealt with policy. I have a particular view of the way the economy should go and I am prepared to abide by it. My policy is grounded in that particular philosophy and there is at least a certain merit in its consistency. I am not saying for a moment that there is only one way to run a country economically. If that were the case there would be a freefone number somewhere one could dial and say: "Please send me the prescription for running an economy in country X or Y." It is not like that. There is no magic formula that applies universally across the world. Economics is a mixture of making good, balanced decisions and the intermingled reactions of people. There is not a set of rules that will work in Ireland which will also work as a set of economic philosophies and policies in another country. The reverse of that argument should be borne in mind by external commentators, particularly those in Europe, when they say that what applies in some bigger European countries should also apply in Ireland. It is not like that.

The economic environment is much more uncertain now than it has been for some time but we should not forget our economic fundamentals are still strong – tax revenues are strong, employment is expanding, unemployment is less than 4% and inflation is falling. We expect another year of economic growth well ahead of our European partners, even if it is not as high as we originally expected.

Senator Costello expressed concern about reducing the top rate of tax. I do not agree with his view, as one might expect, and Senator Dardis's intervention set out tellingly the economic benefit of lower tax rates. I fully share Senator Dardis's rejection of the view that there is a trade-off between lower tax rates and proper public expenditure programmes. Appropriate tax rates generate the growth of wealth to fund public expenditure programmes. I reject suggestions that our tax policies are not funding infrastructural and social expenditure programmes. We have made significant increases in infrastructure, particularly in the health area.

A certain idea permeates the discourse of some economic and political thinkers in this country, that increased public expenditure and reduced taxation are mutually exclusive. I do not subscribe to that view, though it should be no surprise to those who know me for many years to learn that. There is a view beloved of particular economic and political commentators that lower taxes mean lower investment in public services. I do not subscribe to that.

Having an incentivised tax rate, be it in direct personal taxation, capital gains tax, gift or inheritance tax, or whatever other area, incentivises people and businesses and this allows economic success to take place. That success means greater Exchequer resources for the State, which then allows the State to redirect resources to other areas and to look after areas such as social inclusion, which all politicians and responsible people want.

The other approach is that high taxation is a sign of some socially virile person and that the more one advocates higher tax rates, the more socially conscious and responsible one is and the more one is for the poor and downtrodden. That is rubbish and balderdash. That is the approach we tried here for many years and what did it do? We had great speeches and seminars about it and we contested many elections about it. We "seminarised" and theorised about it but we drove the economy into the ground. We were financially bankrupt and we could not do everything we aspired to. Unemployment was high and tens of thousands of people left the country.

When we tried a reasonable economic approach it created an environment where we have resources which we are spending wisely. We have planned for the next seven years and we have an infrastructural programme under the national plan costing £40 billion at 1999 prices – which means it will be higher when it is all out – and only 10% of that, £3.4 billion, is to come from the European Union in the seven years to 2006. This is without recourse to borrowing, while we are reducing the national debt, reducing taxation and putting at least 1% of GNP aside for a national pension reserve fund for the long-term.

I do not claim for one moment that I know what the best rate of taxation is for Ireland. I do not know what that figure is but I know that 50%, 52%, 57%, 60%, 65%, 70% and 77% are not the tax rates. I know those are not the rates because they disincentivise everyone, bring the whole country to a standstill and bring about a colossal amount of evasion. I did not need the Public Accounts Committee DIRT inquiry to tell me about the evasion that was going on but I seemed to be the only one who knew about it. Tens of thousands of people were evading tax but nobody seems to know who they were. It is a mystery to everyone. Politicians did not know them, neither did journalists not the Revenue Commissioners. They must have been in a place nobody else knew about. I read that there were almost 15,000 people in a certain bank in Kerry and while I think they were the brothers, sisters and fathers of real people, nobody knew them. We in Ireland know what everyone is doing but these people are a mystery to everyone.

If one has high tax rates one will bring the economy to its knees. Incidentally, many European countries are being forced much against their political philosophies to bring down tax rates both in personal and corporate taxation. Every Member probably regards himself or herself as a socialist but the official socialists are not here at present. I hear nonsense about the higher top rate of tax but I read recently that in Germany the socialist party is to bring the top rate of tax down, over a period of time, to 42%.

The Minister should let us in on the secret. What does the Minister consider is the correct rate?

I do not know what the correct rate is.

The Minister will keep going until he gets it.

I know it is not 77%. I was around when it was 77% on very small incomes.

I thank Senator Quinn for his welcome for the abolition of probate tax. I share his views on its abolition. It was introduced in 1993 when I was in Cabinet and I have availed of the opportunity to abandon it. I never liked it because it was a return to the thinking that underscored the old estate duty regime, which most Members will recall. We had that until the 1973 general election, when it was replaced by capital acquisitions tax. I did not like it and availed of the opportunity to abolish it.

Senators Doyle and Quinn mentioned the moves on share options. The Senators expressed concern that they might only apply to public companies. It can also apply to other companies but it is easier to operate in that area. I will come back to this tomorrow.

In discussing the top rate of tax, Senator Costello raised the issue of dedicating an amount for a waste management strategy. I note that he has tabled a recommendation on this matter and we will have an opportunity to discuss it tomorrow. While the issue of extra funding for local authorities for waste management is a matter in the first place for the Minister for the Environment and Local Government, we must take account of the polluter pays principle and our EU obligations.

Senator Henry mentioned the French allowance for child care. My party is aware of this system, which it considered together with many other proposals on child care. However, the Government decided to go down the road of the child benefit system. As announced in this budget, child benefit rates for first and second children are being increased by £25 to £67.50 per month and by £30 to £86 per month for third and subsequent children. At the end of the three year programme an extra £1 billion will be invested directly in our children's well being. This is the most equitable way forward.

We have a provision whereby the employment of a carer for an incapacitated person in their home is allowable against tax and that is being increased in the Bill. This was also raised by Senator Henry.

Since we came into office in June 1997, this question of child care has taken up much Cabinet and parliamentary party time. I could fill half this room with books on the subject and various treatises written by various organisations. We were inundated with advice, including advice before the recent budget, and each group has its own particular viewpoint.

I did not do much in my first budget on this. The best thing I did was not to be stranded down a particular road. For a few months before that budget, all the pressure was to give a child tax break and it was assumed that was what we were going to do. I said after the budget that the problem was a very complicated and multi-faceted one which had no simple solution. The biggest achievement I had regarding child care was not to allow myself to be rushed down one particular road in my first budget.

Over the next few years, the difficulties in this area were more widely appreciated. Having considered the issue, listened to the input and received reports from expert groups, we decided to go down the route of child benefit. This is the most expensive route for the Exchequer. It is many times more expensive than the tax break proposals or the proposal to have a universal payment which would be taxed. Although it is much more expensive, it is fair to everybody. Having been through my second last budget, which raised questions about what I was doing to Irish society, I definitely advocate going down this route. It is a system that is there. It is fair to everybody. People can make up their minds whether they want to work or not. Having considered it for almost four years, this is a matter that the Government has decided upon. Part two will come in the next budget and for the rest of this administration, that is our policy.

Senator Finneran raised the issue about the fairness of section 188. Allowing the Department of Agriculture, Food and Rural Development to be a tradable person allows them to pay the flat rate VAT addition to farmers when purchasing cattle for destruction.

Senator Enda Bonner welcomed my business measures in the capital allowances area and in corporation tax, referring to their benefits for small enterprises. I will consider the issues he raised regarding some further modest increases for the single earner married band for next year. I did consider very carefully the issues raised about fishermen getting the seafarer's allowance. It is very difficult to justify extending such exemptions. If one group gets an exemption then everyone seeks it. A general reduction in tax rates as welcomed by the Senator is the best approach rather than a sectoral approach.

The seafarer's allowance was brought in two or three budgets ago and I am sorry I introduced it. I am in a position where everybody in the country wants special allowance for their particular category and their hardships along the lines of the seafarer's allowance. That is the difficulty of bringing in an allowance for any one particular group. I am not given to extending it.

Senators also asked about the provisions for animals that are compulsorily slaughtered. The Bill provides for the all animals that are specified in parts 1 and 2 of the schedule to the Disease of Animals Act, 1966. The section now provides that, where a farmer disposes of any animal on or after 6 December 2000, in respect of which compensation is paid by the Minister for Agriculture, Food and Rural Development, the farmer is entitled to relief. Before I brought in this amendment, this applied only to cattle and now covers these other categories as well. This section pro vides for the deferral of profits in two equal instalments and I will go into more detail tomorrow.

As Senator Bonner indicated, we will have a further opportunity tomorrow to go into the details of the various sections, including section 81 on hotels. He asked about the provisions in this sector and others that grant aided projects will not be able to claim capital allowances. This arises from EU rules about permissible levels of state aid and how that is accumulated from different sources. As tax relief is regarded as state aid, there is a strong possibility that a project could break these ceilings if it got both grant aid and state aid. Therefore if a building or extension gets grant aid it will not be able to get capital allowances. We can discuss this further tomorrow.

Since the Finance Bill was published, we have been trying to finalise a number of these state aid problems, particularly in the area of town renewal. We did not get the go ahead on that scheme and part of the agreement was that a person could not get both grants and capital allowances. However, when we give a particular tax break that is outside the normal tax break, a formula has to be applied to work out the level of state aid that that equates to. The Commission is insisting that we accumulate both what they deem to be state aid under the special tax breaks and any grant aid. Since 1 January 2000, there is a new regional aid state map for the whole country. More state aid can be given in, for example, County Donegal than in Dublin but the limits are much lower than under the previous state aid guidelines.

Senator Feargal Quinn raised the fact of the Trustee Savings Bank ESOP not applying the 18 month rule for former employees. The issue has been raised with the Equality Authority. The general rule relating to former employees in share schemes is that they may be beneficiaries of the scheme for up to 18 months after leaving employment. The ESOP legislation enables the trustees of an ESOP to allow former employees continue to be beneficiaries of ESOPs for up to 15 years after leaving, providing that at least 50% of the shares in the ESOP are encumbered for at least five years.

I understand that in the case of the TSB ESOP, the 18 month rule will not apply. The inclusion or exclusion of the 18 month rule for former employees in the ESOP is a matter for the unions and the trustees. It is not a legislative matter, nor is it a matter for the Government because the Government is not a party to the ESOP.

I understand that the decision not to apply the 18 month rule in the case of the TSB ESOP was sought by the unions at TSB. For the first three years of the merger of the TSB with Irish Life and Permanent there is a voluntary severance scheme for TSB employees. It was the argued by the unions that people retiring under the volun tary scheme should be excluded from benefiting from any payments of the ESOP. The TSB ESOP was voted upon and accepted by the employees. I understand that the matter was raised with the Equality Authority by a member of the staff at the TSB. However, I have received no correspondence on the matter.

The parties to the ESOP agreement in TSB are the trustees and the unions. Neither the Government nor my Department is involved. The inclusion of the 18 month clause does not require any amendment to legislation. However, it would require an amendment to the TSB ESOP agreement and that is solely a matter for the parties to the agreement.

Senator Bonner raised the issue of Donegal qualifying under the rural renewal scheme. The upper Shannon renewal scheme is centred around Carrick-on-Shannon and adjacent areas. I will not be extending the rural renewal scheme until the existing one has run its course.

Senator Ridge referred to housing difficulties in Clondalkin. The Senator will note that at least 15 sections of the Bill deal with housing matters.

The is a large Bill for the reasons I have already alluded to. Finance Bills appear to be getting more complex every year. We had to include a number of new sections in this year's Bill to accommodate the alignment of the tax year to the calendar year and the introduction of the euro. It is substantial legislation. I know Senators will not have an opportunity of looking at every section in detail but some significant and innovative changes have been made to this year's Finance Bill. I appreciate Senators' comments in this regard.

Question put and agreed to.

When is it proposed to take Committee Stage?

Committee Stage ordered for Wednesday, 28 March 2001.

When is it proposed to sit again?

Tomorrow, at 10.30 a.m.