Finance Bill 2003 [ Certified Money Bill ] : Second Stage.

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

The Finance Bill 2003 implements the tax changes announced in the budget last December and includes a range of other measures, many of which are targeted at closing off tax loopholes and updating and modernising the tax system. This year's Bill has 171 sections and I propose to give an outline of the main provisions.

Part 1 of the Bill which covers sections 1 to 72 deals with income tax, corporation tax and capital gains tax. In my period in office the income tax burden has been reduced significantly. The average tax paid, including PRSI and levies, by a single person on the average industrial wage has fallen from 28% in 1997 to 17% today. In 1997 a single employed person on the equivalent of €98 per week was liable for tax. Following this year's budget the figure is €223 per week, an increase of 128%.

Some 380,000 persons or 25% of income earners were exempt from tax in 1997. Following this year's budget, the corresponding figures are 618,000 persons or 36% of income earners. This increase of over 40% in the numbers of exempt earners is even more impressive when one remembers that both the workforce and the numbers on the tax record have grown substantially over the last six years. Before the Government took office in 1997, a single person with an income above €17,270 became liable to tax at the top tax rate. Currently, the standard rate band for a single person stands at €28,000 per annum – higher than the average industrial wage.

This lowering of the income tax burden has rewarded both employees and employers alike and contributed to our strong employment growth. However, the circumstances we now face limit the scope for further major reductions in the direct tax burden. Instead we face a period of consolidation. The more limited resources available this year in respect of the budget income tax package are being targeted at those in the lower income brackets and the elderly. When the statutory minimum wage came into effect in April 2000, less than 64% of the minimum wage was exempt from tax in the case of a single person. On foot of the tax measures I took in budget 2002, 90% of the minimum wage became exempt from tax. I am pleased to confirm that section 3 provides for an increase in the employee tax credit which maintains the figure of 90%, even taking account of the increase in the minimum wage in October 2002 to €6.35 per hour. It also increases the entry point to the tax system for all employees from €209 to €223 per week.

My other priority this year in relation to the income tax package was to assist the elderly. This is in line with the goal I set myself when I took this job of removing large numbers of elderly taxpayers from the tax net. Section 2 increases the exemption limits from income tax for persons aged 65 years and over to €15,000 for a single person and €30,000 for a married couple – this represents an increase of over 15%. When combined with changes last year, the limits have increased in value by almost 40% over the last two years.

Section 6 provides for the direct application of PAYE to the currently taxable benefits-in-kind. This will facilitate the application of PRSI, including the training and health contribution levies, to such benefits. From next year, employers will deduct and pay over to the Revenue the appropriate PAYE income tax and PRSI and levies from wages paid to employees at the same time as the benefit is being provided. While income tax has always applied to these benefits, hitherto they have not been subject to PRSI and levies. Application of PRSI and levies to benefits-in-kind is the norm in most EU countries. Share options are not being included in this treatment because of practical issues that apply specifically in their case but revised procedures for their taxation are being introduced in section 8.

As part of this initiative, section 6 also provides for a major simplification of the calculation of the benefit-in-kind taxable charge in respect of cars and vans. Senators will be aware of my record of introducing simplification into the tax code wherever possible. From next January, a simple five rate structure will apply to cars, replacing the current system where up to 17 different percentages and categories can apply. Many thousands of those paying BIK on cars and vans will see their BIK income tax charge reduce as a result.

Sections 7 and 8 deal with the tax treatment of share options under unapproved share option schemes. I am making a number of changes to ensure that in future the income tax liability is settled at the time the share options are exercised, while providing some relieving measures for those persons currently in difficulty where the tax charge on their share options exceeds the value of the shares. The seven year deferral facility introduced in 2000 is being abolished in the case of options exercised after enactment of the Bill. From 30 June this year a person exercising share options must pay the tax due within 30 days. The tax payment will be taken into account in calculating the person's final liability to income tax for the tax year concerned.

By way of concession to taxpayers whose income tax liability may be higher than the value of the shares, such taxpayers will have the choice of making a payment on account capped at the value of the shares. The balance of income tax will become due for payment where the taxpayer makes a gain on the disposal of these or other shares. This provision applies where the options were exercised before or on 6 February 2003. If a taxpayer wishes to avail of this provision, he or she must notify the Revenue Commissioners by 1 June this year.

Section 9 gives effect to the increase in mortgage tax relief available to first-time buyers. The current annual ceiling on the amount of interest that can be allowed is being raised by over one quarter from €3,175 for a single person and €6,350 for a married couple to €4,000 and €8,000, respectively. In addition, the period for which the relief is available will be extended from the current five years to seven years in all. Some 45,000 first-time buyers will benefit from these changes.

Maintaining a broad tax base with low tax rates has contributed successfully to our economic development and strong employment growth. In order to protect the tax base it is essential that tax avoidance schemes and loopholes are tackled vigorously when they come to attention. By tax avoidance schemes, I mean the unintended use of certain tax provisions. These should not be confused with specific tax incentive schemes introduced to encourage certain investments or behaviour. I have a proven record in tackling tax avoidance schemes and closing loopholes. A range of provisions throughout the Bill are designed to put a stop to such schemes or tighten legislation to ensure reliefs are focused on the intended objectives.

Section 12 is designed to counter schemes whereby tax reliefs available to a trading company are transferred to individuals who, although nominally trading, are in practice passive investors. The effect of the section is to ring-fence the tax reliefs arising from certain specified trades carried on by an individual in a passive way to the actual income arising to the individual from that trade.

Section 13 closes a loophole in regard to the transfer of capital allowances on buildings from companies to individual investors. Where a building in respect of which a company has claimed capital allowances is sold to individual investors, those investors will only be entitled to set the capital allowances related to the building against their rental income from the building concerned, rather than against a wider range of income, as is currently the case. It has since come to my attention that the same effect can be achieved by using borrowings and an intermediary company. I issued a press release last week announcing that I would have a provision in next year's Finance Bill closing off this possibility from the date of the press release. I also intend to close off any other variant of this scheme that comes to my attention in the meantime.

Section 14 makes a number of changes to the tax regime governing various pension products. In summary, the main items provided for include the alignment of contribution limits for personal retirement savings accounts or PRSAs with those applicable to other personal pensions and occupational schemes; the abolition of the facility to obtain excessive tax relief by making last minute additional contributions just prior to retirement; and new rules that will prevent approved retirement funds being used for investment in assets or property for private or family business use, for example, the purchase of a holiday home by the fund for personal use.

Section 15 provides for a number of changes to ensure the BES and seed capital schemes continue to apply as intended. The schemes are due to expire at the end of this year and I will be reviewing them before next year's budget. Section 16, another anti-avoidance measure, counters contrived arrangements between spouses in relation to mortgage interest relief for investors.

The question of repayments of overpaid tax and the application of interest to such repayments has been the subject of considerable discussion in recent times arising from the Ombudsman's report entitled, Redress for Taxpayers, on this issue last November. The provisions in existing legislation have grown over time for different purposes and vary both within and across tax heads. At present there is no general right of repayment of tax or general entitlement to interest. In reviewing this issue I considered it essential that a new general provision be introduced which was coherent across different taxes and situations. It is also essential, as I indicated in my response to the Ombudsman's report, that whatever scheme is put in place should take account of the potential Exchequer costs of any new general scheme. I consider the proposals in the Bill represent a balanced approach to these objectives.

Section 17, with other sections of the Bill, provides for a general right of repayment of tax in relation to valid claims made within a four year period. These replace existing provisions on repayments where they are in place. This will apply across all tax heads, except customs duties which are a direct EU tax. The right of the Revenue to make assessments to tax and pursue inquires will also be limited to four years unless it has grounds to suspect fraud or negligence for earlier years.

These sections also provide for a new general entitlement to interest on overpaid taxes. This provision will apply from six months after the date on which the claim is made by the taxpayer. However, where the Revenue misconstrues the law, interest will be paid in general from the date the excess tax was paid, subject to the overall time limit on repayments of four years. This new scheme will replace all other existing arrangements, including those provisions dealing with interest paid on refunds of overpayments of preliminary tax. The rate of simple interest on repaid tax is being reduced from 0.0161% per day to 0.011% per day or from approximately 6% to 4% per annum. Such interest is tax free. These measures provide a fair and transparent scheme for the refund of overpaid taxes and interest on such refunds in the future. They also address the issue raised by the Ombudsman in relation to the need for a general scheme. All these provisions are subject to a ministerial order and will come into effect after the orders are signed.

While I am on the topic, I refer to section 166 which provides the Revenue Commissioners with statutory authority to make on a discretionary basis payments for loss of purchasing power to those widows affected by the High Court decision in the case of O'Coindealbhainv. O'Carroll. The Revenue Commissioners will make these payments by reference to the consumer price index, as recommended by the Ombudsman. To complement the statutory provision for widows made in this section and complete the implementation of the recommendations set out in the Ombudsman's report, the Revenue Commissioners will make payments in respect of loss of purchasing power to ten other taxpayers to whom the report refers. These payments will be made by the Revenue Commissioners wholly on an exceptional ex gratia basis to the ten taxpayers concerned and no others. The provisions in section 166 and these ex gratia payments are intended to deal with the cases raised by the Ombudsman only. The general scheme of interest and repayments provided for in the Bill is prospective.

Sections 18 and 19 provide for an extension until 31 December 2004 of the existing schemes of stock relief for farmers in general and for certain young trained farmers. A commencement order will apply to the young trained farmer scheme given potential EU state aid implications. Section 20 provides for a tightening of the type of capital expenditure covered by capital allowances for the purchase of transmission capacity rights.

Section 21 relates to tax relief on donations. It provides for a maximum limit on the amount of donations that can attract tax relief where the donation is made by an individual directly associated with the organisation, for example, an employee or certain members of the body. In these cases, where the aggregate of donations in a year of assessment is in excess of 10% of the individual's total income, the excess will not attract tax relief. Tax relief for donations in all other situations will continue as currently without any ceiling.

Section 23 gives effect to the increase from five years to eight in the write-off period for allowances for capital expenditure incurred since budget day on plant and machinery. As I indicated in my Budget Statement, I consider it appropriate in present circumstances to seek an equitable balance in raising revenue from all sectors of the community. This is one of the measures which will raise revenue from the business sector.

Section 24 extends the current scheme of capital allowances for buildings used as private hospitals to hospitals providing certain acute services on a day case basis. The main change made to the provision is that, in the case of a day case hospital, the minimum bed requirement is being reduced to 40 beds from the 70 bed requirement that applies generally. As this extension has been the subject of some public debate, I want to outline how it arose. In the Finance Act 2001 I introduced a scheme to encourage the development of private hospitals. This followed a similar relief to encourage the development of private nursing homes. The scheme had a range of conditions about the services to be provided, the number of beds, etc. to ensure only genuine hospitals qualified as well as providing for conditions such as discounts for public patients. The minimum bed requirement was reduced in last year's Finance Act from 100 to 70.

I was approached towards the end of last year by a constituent who indicated concern that the conditions as set out in the legislation militated against day case hospitals. I asked my officials to meet the persons concerned and examine the issue. In the event the meeting did not take place until towards the end of February and the change to the scheme was made by way of Report Stage amendment to the Bill, though signalled on Committee Stage. I made it clear in the Dáil that the issue came to my attention because of an approach from an individual constituent. I considered there was a very good case for making the change and I would have been of this view no matter who brought it to my attention. The relief was intended to apply to all private hospitals. There was no intention when introduced of excluding day-case hospitals. It is not unusual that the terms and conditions of reliefs are adjusted in the light of experience and of issues brought to my or my Department's attention by promoters of individual projects.

Section 25 provides for the reduction of the annual rate of write-off for capital expenditure incurred on hotel buildings to 4 % per annum, while the annual capital allowances for holiday cottages are being abolished. Subject to transitional arrangements, both these amendments apply to construction or refurbishment expenditure incurred on or after budget day. The transitional arrangements provide that these changes will not apply to such capital expenditure incurred by 31 December 2004 if a full and valid planning application is received by the relevant planning authority by the end of May 2003. These new dates should cater for the vast majority of cases that have been brought to my attention since the budget.

Section 26 sets out the expiry dates for a number of tax incentive schemes. Those affected are the urban renewal scheme, the town renewal scheme, the park and ride scheme and the student accommodation scheme. Sections 27 to 30 make various minor changes to these schemes. I have always held the view that targeted, well designed tax incentive schemes can be a useful instrument in achieving desirable public policy objectives. As I said earlier, these are very different from unintended uses of the tax system through tax loopholes and avoidance schemes. However the value of such incentive schemes must be balanced against the important objective of ensuring a wide tax base if we are to maintain low rates. It must be borne in mind that such schemes usually also mean that higher earners can reduce their tax bill substantially.

Given the current and prospective budget situation and the objective of broadening the tax base, I consider it necessary to finish the schemes mentioned, and some others, by the end of next year. I will be keeping all tax expenditures and incentive schemes under review. This is not to say that I will not consider introducing tax incentives where I see the potential benefits as outweighing the other factors I mentioned. The extension of capital allowances to the construction of hospitals providing acute hospital services on a day-case basis is one such example.

Section 32 closes off a loophole relating to tax avoidance schemes involving contrived financial arrangements in relation to a relief available to lessors in respect of capital expenditure incurred on the provision of student accommodation. This section requires, among other restrictions, that any loan involved for the lessor must be taken directly from a financial institution instead of from the third level college. Section 33 tightens up the arrangements for relevant contracts tax.

All tax incentives and reliefs are subject to ongoing review. In the case of some of these incentives, there are no legislative provisions regarding a return of the exempt income or gains. The relevant legislation is now being changed in section 35 to provide for the return to Revenue of the details of the exempt income or gains, as well as losses, arising in connection with three of these tax incentives, namely, the exemptions for stallion fees, profits from forestry and greyhound stud fees. This will enable a further assessment to be carried out of the actual costs and benefits involved in these three reliefs. The legislative change will come into effect at the commencement of the next tax year, 1 January 2004.

Section 36 closes a loophole, under which the sale by an individual to a company of a rent roll from a building can facilitate tax avoidance. This loophole has been used to seek a situation where, through the sale of the rent-roll to a financial institution, the rental income that should be charged at the 42% rate of income tax is charged instead to corporation tax at the 12.5% rate.

Section 38 permits the Government to enter into tax information exchange agreements with the governments of other jurisdictions. Double taxation treaties already provide for exchange of information but this section facilitates agreements with any jurisdiction specifically on exchange of information.

Section 42 provides for the introduction of a pay and file system for corporation tax. This will require a company to submit the balance of tax within nine months after the end of the accounting period in question. This will align the corporation tax return filing and final payment deadlines.

I recently established the National Development Finance Agency to assist in providing cost effective finance for public investment projects by advising State authorities on the optimal means of financing and, in some circumstances, providing finance or forming companies to secure finance. Sections 43, 72 and 139 confer exemptions from tax on the NDFA in the performance of its statutory functions.

Sections 44, 46 and 47 are further anti-avoidance provisions. Section 47 is designed to counter tax avoidance schemes involving a balancing charge, that is, a clawback of capital allowances, arising following the disposal of machinery or plant. These schemes seek to avoid the charge or to pass the balancing charge arising from an individual to a company, which would be taxable at a lower rate.

Our capital city has become a significant player in international securitisation transactions and it is important that we continue to compete successfully for this business. In order to achieve this, Irish tax law must keep pace with international developments. Securitisation involves the creation of tradable securities, traditionally from existing assets or future income streams. It is used to raise finance in a manner more efficient than traditional borrowing. By its nature the securitisation business is constantly evolving and producing more sophisticated transactions. Section 48 updates our tax regime in order to bring more of this high-value business to Ireland. Accordingly, the overall effect of these changes is to greatly increase the types of financial assets which can be securitised.

Section 31 on dealing in securities and section 37 on matching foreign exchange gains and losses on certain assets are also targeted at facilitating a strong international financial services industry. Ireland has also become a successful international centre for fund management. A feature of this sector in Ireland is that a high proportion of the business is fund administration. Our strategy is to build on this by encouraging more fund promoters to locate their investment management function here, in addition to their fund administration operations. In this regard, section 51 removes a technical obstacle to achieving this goal by providing that a tax liability on a foreign fund will not arise solely because of the activity of the Irish agent acting on its behalf.

Section 62 amends the scheme of tonnage tax for shipping companies introduced in the Finance Act 2002 to conform to EU requirements. Tonnage tax is a scheme whereby, as an alternative to charging corporation tax on certain profits of a qualifying shipping company, a tax charge is levied each year instead on the tonnage of the ships operated by the company. The amendments to the scheme include confining the tonnage tax regime to profits derived from shipping activities and a requirement for separate accounting where a company engages in tonnage tax activities and other activities.

Sections 65, 66 and 67 make significant changes to the capital gains tax regime to remove some relieving provisions which I feel are less necessary now that the tax rate is set at 20%. These changes will also spread the burden of the revenue-raising measures needed in the current budgetary situation. Section 65 gives effect to my budget announcement that indexation relief will not apply for years after 2002. Section 66 removes the facility to defer capital gains tax by the issue of debentures, loan stock or other similar securities.

Section 67 abolishes roll-over relief. This relief allowed for the indefinite deferral of a capital gains tax charge on gains accruing on the disposal of certain assets where the proceeds were reinvested in certain other assets. This change is effective for all disposals from 4 December 2002 onwards. In some cases, the tax has been rolled over on several occasions, and in some cases gains realised over 20 years ago remain untaxed. With a low CGT rate now firmly in place, it is an opportune time to widen the base to ensure all pay tax on their gains when they are realised.

Certain tax rules, which, at present, allow individuals to avoid a capital gains tax charge by selling assets during a period of temporary residence abroad, are being changed. Section 69 accordingly imposes a capital gains tax charge in such circumstances. Section 70 ensures that a person receiving a payment under a non-competition agreement is liable to tax.

Section 72 adds certain persons to the list of those who are entitled to exemption from capital gains tax. These additions are sports bodies and registered trade unions, subject to certain conditions being fulfilled. This is consistent with the income tax exemptions already available to such bodies.

Sections 73 to 86 relate to alcohol products tax and include provisions to consolidate and modernise excise legislation covering the various alcohol products in order to make it more accessible to users. The opportunity is also being taken to streamline existing provisions and to make some minor changes in the area of offences. Sections 87 to 90 are restatements of existing provisions on foot of the consolidation and modernisation of existing legislation.

Section 91 confirms the budget night increase in the rates of excise duty on auto diesel which, when VAT is included, amounts to 3 cent per litre. Section 92 confirms the budget night increase in the main rate of excise duty on spirits which, when VAT is included, amounts to 20 cent on a standard measure. The lower rate of duty which had applied to low strength spirit alcopop drinks is also abolished.

Section 93 provides for an updated offence of selling, delivering or keeping for sale any spirits on which excise duty has not been paid. It also provides for a presumption in any proceedings for an offence involving counterfeit spirits that excise duty has not been paid on those spirits.

Section 96 confirms the budget night increase in the rate of duty on cigarettes which, when VAT is included, amounts to 50 cent on a typical packet of 20 withpro rata increases in respect of other tobacco products.

Sections 101 and 106 make an amendment to the definition of crew cabs for VRT proposes. Such cabs have the capacity to act as domestic and commercial work vehicles. This will ensure smaller domestic type crew cabs, currently classified as category C vehicles and liable for flat VRT of €50, will be reclassified as category B vehicles liable for VRT of 13.3%. The Bill also includes an amendment to the definition of "pick-ups" to ensure certain genuine, small pick-up trucks will continue to be correctly classified as category C, not category B. Section 103 confirms the budget change whereby the 30% VRT rate will apply to vehicles exceeding 1900cc.

The electronic commerce directive provides for changes in the rules concerning business to business on-line supplies, new rules regarding on-line supplies of services for private customers in the European Union from outside the Union and a special scheme for such non-EU suppliers where supplies are made to private consumers. A series of sections in this part of the Bill transpose the directive.

The VAT invoicing directive aims to simplify, modernise and harmonise the conditions laid down for VAT invoicing and remove barriers to electronic storage and transmission of invoices across the European Union. The Revenue Commissioners have issued regulations which partially give effect to the directive. However, it is necessary to transpose the remainder in section 122 and follow-on regulations.

Three changes are proposed to the VAT treatment of property. Last year's Finance Act introduced the concept of economic value into VAT law. Economic value means the cost of acquisition and development of a property and identifies the full amount on which the developer claims input VAT in respect of the development of a property. This concept was introduced to prevent avoidance schemes. Section 114 ensures the meaning of "development" in the definition of economic value includes expenditure such as architects' and other professional fees.

Short-term letting of property is usually exempt from VAT. It is possible, however, to waive the exemption on short-term letting and charge VAT at the standard rate. In some cases, prior to short-term letting, individuals will have claimed input VAT on the development of the property with the intention of entering into long-term leases which did not materialise. The change in section 117 allows the Revenue to take this into account when calculating what the taxpayer needs to pay if he or she then cancels the waiver. Section 121 creates a requirement to maintain records as long as the property is in the VAT net and for six years thereafter.

Sections 140 and 143 confirm various increases to stamp duty on credit and other cards, cheques and non-residential property. Section 141 gives effect to the announcement on budget day that a specific contribution to the Exchequer is to be obtained from the financial sector for the three year period 2003 to 2005. The targeted contribution is €100 million per annum for each of the three years. The required amount for 2003 is to be obtained from each relevant financial institution or group by way of a special stamp duty of 50% of the amount of the tax payable on deposit interest by it to the Revenue in the calendar year 2001, excluding any arrears relating to earlier years. This charge is subject to an upper limit of 0.15% of the institution's or group's average deposits from Irish residents in 2001.

Part 5 of the Bill deals with a number of changes to the capital acquisitions tax code. Section 146 makes changes to the general administration of CAT and will facilitate swifter processing of gift and inheritance tax returns. The new measures already apply to other taxes and the changes mean that in the future the system of self-assessment for CAT will be more like the system that currently operates for the other self-assessed taxes. In addition, the changes are an essential element in the Revenue's soon-to-be launched on-line filing facility for CAT returns.

Section 149 provides that with effect from 1 January 2003 the annual small gifts exemption is increased from €1,270 to €3,000. Sections 157 to 162 deal with Revenue powers and administration. Section 160 increases the maximum fine for summary offences from €1,900 to €3,000. Section 161 contains a number of provisions to facilitate the investigation and successful prosecution of revenue offences. It is proposed to allow for the creation of certain evidential presumptions in relation to proof of books, records etc in court proceedings for tax evasion cases. A provision is also included creating an offence of falsifying, concealing or destroying documents relating to a Revenue investigation. A judge hearing a trial on indictment will now be able to make information available to the jury to assist it in its deliberations. Such information would include charts, transcripts, summary information etc. Section 162 allows unpaid penalties to be pursued in the District and Circuit Courts as well as the High Court.

Revenue powers have been significantly enhanced in recent years. There is a need to take regular stock of the remit of such powers to assure the Government and the public at large that these powers are meeting the needs of the taxation system and being used as the Oireachtas intended. The opportunity now presents itself to perform a stock-taking exercise to ensure the current balance and strategic direction are correct. Accordingly, I have recently established a high level group chaired by former Supreme Court judge, Mr. Justice Frank Murphy, to examine the current provisions and make recommendations for any changes considered necessary.

Section 164 is an enabling provision that will allow the Revenue Commissioners to oblige certain categories of taxpayer to file returns and pay tax electronically. There are considerable benefits from electronic interaction with the Revenue but I consider it desirable that the move to electronic filing and payment be achieved to the greatest extent possible on a voluntary basis. Save in exceptional circumstances, I do not envisage bringing the new provisions which are subject to a commencement order into effect until further consultation has taken place with practitioners and there is a fuller understanding of the reasons more voluntary use is not being made of electronic filing for certain taxes or categories of taxpayers.

As Minister for Finance, I have managed in successive budgets and Finance Bills to create a low tax rate environment across all taxheads. It is a position from which the economy has thrived. Despite the need to increase revenue yield this year, I have stuck to my core belief that the best direct tax rates are low tax rates. However, if we want low rates, we must also secure a wide tax base to fund this policy. This Finance Bill is designed to consolidate our position going forward. I commend it to the Seanad.

One of the problems one faces as Opposition spokesperson is that if one sketches the gloomy reality of the current crisis in the economy, one invariably attracts the comment that one is playing politics or not acting in the national interest but nothing could be further from the truth. The economy is in big trouble and the Celtic tiger a thing of the past. It is highly doubtful it can be resurrected or resuscitated under the current regime. The difficulties facing the economy are largely, although not exclusively, self-inflicted. They arise as a result of Government mismanagement, a frightening and growing lack of competitiveness and a fundamental failure to tackle key issues which make it increasingly difficult for enterprise to survive, let alone thrive.

The clearest and most irrefutable proof that we have a major crisis in the economy is provided by the number of job losses. Ten days ago the Small Firms Association estimated that 400 jobs per week were being lost to the economy. Based on current trends, this is likely to continue for the foreseeable future as investment and business confidence continue to weaken. When investment begins to decline, job creation dries up and when confidence dissipates, investment dries up.

The statistics contained in the Forfás report published last month speak volumes. During the last two years we have lost 61,000 jobs which had been assisted and grant-aided by the IDA and Enterprise Ireland. They were created on the back of the success and confidence of the Celtic tiger. The sad reality is that few of those losing their jobs have been able to find alternative employment because the current climate does not facilitate job creation.

We should not look at these 61,000 jobs as merely cold statistics. Each job lost is a tragedy for the community but particularly for the jobholder. In many cases, the jobholder is the main earner of a family and there are all the knock-on consequences, including loss of income, signing on the unemployment register, the slashing of a family's standard of living, mortgage difficulties and the inevitable prospect of having to sell the family home and car.

In a recent article in theWestern People, my local paper, journalist Michael Commins quoted from an interview with Mr. Pius Ford, a key activist with the Irish community in Manchester and the British midlands. Mr. Ford confirmed that the trend of Irish emigrant families returning to this country over the past ten years to set up home and enjoy the fruits of the Celtic tiger has not alone been stopped but is being reversed. The Claremorris-based company Ark Furniture Removals has confirmed that its business is booming, but in the wrong direction. Many of these families are uprooting and returning to Britain lock, stock and barrel. The reasons given by those interviewed and by the company are stated to be job losses, the cost of living since the introduction of the euro and poor services, particularly in the health sector. These people return to Britain sad, disillusioned, devastated and embittered. They are embittered that the dream of seeing out the rest of their and their children's lives in the country of their birth and origin has been shattered.

The main reason jobs are being killed off is that the Government seemed to blandly accept that the boom was guaranteed as far into the future as could be foreseen, and that there was no end in sight. We are in our present situation because the Government did not adopt prudent management practices. It failed to put the national interest before narrow self-interest in its reckless determination to spend its way back into office. The Government knew exactly what it was doing and it has left a dire legacy, similar to that of its predecessor in 1977, which it will take light years to repair.

It is well known that the key to job stability and creation is competitiveness. Ireland's competitiveness was the key pillar on which the Celtic tiger was created. Sadly, we are no longer competitive. The cost of creating and sustaining a job is simply too high. If an economy ceases to be competitive, indigenous employers will go out of business and foreign industrialists will up sticks and go elsewhere. Who could blame them?

Our inflation rate is double that of our European colleagues. I use the word "colleagues" advisedly because, though we may be colleagues under the EU umbrella, when it comes to competing and seeking out valuable enterprises they are able to out-bid us. Our competitiveness has disappeared – the edge which was so attractive and which was part of the magical formula that attracted jobs here in such numbers.

Enterprises and industrialists look at competitiveness and infrastructure, but what do they see when they look at this country? They see broadband communications not rolled out and lagging behind other countries; traffic congestion which means that delivery costs are too high – Dublin is second only to Calcutta in that respect; a country that has failed to meet its electricity generation requirements which has led to inadequate and unreliable power supply; a country where electricity costs are expensive; and one where there is a Third World rail system.

They look at Government policy in terms of prices and see a country where the Government has consciously added to overall costs, a situation further fuelled by the Government decision to increase VAT rates from 12.5% to 13.5% in this Finance Bill, increasing costs for an average family by €182. They see motor tax increased by €30, hospital charges increased by €133, the qualifying threshold for the drugs refund scheme increased by almost €200, VHI costs up by €66, cigarettes and alcohol up by €180, bank charges up by €83, ESB bills up by €72 and college fees up by €275. All of these increases are a direct consequence of a conscious decision as part of the Minister's budgetary policy.

To the average family, the cumulative negative impact is approximately €1,500 per annum. Increases in local authority service charges and the 9% increase announced by the Minister for Transport, Deputy Séamus Brennan, the week after the budget for Bus Éireann and Iarnród Éireann charges add to the impact. The increases deliver a solar plexus blow to thousands of families, many of whom voted for the return of this Government to office on 17 May last and are now left belatedly to rue that decision.

One of the most damning indictments of this Government's performance has been its failure to protect jobs and living costs by tackling grossly excessive and extremely damaging insurance costs. Small enterprises employing 20 to 30 people are expected to pay employer's liability insurance of €60,000 per annum. How can such small enterprises keep trading when, in a declining market environment, there is a 40% hike in insurance, not on a phased basis but in one fell swoop? The more people they employ, the more punitive the insurance premiums become.

I know of two small enterprises in my immediate area which have had to throw in the towel and close down simply because they were not in a position to pay the 40% increase in insurance liability. More companies will go to the wall because of the excessive insurance premiums being demanded. We have seen, for example, St. Patrick's Day festivals being abandoned throughout the country this year because communities could not afford public liability insurance. Children's playgrounds have been closed down in many places for the same reason.

Some time ago when a Member of the Dáil, I carried out a survey of public liability claims against local authorities. As far as I can recall, in the case of Dublin Corporation there were 593 claims in a particular year. Of those, approximately 580 were settled out of court, some on the steps of the courthouse. Some 40% of the cost of those claims went on legal costs. The management and operation of insurance in Ireland is absolutely crazy. For example, if somebody trips on a pavement outside Leinster House this evening, they do not have to lodge a claim with the local authority until 24 March 2006. Three years can elapse before a claim has to be submitted. In the name of sweet heaven, how can any local authority enter any kind of a defence when such is the situation? Where would be the proof, evidence or witnesses?

It is an untenable situation but one that could be addressed in one fell swoop by a simple piece of legislation. This has not been done. I welcome the establishment of a State claims agency but that is only a trivial rectification of a situation that is totally out of control. It is well-known that the courts process hundreds of fraudulent claims, which are corroborated and assisted by the manner in which the legal profession and, to an extent, the medical profession operate. The courts should not have to deal with insurance claims; they should deal exclusively with criminal matters.

Ireland should adopt a model similar to the quick, efficient, non-adversarial and streamlined system which operates successfully in New Zealand. Such a system delivers claims on time, in a judicious manner and with minimum costs and the involvement of lawyers is largely dispensed with. There can be massive awards in this jurisdiction, but large lump sums are not awarded, irrespective of the extent of a person's injuries, on foot of claims in New Zealand. Awards are made in instalments to cover maintenance and day-to-day living costs, but, unlike the system in this country, payments cease when the person who has been awarded compensation dies.

A recent survey conducted by the Irish Insurance Federation highlighted what everybody knows, namely, that the number of fraudulent insurance claims has escalated beyond all proportion. It should be a criminal offence, punishable by law, for a person to lodge a fraudulent insurance claim. However, such legal provisions are not in place. Payments are sanctioned in respect of fraudulent claims each day because it can be cheaper for insurance companies to settle out of court rather than pursuing an expensive legal process.

The Minister, Deputy McCreevy, mentioned changes in vehicle registration tax. This country's failure to tackle this issue flies in the face of what happens in Europe. The VRT rate for a car with an engine capacity of less than 1400cc is 22.5% of the open market selling price, the rate is 25% for cars between 1401cc and 1901cc and it is 30% in relation to cars that are over 1902cc, as a result of the Minister's adjustment. VRT represents a huge imposition on a person buying even a modest family car.

The manner in which accounts held under the special savings investment scheme, which was introduced by the Minister for Finance, have lost their value is frightening and may yet exceed the Eircom debacle. Why did he not provide in this Bill an escape hatch for those who are trapped for the next five years? Ark Life, Irish Permanent and the Bank of Ireland have said that holders of special savings accounts that are linked to equities are losing substantial amounts of money. Not only are they losing their basic savings, but the Government bonus is also being eroded.

The 1% increase in the basic rate of VAT is punitive and will impact across the board. It has not yet started to bite, but people will feel its effects soon.

I will make submissions in relation to individual sections on Committee Stage. I will make clear during that debate that the Finance Bill 2003 has failed miserably to provide the propulsion and energy needed by the economy.

I welcome the Minister for Finance and his officials. I congratulate the Minister on bringing forward the Finance Bill 2003.

I wish to comment on one or two points made by Senator Higgins. The Senator implied that the Celtic tiger could be revived if other parties were in Government, but I do not think such an idea is based on reality. The eight years of exceptional growth enjoyed by this country resulted from a combination of certain exceptional conditions and the fact that the right policies were pursued at the right time. If the right policies are pursued in the future, however, it is unrealistic to expect an annual growth rate of between 8% and 10% over a period of years, even if Fine Gael is in Government. Employment levels in this country are quite good, when one considers the prevailing international conditions. There was no net loss of employment last year; there was a marginal gain.

There was a gain of 29,000 jobs in the public service.

I do not know where Senator Higgins came across the figure of 61,000 jobs that were assisted by IDA Ireland and Enterprise Ireland, but which he said have been lost in the last two years. The figure is three times larger than the number of redundancies in that time.

There are 29,000 new civil servants.

The Senator needs to re-examine his figures. Investment remains quite strong, as companies are continuing to invest here. I accept that competitiveness is a constant challenge and that one can never afford to rest on one's laurels, but I do not think we are doing too badly on the competitiveness front. Ireland is not losing many jobs to Germany, for example. Senator Higgins spoke of a Third World rail system, which made me wonder if he has ever travelled—

Last week.

—on a Third World railway. Having travelled from Kilkenny on my way back from a meeting of the British-Irish Inter-Parliamentary Body, I totally disagree with the Senator's opinion.

The suggestion that this country is in the same financial position as it was between 1977 and 1981 is false because our economic and financial fundamentals have never been so strong. I believe they will remain strong. The Seanad has only a formal legislative role in relation to Finance Bills and its input is, to all intents and purposes, a mere formality. Senators can help the legislative process, however, by deliberating on the Bill's provisions and giving advice on future developments.

The most important function of a Finance Bill is to enact the provisions of the budget. I am sure it will be pointed out tomorrow that the tax concessions provided in the Bill are well below indexation, whereas social welfare increases, which will be debated in the House later this evening, are slightly above indexation. The ESRI gave a positive analysis of the distributive impact of the budget and mentioned that those who will gain from it will be those in the bottom 40% of the population. There will be some losses at the higher end of the scale. The Minister mentioned that one of the budget's objectives – one with which I agree – is to retain low tax rates. It is terribly important, in the interests of employment, to ensure that our tax system remains competitive. Our tax system was hopelessly uncompetitive for much of the past 25 years.

I spoke to a British MP in Kilkenny about the many extra impositions that are about to come into effect as a result of Gordon Brown's budget, particularly the increase in employers' national insurance contributions. Ireland is competitive in relation to such matters. It is important that Ireland can compete with its nearest neighbour, given that we share a similar geographic space with it and the fact that people in both countries speak mainly English.

There have been no indications so far this year that the public finances will not stay on track and I am hopeful that they will. We will know more after the publication of the figures for the first quarter. The real issue in relation to financial management is the generation of maximum revenue and economic growth. The Government has been more successful in the past five years, in terms of generating increased revenue, than any other Government in the history of the State.

The budget is very much in line with the new social partnership agreement, Sustaining Progress. I am sure recommendations will be brought forward on Committee Stage as part of an attempt to fully index tax allowances. The taxation section of Sustaining Progress does not say anything about tax indexation, which, frankly, is impossible this year. It states, "The objective is to ensure that the tax system facilitates a level of economic growth sufficient to maintain high levels of employment and quality public services, is fair and able to adapt to changing economic circumstances". It also states personal tax reductions will be focused on keeping those on the minimum wage out of the tax net. We have achieved and are maintaining the target of 90% in this respect and moving towards a target which will ensure 80% of all earners will pay tax at not more than the standard rate.

Over the past year or two the Minister has frequently made the point, backed up by the European Commission on more than one occasion, that we have the most favourable income tax system for the low paid of any country in Europe. The budget has not affected this. People can use phrases such as "stealth taxes" or "tax drag" but it was important to maintain the low rates of 20% and 42% that we have achieved. I support fully the efforts of the Government in this regard. It was also important to honour, in the interests of predictability and reliability, the pledge to reduce corporation tax rate to 12.5%, which has been done.

Sustaining low tax levels cannot be done without also looking at expenditure levels. The Minister shares my horror at the escalating cost of infrastructural projects, in respect of which those involved are thinking of a price and doubling it. Part of the problem concerns land compensation, at which we must look very closely, to the point of examining the constitutional position.

People need to look for lower cost solutions rather than accepting deluxe engineering decisions. Nowhere is this more important than in public transport plans for the greater Dublin area. Some of the planners have got to get real because we are talking about vast sums of money which could be spent on other social priorities such as health and education.

I compliment the Minister on the way in which he has increased the age exemption limits over a series of budgets such that any pensioner, even one on above average income, is free from the tax net. Housing policy is very important. Not all young people want to rent houses over a long period. This must be kept under very close review.

Farmers are a little disappointed about roll-over relief, which is still under discussion. I do not disagree with the Minister's position. A deal was negotiated with the farmers a year or two ago when they were blocking roads and buildings. Perhaps the proposal on roll-over relief is contrary to their expectations.

I support very strongly the Minister in his efforts, which he must redouble, to counter tax avoidance methods. He defined them very well as "unintended use of certain tax provisions." I have often wondered if there could not be some general clause which would put a question mark over anything that is not explicitly provided for in the relevant legislation.

I am in favour of the Minister's press release on a provision to close off the possibility of tax abuses from the date of that press release. Once a problem has been identified one can issue a press release and say it will be dealt with in the next Finance Bill. That is proper order. It is a scandal that some of the highest earners in the economy are paying little or no tax or less tax than most. Pressure from the accountancy profession has to be resisted. Those who are doing really well should not begrudge paying tax and supporting services which contribute to their prosperity.

The Minister is correct to get rid of many of the reliefs which are mostly property related. There is no great case for relief of what are relatively sure-fire investments. It is a good principle that incentives be time-limited rather than endlessly extended. Incentives should be concentrated where there are serious risks involved or most of those engaging in the activity concerned do not make any profit or make losses. There are a few examples of this. One uncontroversial example relates to the removal of VAT from books in 1982, after which the publishing industry never looked back.

I have some regrets about the curtailment of film relief. There was much risk involved. I accept that it cost a lot but it helped to develop an Irish film industry.

On the subject of income tax breaks for artists and writers,The Irish Times featured an article entitled, The tax break that makes art possible. This exemption was courtesy of one Charles J. Haughey. When the Minister was in Cheltenham, there was an article about Irish horses being a race apart, stating that the unique quality of Ireland's trainers and riders once again produced an unforgettable Cheltenham festival.

While I did not see that article, I saw the one on the tax breaks for artists.

We are talking about areas of activity that have benefited tremendously from the vision of 30 years ago which led to the building up of an industry.

Income tax is not the sole tax paid. Many indirect taxes are paid. While I have to declare an interest because I was nominated by the Irish Thorougbred Breeders Association, I have held my current view for some years. Senator McDowell may laugh but he should check what my constituency colleague, the late Deputy Michael Ferris, said on this subject in 1997. He defended strongly the tax relief on stallion fees. The Senator should study his remarks before speaking.

Securitisation is important. The State has been very supportive of the international financial services centre which has been a huge success. I am glad to see this acknowledged in the budget. We may have to look at the possibility of incentives for encouraging rail freight on foot of the strategic rail review. This is done in some other countries but is a task for another year.

I wish to share my time with Senator Ross.

Is that agreed? Agreed.

I do not like accountants but there are exceptions. When one hears of a company that has just appointed a new chief executive who was formerly the financial controller, one can see the company change. The companies that once were driven towards looking after their clients and customers suddenly become driven by percentages and money. I learned very early in business that one can sometimes make more money by reducing the percentage – the use of percentage to express a margin is banned in our company. I know I am speaking here to the converted and that there are exceptions to these accountants and I am delighted that the Minister is one of them. He has given examples in his speech, when he referred to his low tax policy. Since the Minister has taken office, he has if I am correct reduced capital gains tax, corporation tax and betting tax, and has each time earned more money. It is possible to bring down the percentage of tax in business and actually get in more revenue.

If I were to leave one thought in the Minister's mind today, it would relate to value for money in public spending. This need is not understood in the public service, nor has it been in the past. We can expect very little growth in tax revenues in the foreseeable future, as Senator Mansergh said. It may be hard to deliver even the tax yield currently expected. It thus becomes more critical than ever that we get a firm grip on public spending and prevent it from running completely out of control, as it has done so spectacularly in the recent past.

This will not be made any easier by Sustaining Progress, the new partnership agreement, because it includes as well as everything else the benchmarking awards. We are looking at a quite substantial increase in public spending with very little to show in the way of return – this at a time of little or no revenue growth to fund that extra spending. Benchmarking – I am sure Senator Ross will have something to say about it – is a done deal at this stage, and nothing can roll it back. What it imposes on us is an obligation to revisit the issue of public spending, to see if we can squeeze better value out of it.

A favourite theme of mine is how value for money is almost totally ignored when it comes to public spending. We cannot allow such a situation to continue. I often draw the contrast between spending in the private sector and in the public sector, and I have no doubt that the private sector operates better in this regard.

In a private company, when a spending proposal is made, the first question asked relates to the benefits that might flow from the expenditure, and if the benefits are in proportion to the costs. If they are, the spending is approved. That never seems to happen in the public sector. The private sector considers goals, objectives and measurements in order to see if value for money can be obtained. Companies which do not take this approach soon go out of business. Because Governments do not go out of business, that basic discipline is lacking. When a proposal is made in the public sector, the decision to accept it is largely based on political factors. Cost comes into it peripherally, and a costs and benefits balance hardly ever arises. What often decides the question is whether or not the money is there to spend.

A typical case which has frustrated me recently is the putting of money into reducing hospital waiting lists. We have spent a lot of money on this over the years, yet the lists have not been reduced. I do not know what cost measurements take place in this regard.

The way we approach public spending is even worse in projects, because we do not attempt to assess their costs or benefits. This is the practice of throwing money at problems on the assumption that if we spend money, we must get a corresponding result. The proof that this is a wrong approach is shown clearly by the health service. Over the past five years we have more than doubled the amount spent on health, but what have we to show for it?

I am concerned about value for money in the health service. Let me tell the House of something that happened in the Mater Hospital yesterday. A man went in for throat surgery for cancer. There were two medical teams, oncologists and plastic surgeons, all ready, but they then had to cancel, because budgets were not met. They were obliged to stand around and do nothing, though they were being paid. Some part of the budget did not kick in. That happened on another occasion recently in the Mater Hospital. Medical staff were obliged to stand around and not attend to the public patients, though funds had been allocated, but not to certain aspects of treatment, yet the State is spending money on sending public patients abroad to be catered for in the private sector. I mention the Mater Hospital because I know something about it, but I am sure such situations occur in other hospitals.

We regularly hear of hospitals closing off facilities, reducing public services. The money was spent on the assumption that a favourable result would automatically flow from it, but despite all the health service spending, results are not being delivered. The service seems to be bloated with administrators rather than medical practitioners.

Since we cannot expect to increase Government revenues in the short-term, we must spend our public money better. As we have almost totally neglected the issue of value for money, this is the obvious place for us to start. I appreciate the Minister staying to hear my view, and I welcome the Minister of State, Deputy Callely. If we are to tackle the issue, we must focus on value for money in future.

I welcome the Minister to the House and I also welcome this Finance Bill, not so much for its detail but for the general philosophy behind it. It is difficult to welcome a Bill which is basically cutting back on some of the gains which we have made in recent years, but it is also irresponsible not to recognise the difficulties which the Government has faced in the economy in the past two years.

It would be easy always to oppose everything seen as unpopular, as an Opposition usually does. Such blind opposition would be wrong in the case of a Bill of this sort, which is a recognition of the realities of the economy. I am disappointed in the reaction of those on this side of the House, because one of the strange things about being in Opposition is that it never has a good word to say about the Government. It has said bad things about it in good times and in bad times. These are the easy times to oppose.

I would have more easily taken the Fine Gael reservations as expressed by their spokesman if I had heard anything constructive. It is very easy to say that this is the Government which bought the election. To some extent it did and it is easy to say that the electorate now feels fooled by the Government promises made. There is some justification in that statement too, but they were all at it. It was the most incredible bidding war since 1977.

Whereas the Government has not fulfilled all its promises, I think it was Senator Norris who said in an earlier debate that he was glad it had not done so. If all the promises made by the Opposition had been fulfilled, we would have been bankrupt by Christmas. Thank God the Opposition did not get into Government, because there was a danger that it might have paid off every Eircom shareholder, and that the taxi drivers might have got some extraordinary compensation for running a closed shop for so long. I am sorry if I have embarrassed the Minister of State.

Not at all.

He might not agree with regard to that area and I would be interested in his comments. I have a view on it which does not reflect particularly well on the Opposition.

Deputy McCreevy has been a great Minister for Finance. Some would say that he has had an easy time, but he has been directed by a philosophy which is not particularly popular in the country in its raw form – a fairly basic commitment to private enterprise and the entrepreneur which sometimes treads on the many corns of vested interests. No one has encountered more political opposition from minorities and the politically correct than the Minister, but he has the courage in difficult times to do what is necessary and stick by what he believes in. That is difficult for a politician. It is simpler to take the easy way out.

I draw one exception to that. The House will forgive me if I mention public expenditure, which Senator Quinn so eloquently dealt with. The most irresponsible financial, economic or fiscal decision taken by any recent Government was to pay the full benchmarking award. It is even more disturbing that there is almost unanimous agreement in the House about it. There is no need to have a debate on benchmarking, for all the political parties are agreed on it. If they are not agreed, they are being as quiet as church mice about it because they are scared stiff of taking on any vested interests. I am disappointed that the Minister, who has shown such courage in other areas, did not take on the benchmarking monster, which is, of course, an enormous increase in public expenditure at the very time when we cannot afford it.

An estimated €1.5 billion, and probably more, will be paid out if this agreement, from which Senator Mansergh read, is passed by the unions, employers and farmers, particularly the first two groups. It was an extremely cynical exercise. The report on benchmarking was issued on 30 June 2002. It was peculiarly timed so that the public service unions would not cause difficulties before the election. If one is being charitable, it was an extraordinary coincidence. Those unions did not cause difficulties. After the election, everything was apparently agreed behind closed doors, but the benchmarking body suffered an extraordinary blow when, many weeks before the report's publication, its most independent member decided to leave. It is quite obvious that he bailed out because he regarded the report as a ready-up. It was agreed with powers in IBEC and the ICTU, under Government pressure to agree anything and not to cause splits before the election, and out they came.

Unfortunately, the Minister afterwards agreed to those twin pressures from the so-called social partners which have become almost irresistible to successive Governments, which have given them so much power that it is almost impossible to enter debate in this Chamber without someone proudly stating that they will do nothing until they have consulted, normally with the unions but occasionally with the employers too, although the latter group tends to be their lapdog. The Minister comes here to say that he will of course consult with the social partners before he does something. It is in virtually every script. Why the hell should he consult with them?

Senator Mansergh read from that document. If I am not mistaken, Senator McDowell is reading it now as I speak. There is all-party agreement that it is the most important document, for it decides the future finances of this country. The Senators bring it up here before the debate and take their instructions from the unions and the employers – that is where the danger lies – on corporation tax, capital gains tax and the biggest possible item of public expenditure, public service pay. Senator Quinn touched on this matter too. For some extraordinary reason, public servants are getting a far better deal than those who work in the private sector. Why are they getting more? Why are they getting back money? Why is no one in this House prepared to say that it is wrong? The reason is that they are all scared stiff of the teachers, the nurses and all those particularly powerful unions and will not say a word against them, although most people know that the award cannot be afforded. Politicians cannot and will not stand up to those vested interests.

It is because they are too valuable.

They come here and read from the Koran of ICTU.

The Senator must conclude.

If I may, I want to say one final sentence. I will vote for this Finance Bill, which I support because of the tremendous climate of economic growth and entrepreneurship and the Minister's courage on taxes for a long period, against the wishes of many to whom it would have been easier for him to surrender.

As an accountant, I stand here with some trepidation. I heard Senator Quinn's views and Senator Ross will be glad to hear that I will not refer to the aforementioned document in my contribution.

I congratulate the Minister on many of the Bill's provisions, as he has made many radical and welcome changes to the income tax code. "Radical change" is a phrase often trotted out, but it can mean very little in real life. In this instance the Minister has made real changes to the tax code by moving over recent years to a system based on tax credits, which means that the poorest segment of society does proportionately better than the well-off. Previously the system was skewed in favour of the better-off, and there was no real effort to bridge the gap between rich and poor. Like Robin Hood in reverse, the rich got richer while the poor drifted ever farther out of reach down the poverty ladder. When the bands were widened and the allowances increased, it was the poor who lost out. Now, while both groups get the same amount of money, it means proportionately more to the less well-off than the relatively rich.

The Minister will recall that I expressed reservations about his individualisation proposals. He knows well that I am not one who often takes such action. I did not do so lightly, but I felt very strongly that we were not recognising the role of the homemaker adequately and that we were taking the wrong path. Thankfully, the Minister listened to those of us who had such reservations at the time, and some progress has been made since with the introduction of the homemaker's allowance. I am pleased that the Minister has seen fit to make changes, and we have a much fairer system as a result.

I am glad that the Minister proposes in section 14 to extend the capital gains tax exemption to personal retirement savings account assets. People are living longer nowadays and, in view of the age profile and pension liability which faces us, I am glad that people generally are making better personal provision to protect the value of their pensions and, consequently, their standard of living. It is to be hoped that the Minister's action will encourage people to make even better provision. The phrase "an old head on young shoulders" comes to mind, for it is difficult to encourage people to make provision for their pensions from a young age, when it would be at its cheapest. The thought of planning for a retirement which could well be over 40 years in the future would occur only to the most sensible of young people or those, such as public servants, who must make mandatory payments. Any incentive to encourage such forward planning is to be very much welcomed, as it will also help take part of the burden from the shoulders of the State.

I recall when capital gains tax was reduced from 40% to 20%, something previously mentioned. The Minister was heavily criticised for doing so. The income from this source rose during the period while the exemption limits were halved, but inflation in the meantime makes a strong case for raising them substantially again.

The Minister is attempting to bring equity to the rates of interest paid on taxes overdue and taxes overpaid. While those who overpay are refunded with a 4% bonus, those who owe money to the Revenue Commissioners are penalised at a much higher rate. I welcome the Minister's efforts to regularise matters and to introduce a measure of equity, but I hope it does not become more profitable to overpay tax in the expectation of a 4% return than to invest one's money in the bank.

That is a nice idea.

It is a possibility. We are all too well aware that the old bugbear, inflation, is a problem once more. It affects our competitiveness and has had an adverse effect on our "fundamentals", that much loved term from some years ago.

While a number of factors are involved, indirect taxation is a major concern. Having reduced the general rate of VAT to 20%, the Minister raised it to its previous level of 21%. I urge him to consider reversing this decision to relieve pressure and to reduce inflation. There is every reason to believe that the present rise in inflation is a temporary setback, but any measure to curb it should be given serious consideration. I was under the impression that our eventual VAT target was a rate of 17%, which would bring us into line with our European partners. During his summation, I would appreciate indications from the Minister of his plans in this regard.

Ease of comparison is one of the many benefits of the euro, but tourists are complaining about our prices which obviously exceed those on the Continent. Pricing ourselves out of the market would be disastrous for the tourism industry, traditionally one of our largest employers and sources of foreign revenue. We must reduce indirect taxes as a matter of urgency as this will help to reduce inflation and impact positively on wage demands and awards.

I am well aware of the dangers, having witnessed the recent loss of 63 jobs in my constituency. The jobs at Honeywell were further up the skills ladder than is usually the case but they were not lost to the company, rather they were transferred to India. India is much more competitive and has a better educated young population than was the case in the past. It is now in the position we were in 20 years ago and we must be on our guard against creating a climate in which jobs are lost to another well-educated but less costly workforce in another jurisdiction.

While I have just preached in favour of lower excise duties and indirect taxation, I feel we must tackle tobacco consumption once and for all. The only way to do this effectively is to raise the price of the product until it is outside the reasonable reach of the consumer. As this would have an adverse effect on the consumer price index, cigarettes should be excluded or two CPI figures should be published. The CPI figure which does not account for cigarette consumption should be agreed by the social partners as the basis for wage demands and negotiations. The special nature of the problem and the health, social and financial costs of smoking to society are reasons the principle would gain universal approval. I realise there might be difficulties at EU level, but we should pursue such a policy nonetheless.

I note the Bill provides for further extensions to urban renewal schemes. This is a regular occurrence which makes it appear that the deadlines we place on such schemes are never taken seriously by developers and property owners. We must address this problem. Limits are limits and we should stick rigidly to them. The substantial benefits to developers of the schemes are reason to require them at least to meet their deadlines. Projects will go on and on while the guidelines and regulations continue to be flouted. It is ridiculous to continue to extend these deadlines. The only case for postponement is if it is necessary to commence an archaeological dig.

Our economy is sound as a result of the policies implemented by this and the previous Governments. The setbacks it is experiencing can be withstood by our broad base of employment. We are in a far stronger position than we were a decade and a half ago when a mood of blackness covered the country. While we have lost a certain number of jobs in the current downturn, we have experienced nothing like the setbacks we suffered when our employment base was devastated by business and industry closures. These things are cyclical and will improve in the future. In the meantime, we must maintain our competitiveness and ensure that we do not lose out to developing economies with attractions which are similar to ours but less costly.

We must continue to improve our infrastructure. Any capital spending is a good investment. We recoup almost 20% of such moneys through income tax and VAT, which means that the impact is not as great as it seems at first glance. I have a great interest in the future of the motorway from Dublin to Waterford and in the development of other motorways. It is vital that these developments go ahead in their entirety and without delay. If we are serious about the dispersal of the population, we must provide proper means of travel. We have to maintain a capital programme because without it we will lose our pace and our place at the top of the league in an expanded Europe. I commend the Bill to the House.

I join other Members in welcoming the Minister of State at the Department of Health and Children, Deputy Callely, to the House. I am opposed to this Bill for many of the reasons Senator Ross appears to support it. That will hardly come as a surprise to anybody, certainly not to Senator Ross. I will take a couple of minutes to refute some of the points the Senator made as I suspect the Minister will not take the trouble to do so.

We should remind ourselves of the reasons the benchmarking body was established in the first instance. When we came to review the Programme for Prosperity and Fairness two and a half years ago, we discovered several problems within the public service. There were and still are huge numbers of badly paid public servants at the lower grades, while qualified professional civil servants working in planning and architecture and senior civil servants in Departments proper were being lost to the private sector where they could earn a great deal more. No responsible Government could have ignored those twin problems.

The difficulty with the benchmarking body is that we do not know the rationale behind the recommendations it ultimately made, which is a pity. This issue will not be resolved through a once-off payment. The problem will not disappear, which is why review of the relative position of qualified people in the public and private sectors must be ongoing if it is to be relevant. A once-off bribe to public servants over the next two years will not suffice. We must reward useful public service while dealing with the issue of low pay.

I point out to Senator Ross that the benchmarking body was established in December 2000 and it will be June 2005 before the last payments are made. To pick a figure of €1.5 billion out of the air is massively to overstate the cost which is being met over a long period of time. If the expenditure of €1.5 billion succeeds in buying industrial peace within the public service while addressing the issues which arise in terms of public sector pay, it will be money well spent. We are entitled to expect greater flexibility in terms of delivery of service within the public service and greater flexibility in terms of the change of command and the way in which things work in the public service. That is an importantquid pro quo in terms of the implementation of the recommendations of the benchmarking body.

I refute the implication by Senator Ross that the Labour Party looked to buy votes in some way at the last general election. It is not my business to defend other parties and in a sense the last election is certainly seen as spilt milk by the Labour Party in that we did not succeed in persuading enough people to vote for us. I take exception to the constant repetition of this notion that we attempted to buy votes. The Labour Party proposals targeted where we would spend extra money and outlined from where we would obtain it. We proposed increases in taxation and charges and diversion of money from existing funds. I refute the notion that, to use Senator Ross's phrase, we would have bankrupted the country before Christmas. Nothing could be further from the truth. We made the hard choices because we identified, at an early stage, that it was necessary to make a link between increasing charges and taxation and spending extra money. It is what any responsible Opposition party would do.

In terms of where we are at present, it is useful to make a distinction between the Exchequer balance position and the position of the economy in general because they are going in two distinctly different directions. I do not believe that we have a real crisis in the public finances. We have a projected current budget surplus for this year of something in the region of €3 billion or €4 billion. That is an extremely high surplus by historical standards and one that gives us options.

There is an increasingly worrying position in terms of the general economy. In his Budget Statement in December, the Minister projected a rate of increase in GNP of just 2.25% for this year. If he got another opportunity, I believe he might revise that figure downwards. It would not surprise me if we were to come out with a figure of between 1% and 1.5% increase in GNP. It must be asked how we have gone from double digit growth to less than 1% growth in just two years. In reality, it has occurred in a shorter period than that. It is not sufficient to say that this is entirely due to the international economy.

There are serious weaknesses within our economy of which we must be aware. We have become dependent on a number of sectors for economic growth, almost all of which are foreign-owned and, specifically, American-owned. These are the chemical, pharmaceutical and IT sectors. That dependence has served us well in the past five or six years, but it would be a matter of concern if the international downturn were to be exacerbated in the future.

We also have an increasing problem with competitiveness because of the relative strength of the euro now as compared with six months ago. There has been an appreciation of the euro currency against the US dollar of in the region of 20% to 25% and an appreciation against other currencies with which we trade of in the region of 10%. We must deal with the issue of domestically-generated inflation.

The Minister decided not to increase direct taxes or capital taxes in the budget, but rather chose to make increases in indirect taxation. His colleagues have also decided to permit increases in charges that are the direct responsibility of the State. I refer here to the TV licence fee or gas and electricity charges. This has all quite deliberately added to inflation and thus avoided any increases in direct taxation or capital taxes. There are times when I might support that kind of approach, but, at a time when the competitiveness of the economy is under threat, I think it is a mistake. We may well live to regret it.

My view is that we reduced capital taxes and income tax too quickly and by too much. I acknowledge that there is a particular difficulty in increasing income tax, although the Minister has achieved this by stealth in the Finance Bill. I believe he should have been looking at measures to broaden the tax base as part of the tax revenue projections for this year and this has not been done.

The Minister makes much of his bringing forward the date for the elimination of tax incentives. I agree with his approach to this issue. Tax incentives are an appropriate and useful way of ensuring development in areas where it would not otherwise happen. Inner city areas such as Gardiner Street have been developed thanks to the use of tax incentives. A careful eye must be kept on the dead weight effect of tax incentives. Tax incentives for the IFSC were a good idea when it was starting up, but in the last three or four years they would not have been regarded as a good idea and most of those incentives have now been reduced.

I do not believe that the Minister is serious about bringing forward the dates for the elimination of tax incentives. I do not believe that his view has fundamentally changed at all and he hinted as much in his contribution. The measures he announced in the budget will not change anything. He has simply said that a few schemes that were due to come to an end in 2005 will now end in 2004. It would not surprise me, and it would be typical of the Minister, if, in next year's budget or that in the following year, he prolongs some schemes and introduces others. I do not mind as long as we keep an eye on the criteria and we know what we want to achieve.

The elimination of the film relief scheme is unfortunate. I am well aware of the downside and I know that particular individuals have reduced their tax liability greatly by the use of the film relief scheme. We did not have a domestic film industry of any size before the relief was introduced. It was an effective means of attracting filmmakers to work in Ireland. It could be criticised because much of the labour was not domestic and the gains were not long-term, but for a short period Ireland was regarded as a good place to make films. The announcement that the relief will come to an end next year is not good. I hope the Minister will, in time, reverse that decision.

On the issue of public expenditure, we still have options. The radical cutbacks which were made this year are not necessary, even though I acknowledge that some cutbacks would be both good and justified. To take the hatchet to public expenditure in the manner in which the Minister has done is not a responsible way to proceed. It is not good to halt the growth in capital expenditure. We know now that the NDP will not be delivered on time. The five NDP motorway projects will not be delivered before 2009 or 2010. This will reduce the competitiveness of the economy and will impose additional costs on industry and the Exchequer. It is regrettable and unnecessary that capital expenditure is not being sustained.

The effective abandonment of the health strategy is deplorable and I know that the Minister of State, Deputy Callely, will have a view on this. It seems there was some vigorous debate in Cabinet when the health strategy was being drawn up. We know that the Minister for Health and Children, Deputy Martin, won out, with the exception of the caveat inserted by the Minister for Finance that everything in the strategy depended on whether it could be afforded. The Minister decides whether we can afford it. Since he always took the view that health expenditure was a waste of money, it was clear what would happen to the health strategy. It has now been unceremoniously binned, which I deplore.

All of us know that money could be spent better. Management of spending within the health service is not what it should be and we all have ideas as to how it can be improved. Without doubt, to get the improvements in the health service that our citizens deserve will require spending a good deal of additional money. The Government went so far as to put a figure on it in the health strategy, which was €12,700 million over a ten year period. We always knew it would cost a lot of money, therefore we should not now shrink back in surprise and say we cannot afford that. Improvements in services and technology cost a lot of money and it is deplorable that the Government has rowed back, in effect binning the strategy.

I have a reasonable idea at this stage when the Minister is serious about something, and I am sure he is not serious about carbon taxes. This question arose approximately three years ago as part of the climate change strategy. The Minister paid lip service to it at the time. He announced last year that he would introduce these taxes this year. The tax strategy group considered it at some length and produced page after page of objections from various Departments. The Minister announced on budget day that he intended to introduce carbon based taxes from the end of next year, which I do not believe.

I am aware there are issues in this regard. I have some sympathy with those who are sceptical about this tax but we must be serious about it. If we do not intend going down that road, we must consider other means by which we can meet our Kyoto Protocol requirements. If not, there will be a serious cost to the economy and the country in a few years' time.

I welcome the Minister of State to the House. I listened with interest to the last remarks of Senator McDowell who has been very prominent in the area of finance. I was disappointed, notwithstanding the important projects he identified across different sectors, that he did not identify where the funding would come from. I can only assume he is proposing borrowing in these circumstances. Perhaps I am wrong but that is what I must deduce in the absence of evidence to the contrary.

Borrow for capital purposes.

Yes. I am an avowed supporter of the current Minister's overall strategy for a low tax regime with minimum borrowing. I say that unapologetically. The past five years of progress in this country are the strongest possible testimony to the success of his philosophy, vision and overall approach as Minister for Finance.

The Finance Bill is further evidence of the determination of the Minister to reform, modernise and simplify the tax code. As well as implementing the tax changes announced in the Budget Statement, there are a number of other reforming measures included in the Finance Bill. Their individual and aggregate effects will consolidate the spectacular gains in the economy in recent years. They further advance the creation of a low tax environment, which from the beginning has been consistent with his approach and vision. They target available resources at the lower income brackets and the elderly, which is very socially progressive.

The tax system is a hugely important instrument of public policy. It is one of the few areas of legislation that affects every citizen. Everyone is affected by decisions made in the budget and Finance Bill. The Minister's decisions on taxes always have a bearing on whether we have more or less disposable or discretionary income. In that regard, the Minister has announced consistently that he wants to give workers more choices and discretion as to how they use the money available to them. I am an avowed supporter of that principle.

Decisions on taxes also have a bearing on competition and, obviously, the corollary to that is jobs. They have a direct bearing on improvement in public services, which has been adverted to by Senator McDowell. If I get an opportunity I will return to that issue at a later stage. These decisions also have a bearing on the extent to which the tax instrument is to be used to target the needs of the poorest and most marginalised in the community. Together with these multi-effects of taxation policy, each sector of the economy is constantly demanding ever greater equity, fairness and transparency.

The Bill is being introduced in the currency of a sharp short economic downturn in the global economy, with an immediate impact on this small open economy. In light of the spectacular successes we have enjoyed over the past five years in our improved living standards and phenomenal growth in the delivery of public services, irrespective of current concerns about progressing the rate of increase in the development of our infrastructure, the real challenge for the Minister and the Government is to steer the economy safely in a sound financial direction by way of consolidation. The overall approach manifested in the Bill, and preceded by the budget, is a responsible and balanced response to current economic conditions.

Deputy McCreevy has set out to be a reforming Minister for Finance and one of the hallmarks of the reforms has been the consistent and progressive reduction in income tax. Over the years, the burden of taxation has impacted on our competitiveness. I am referring to the 1980s when inflation was in double figures and there had to be double figures in terms of social welfare and so on. The whole thing became a vicious circle. The Minister has taken the view that one should begin by progressing towards lower taxation, and many other positive things will follow.

In the past the burden of taxation has impacted on our competitiveness, retarded our economic growth and reduced the incentive to work. The system was permitted by successive Administrations to continue to develop in a hotch potch fashion. Taxation was frequently invoked in a type of fire brigade manner to target contingencies as they arose. Some of these contingencies occurred on a yearly basis and others on a half yearly basis. There was no clear long-term strategy to use taxation as an instrument for direction of the economy. The system turned into an unwieldy quango, adding bits, taking off bits and adding more bits from year to year. It was riddled with anomalies, which no one will dispute. It was extremely complex and, inevitably, blatantly lacking in transparency. Among its many adverse effects, including ongoing disenchantment among the taxpaying public, particularly the PAYE sector, it inevitably contributed to high unemployment.

The Minister set out his stall from the beginning. He set about modernising, reforming and simplifying the tax system. The recent changes have seen the average tax paid by a single person on the average industrial wage, including PRSI and levies, fall from 28% in 1997 to 17% now. This lowering of the tax burden has contributed significantly to our strong employment growth. It has rewarded employers and employees alike.

The large number of people removed from the tax net is another feature of this progress. In 1997, 25% of taxpayers were exempt from paying tax, whereas today it is 36%. When the statutory minimum wage was introduced in April 2000, less than 64% of the then minimum wage was exempt from tax. Following the 2002 budget, 90% was exempted, despite the increase in the wage last October to €6.35 per hour. Section 3 consolidates the 90% exemption level by providing for increases in the employee tax credits. The entry point to the tax system for all employees is increased from €209 per week to €223 per week. I support the removal of all minimum wage earners from the tax net and I am sure that is one of the Minister's objectives.

Even in the present economic circumstances, the income tax package has been targeted towards the elderly and those in the lower income tax bracket. I welcome the decision to increase the income tax exemption limits for those aged 65 years and over. This year, the increase in the limits is over 15%. When account is taken of the changes last year, the combined increase amounts to almost 40%. I am, therefore, astonished at the begrudging concession by a few Members in the other House at the extension of this benefit to our senior citizens. I do not know on what basis they make their criticisms, especially in view of the need for equity and fairness in the system. It is only fair that recognition should be given to the contribution made by senior citizens to the economic and social life of the country throughout their working lives.

Since the Minister was first appointed, it has been his stated objective to maintain a broad tax base, thereby creating a low tax environment. This policy has been successful in contributing to strong economic growth and development. It has made a huge difference to people in terms of their discretionary spending and in giving them greater freedom of choice, which has enabled them to have a far greater influence over their lives. It has also enhanced productivity, contributed to moderation in terms of wage claims and has played a key role in the ongoing development of social partnership.

I commend the Bill and the Minister. From the outset he set out his stall and defined his vision for the economy. He clearly articulated his idea that tax policy could be used to create a low tax environment, thereby giving greater freedom of choice while promoting productivity, competition and employment growth. The testimony to the success of his approach is in the figures to which I have referred.

Members on the other side of the House have dwelt on the record of the previous coalition Government, but I wish to dwell on this period of Government. Any straw poll on the streets of Dublin on a Saturday night will reveal the half empty restaurants and pubs.

Will the Senator name the pubs that are half full?

We are no longer competitive as a country or an economy. That is reflected in the cost of living increases. Six months ago, a basic basket of goods for a couple in Dublin cost €120 to €130, whereas today it will cost €150 to €160. I am not familiar with the cost of living in Dublin because I am only in the city a few nights a week, but in County Donegal consumers are moving across the Border to buy their groceries in Derry and Strabane. It is a worrying trend when people in the eurozone travel to the sterling zone to do their shopping because groceries are more competitively priced.

The stealth and indirect taxes, referred to by Senator McDowell, are also a cause of concern. While there was a spin put on the reduction in direct taxes, indirect taxes have increased, whether it be increases in local authority rates, higher bin collection charges, extra duty on credit cards and higher gas bills resulting from the 1% increase in the lower rate of VAT. There have also been increased charges on petrol, VRT and motor tax. This is evidence that there is something wrong with the economy.

I do not usually believe what car salesmen tell me, but this week I took note when a car salesman indicated that since the beginning of the year, what he referred to as the "ordinary five-eighths", the PAYE worker or ordinary man or woman on the street, are no longer buying cars. These are the people – I include myself in this category – who are paying mortgage and hire purchase charges on their cars. They are also paying high levels of indirect taxes. By contrast, there has been a big increase in the number of new cars being bought by the high earners. This is a worrying trend because it indicates that we are becoming a two-tier society. That is what is happening during under this Government.

The inflation rate is 5.1%, which is considerably higher than the rate in the rest of the European Union.

The rate referred to by the Senator relates to just one month's figures.

It is scandalous that the price of houses is not included in the CPI, which means it is not a true reflection of the inflation rate.

Eating out in Dublin has gone off the Richter scale. I know of a couple who, rather than staying in Dublin for St. Patrick's weekend, travelled to Brussels where they had a cheaper weekend. I know of another couple, constituents of the Minister of State, who spent a weekend in Paris where eating out was cheaper than in Dublin. This raises serious questions about our competitiveness.

People working in Dublin travel north of the Border to avail of dental services, which are cheaper. It raises questions about how they can access their PRSI dental benefits. Furniture and clothing are also more expensive in this country.

Ireland is suffering from a reverse brain drain. In the past we suffered from a brain drain because of the lack of jobs, yet while today jobs are available, there is a brain drain because of the poor quality of life, especially in Dublin. People are unhappy with the quality of public services, including the public transport system. As a result, we are losing people who are trained and qualified in specialist areas.

The first-time buyer's grant was also abolished in the budget. The Minister could have allocated 1,050 of those grants with the money that was spent on the Spire. Many people from Donegal have been telling me what can be done with the Spire, but I will not place their comments on the record of the House.

There is hard evidence that talented people are leaving the country because we are not competitive. Tax receipts will be lower and aggregate demand is lower. People are buying beer and staying in on a Saturday night; they are not spending their money in restaurants. I do not blame restaurateurs or people in the service industry for this. The prices they charge have increased because indirect stealth taxes have driven up the cost of their raw material. Costs are spiralling and in the long-term these people will have to abandon their businesses because of increased costs, higher insurance and higher employment costs.

I accept and appreciate that pensioners did well in the budget and that their needs are being catered for. This contradicts what Senator Ross said, namely, that Members on this side indicate their opposition to things simply for the sake of doing so. However, I have discovered that elderly people are handing over substantial amounts of their pensions to their grandchildren in college for pocket money. That is not happening across the board. I do not have empirical evidence, but I have been speaking to pensioners who have been doing this.

Senator Ross is an intelligent and articulate businessman, but it is time he changed the record. I take exception to him standing up on every occasion and saying that Opposition parties oppose just for the sake of doing so. That is wrong. As a new Fine Gael Member of the Oireachtas, I believe we are putting together credible Opposition points. In regard to every point I have made, all I had to do was to listen to the people on the street for their views. People are angry. People who do not even have an interest in politics are saying that they are being told lies because there is less money in their pockets today than there was six months ago. They are now saying that there is something wrong.

I pay my taxes, but it still takes me six hours to get from Donegal to Dublin. I still get stuck in Ardee on a Friday evening for about half an hour on my way to Donegal, but I hear talk about CPOs and building motorways to Limerick, Galway and Cork.

The Senator should catch a plane.

Exactly. I would do so if I lived near Derry city airport. Not everybody is in a position to use air transport and we do not have enough aircraft to carry everybody.

It would beat half an hour in Ardee, would it not?

I do not wish to criticise the people of Ardee, which is outside my constituency. The point I am making is that we need to remove freight traffic from our roads. One does not want to sit in a car, particularly on warm days like this. Today I think there was a near zero energy level in the Seanad at the Order of Business because people were probably stuck in traffic before they got here and the heat tired them out.

The Minister has expertise in this matter.

I wish to point out a number of things to Senator Ross who said that we have nothing to offer. We have been pushing for value for money in regard to public expenditure. The man and woman in the street knows that public money is squandered and wasted. The Senator knows there is waste and I challenge him to contradict me on that.

In regard to what we have to offer, we need a quality product if we are to promote Ireland as a tourism destination. We will have to advertise Ireland and give incentives to people setting up tourism businesses. We will have to give tax reductions and offer people incentives to remain in business. People are going out of business. People in the tourism sector in Donegal this year are saying, "To hell with it, costs and insurance are too high." That is a problem. In order to remain competitive we need quality business in the tourism sector.

I remind Senator Ross, who seems to have put himself forward as a Government spokesperson, that we have also pushed for radical reform in the education curriculum. To have a complete, radical overhaul, we must invest in research and development and examine the entire curriculum. In Romania and Hungary, children of 12 and 13 years of age are being sent to college to do degrees in car mechanics. What are we doing about encouraging young people to get degrees in car mechanics? We are pushing young people into academia and are not emphasising the practical side of things. What we have are young people who are thrown out of school early at 15 or 16 and enrolled in FÁS courses on car mechanics. That is an insult to the car mechanic sector in this country.

In regard to benchmarking for nurses and teachers, I am proud to push for the increases these neglected groups deserve and take exception to some of the remarks made earlier. My stand today represents the views I have heard on the streets in regard to this Government's actions. What happened under the rainbow coalition is history and what happened under the last Government has also been consigned to the past. We must live in the present and get out of the hole in which we find ourselves. We have to move forward.

I am delighted to have the opportunity to speak on what is the most important item of annual legislation. There have been some interesting contributions. I do not want to repeat what has already been said, but I was particularly taken by Senator Mansergh's reference to the eight years of growth we have had. He said he did not see the possibility of any alternative Government. Eight years ago, there was an alternative Government in power.

I did not say that.

The Minister for Finance might call that being numerically challenged.

A number of issues have not been mentioned by previous speakers in regard to the budget and the Finance Bill. The Minister of State would be familiar with the reduction in the budget allocation for Teagasc, which has led to the closure of a number of facilities. I am sure that he is well aware of the difficulties that have arisen in his constituency in regard to the €15 million cut in the Teagasc budget. The agricultural industry is in a state of despair at present. I have never encountered a lower level of morale among farmers or a more gloomy outlook.

A Teagasc centre in my area of south Kilkenny is due to close and move to Kildalton College. It employs six advisers and deals with more than 1,000 farm families. It does not appear to be a huge saving for Teagasc because staff will not lose their jobs as all advisers and ancillary workers will be moved to Piltown. A new building must be refitted to accommodate them, yet the facility ten miles away in Mullinavat is being closed. This does not make sense. However, many decisions do not make sense such as the one to keep open a facility in the constituency of the Minister for Agriculture and Food, Deputy Joe Walsh, which is considerably smaller.

No one mentioned the issue of rollover relief.

I apologise. I missed that. It is an important issue, particularly for the farming sector. An agreement was reached between the farming bodies and the Government on the issue of the lands required to build the much needed new national road network. This is a serious issue. The Government is once again reneging on a promise, which is causing considerable concern for those affected. It has also had an impact on the social partnership talks which the agricultural body did not attend. Rollover relief also has a wider effect on the economy. It is a retrograde step.

I listened to the debate on the Bill in the other House. No one here mentioned the imposition of 35 cent on alcopops.

That is true.

The Senator is showing his age.

I was amused to hear some people say this measure would help to reduce the level of under age alcohol consumption and that it was good the Government was increasing the cost by 35 cent. However, it will not have any effect. If the Government is serious about the problem of alcopops, then it must do better than imposing a price increase of 35 cent.

Perhaps it is trying to collect tax.

Perhaps that is the case. However, it is being camouflaged as a means of reducing the level of under age drinking when it does not have anything to do with it. I want to dispel that rumour.

Speakers mentioned the pension fund, from which millions of euros have been lost, particularly as a result of investments in markets in the Far East, at a time when we have problems with our infrastructure. I am familiar with the train service from Kilkenny to Dublin, which is usually fairly good. However, a number of railway lines are not good. While I have not visited the Third World, I imagine some of the railway lines here are of a similar standard to lines in those countries.

They are probably not as good.

That is true. It is a waste of money. We are investing in markets in the Far East at a time when we have infrastructural problems.

Figures were touted by Senator Fitzgerald and other Government speakers which they claimed showed how well the economy was doing and that charges had not been increased. However, motor tax has increased by 12%. In spite of that increase, Kilkenny County Council will spend marginally less on local roads this year. This is related to the huge increase in insurance premiums, which is a disgrace. Hospital charges have increased by 26%, the drug refund threshold by 31% and the television licence fee by 40%. College registration fees have increased by 59% at a time when, as Senator McDowell said on the Order of Business, those who face examinations in the near future are worried about the possible reintroduction of tuition fees.

The sombre tone adopted by Government Senators in relation to the budget and the Finance Bill is marked compared to the congratulatory tone of recent years. They, like ourselves, seem to understand that the boom was wasted by the Government.

That is not the case.

It is a pity we have come to this crossroads. Difficult decisions had to be made, some with which I agree. However, the easy option was chosen in too many cases.

I thank all the Senators who contributed to the debate on Second Stage of the Finance Bill 2003. Senators Higgins, Kenneally and others raised the issue of inflation and spoke about the importance of maintaining and improving our competitiveness. As a small open economy, Ireland's ability to trade, to a large extent, determines our living standards. Therefore, it is vital, as Senators said, that Ireland remains competitive primarily in relation to our trading partners but also in a global context. Inflation in Ireland, as measured by the CPI last year, was 4.6%. Bringing it down as quickly as possible towards levels comparable with our trading partners' performance must be a top priority if our competitiveness is to be maintained and jobs secured. If relatively high wage and price inflation were to be sustained, it would present a serious threat to the competitiveness of the economy. This is particularly the case in the context of the euro's recent appreciation against both the dollar and sterling.

A number of factors, both external and domestic, are impacting on our current inflation trends. However, it is the domestic components of inflation on which we must focus our attention. In this context, the adoption of the pay arrangements set out under the new national partnership agreement, Sustaining Progress, is important. Following discussions with both employer and trade union representatives, the agreement makes provision for moderate pay increases for the next 18 months. Moreover, the anti-inflation package contained in the agreement will see representatives of employer and union organisations working with the Government to target domestic sources of inflationary pressure. Issues such as excessive pricing, competition, particularly in more sheltered areas of the economy, and public awareness will be examined in this context. I am confident that, working together in partnership, we will address the issue of domestic price pressures in the economy.

As regards benchmarking, raised by Senators Quinn, Ross and McDowell, we had maintained going into the partnership talks that this cost was significant and had to be spread over a number of budgetary periods. That is what has happened as the deal will be spread over 2003 and the next three budgetary periods. While the benchmarking deal is a significant cost, it is important to remember that this exercise was an independent evaluation of pay in the public service in comparison with that in the private sector. The process has the advantage over the previous experience of determining public service pay since it allows for a single overall evaluation and did not depend on historical relativities to determine the outcome. In the new pay agreement this departure from the old relativities based culture is confirmed by both sides. That is an important step forward in the way we determine public service pay. In addition, the new agreement contains measures to promote modernisation and change in the public service. This will improve the delivery of public services and reduce the incidence of industrial action. This should have a beneficial effect on all consumers of public services.

I do not share Deputy Kenneally's view about the desirability of reducing indirect tax rates to contribute to tackling inflation. Excise duties being flat rates have fallen behind inflation considerably in recent years and this fallen value could be regarded as helping to moderate inflation in earlier years. As regards cigarettes, the CSO publishes a figure without them but the issue is getting agreement that pay increases are calculated using this. As regards VAT, while our standard rate may be higher than that in some other EU countries, we have a zero rate on foodstuffs, etc. Our average rate across all products does not differ significantly from that in many of them.

Regarding the question of charges raised by Senators Higgins and McHugh, the State continues to provide a wide range of services free or at low cost. While new charges have been increased in some areas, these provide additional resources for improved services. Charges also play a role in the efficient delivery of services to those most in need as, in general, they do not pay the charges. For example, medical card holders do not pay health charges.

Deputy Higgins referred to the high cost of insurance. The Tánaiste and Minister for Enterprise, Trade and Employment, who has responsibility for the insurance industry, announced on 25 October 2002 a programme for fundamental insurance reform. The programme reflects the commitments given in An Agreed Programme for Government and comprises a comprehensive set of inter-related measures designed to improve the functioning of the insurance market and to reduce costs all round.

Senator Mansergh referred to the favourable position for low paid workers. The most recent data available from the OECD relating to the year 2000 indicates that for a single person on the average production wage Ireland has the lowest tax wedge in the EU, the EU average tax wedge being 42.4% while the figure for Ireland is 29%. Provisional data from the EU relating to the year 2000 shows that the EU average tax wedge for 2000 for a single low paid person on 50% of the APW is 35%, while Ireland's tax wedge on that income is 14.8%. For a married couple with 50% of the APW, the tax wedge in Ireland is 3.8%, while the EU 15 average is 32.3%.

Senator Kenneally referred to the new regime in the Bill providing a general right to repayment of tax. The new scheme reduced the interest rate from 0.0161% to 0.011% per day. It also replaces the existing provisions which apply interest on payments of preliminary tax. In future, the interest will only apply from six months after the date on which the claim was made. Accordingly, the question of taxpayers banking with Revenue by overpaying their tax should not arise. The rates paid and charged by Revenue must reflect the difference between deposit and borrowing rates available commercially if the rate charged on underpaid taxes is to encourage timely payment. The new provisions represent a fair and transparent scheme applying across all taxes and to all taxpayers.

I thank Senator Quinn for his favourable endorsement of the changes made by the Minister for Finance in reducing the rates of capital taxation. As is widely known, the reduction from 40% to 20% in the capital gains tax rate led to a big increase in the yield from this tax. For this reason and because of the economic benefits low direct tax rates bring, I cannot agree with Senator McDowell's suggestion that the Minister should have increased tax rates.

Senator Higgins suggested the Government should allow an exit from SSIAs. The Government tops up the savings deposited by people by 25%. If an account is closed before the five year period for any reason other than the death of the account holder, the terms of the scheme are breached, and a 23% tax applies on the withdrawal, which effects a clawback of the money credited to the account by the Exchequer bonus. If such an exit tax did not apply, it would not be necessary to save in the account for any significant period in order to receive the 25% bonus, merely to deposit money into the account and withdraw shortly afterwards. This would go against the purpose of the scheme.

Unfortunately, time does not permit me to comment on all the many interesting contributions made by Senators. However, they can rest assured that their comments have been noted and, of course, the points raised can be pursued further on Committee Stage.

In accordance with the Order of the House today I am required to put the question.

Question put.

Brady, Cyprian.Brennan, Michael.Cox, Margaret.Daly, Brendan.Dardis, John.Dooley, Timmy.Feeney, Geraldine.Fitzgerald, Liam.

Glynn, Camillus.Hanafin, John.Kenneally, Brendan.Kett, Tony.Kitt, Michael P.Leyden, Terry.MacSharry, Marc. Mansergh, Martin.

Tá–continued.

Minihan, John.Morrissey, Tom.Moylan, Pat.O'Brien, Francis.O'Rourke, Mary.Ó Murchú, Labhrás.

Ormonde, Ann.Phelan, Kieran.Scanlon, Eamon.Walsh, Jim.Walsh, Kate.Wilson, Diarmuid.

Níl

Bradford, Paul.Browne, Fergal.Burke, Paddy.Burke, Ulick.Hayes, Brian.Henry, Mary.Higgins, Jim.

McCarthy, Michael.McDowell, Derek.McHugh, Joe.O'Toole, Joe.Phelan, John.Terry, Sheila.Tuffy, Joanna.

Tellers: Tá, Senators Minihan and Moylan; Níl, Senators Higgins and McDowell.
Question declared carried.
Committee Stage ordered for Wednesday, 26 March 2003.