Finance Bill (Certified Money Bill) 2004: Second Stage.

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

The Finance Bill implements the tax changes announced in the budget and provides for a range of other measures. In particular, the Bill includes measures that will continue to foster an environment which will allow Ireland's economy to take advantage of the international recovery as it develops and to sustain employment. The economy is in safe hands and will continue to be so under the Government. The Bill also provides for implementing measures for a number of EU directives.

This year's Bill runs to 94 sections and four Schedules and I propose to give an outline of the main provisions. Part 1, which runs from sections 1 to 42, deals with income tax, corporation tax and capital gains tax. In my period in office, the income tax burden has reduced significantly. Since 1997, average tax rates have fallen for all categories of taxpayer, including those on lower incomes. After budget 2004, for a person on the average industrial wage, the average tax rate will be 10 percentage points lower than in 1997. An increasing proportion of those on the income tax record — over 35% of all income earners — pay no tax. The number of such income earners increased by over 75% from 380,000 in 1997-98 to 669,000 after budget 2004. For 2004, the percentage of the income tax yield coming from those earning at or under the average industrial wage is estimated to be about 6% as compared to over 14% in 1997. The tax wedge for a typical married production worker is the lowest in the EU and, indeed, the lowest in the OECD. Contrary to what some try to present, the Government has helped those on both low and middle incomes enormously and we are proud of our record.

We are now consolidating the gains we have made. Available resources have been concentrated on continuing progress towards removing those on the minimum wage from the tax net. When the statutory minimum wage came into effect in April 2000, less than 64% of the minimum wage was exempt from tax. Section 3 increases the entry point to taxation of a PAYE worker by €240 per year to 90% of the increased new minimum wage annualised. Thus, for a single PAYE person, the first €12,800 per annum, or €246 per week, of earnings will be tax free. This compares to €98 per week in 1997 to 1998. All PAYE workers will benefit from this increase of €240 in the employee tax credit.

Section 2 increases further the exemption limits from income tax for persons aged 65 and over to €15,500 single and €31,000 married. Since I became Minister for Finance, the income tax exemption limits for the elderly have increased by more than 135%. In that period, more than 81,000 income earners aged 65 or over have been removed from the tax net.

Section 4 increases the standard-rated allowance for trade union subscriptions from €130 to €200. Section 6 puts beyond doubt that income arising from the investment of personal injury awards made by the Personal Injuries Assessment Board for permanently incapacitated persons will be exempt from income tax in the same way as if the awards had been made by a court. This applies where the income in question forms the sole or main income of the individual.

Section 7 exempts from income tax compensatory awards where an individual's rights under employment-related legislation have been infringed, for example, in the case of discrimination, harassment or victimisation. Up to now, the position has been that such awards have been subject to income tax. Provision is also made to exempt out-of-court settlements in such cases subject to certain restrictions.

In the Finance Act 2003, I provided for the direct application of PAYE to taxable benefits-in-kind. Taken together with the changes in the Social Welfare Act 2003, this has ensured the application of PAYE and PRSI, including the training and health contribution levies, to these benefits from January this year. Some further legislative provisions are required to bed down the new regime, and these are provided for in sections 8 and 9. They include an exemption for mobile phones as well as for computers and high-speed Internet connections provided by an employer to an employee in his or her home for business use. An exemption in respect of certain company vans parked at home by employees is also provided for. This takes account of representations made to me by both employers and employees to which I was happy to respond favourably.

Section 9 also extends the existing benefits-in-kind tax exemption for employer-provided travel passes to include Luas services, which are due to commence this year, while section 10 confirms the budget day announcement that the specified rate used to calculate the benefit-in-kind charge on certain preferential rate mortgage loans will be reduced from 4.5% to 3.5%.

Section 11 extends the existing standard-rated tax relief in respect of health insurance policies which cover non-routine dental treatment to policies issued by insurers providing dental insurance only. The budget announcement of an income tax exemption for income received by Gaeltacht households under the summer college student scheme is provided for in section 12.

Section 13 provides for an updating of the qualification requirements in respect of the 100% stock relief for young trained farmers to reflect changes in the underlying academic courses. It also provides that, in general, it is the achievement of certain standards that is mandatory rather than just attendance at courses. Similar provisions are included in sections 69 and 70 on stamp duty relief for young trained farmers.

Under section 14, the income tax exemption to encourage farm leasing is being improved by increasing the annual amount of leasing income exempted from tax and reducing the age limit for qualifying lessors. These improvements in the relief will encourage the higher utilisation of our agricultural land, which will become all the more important in view of the changes to the EU Common Agricultural Policy.

Section 16 facilitates occupational pension schemes in their investment activities by providing that any such schemes which borrow for investment reasons can be approved pension schemes for tax purposes. This section effectively levels the playing field between pension schemes which wish to borrow directly for investment purposes and those which invest in products where borrowing takes place, for example, an insurance company product such as a unit-linked property fund.

Section 17 gives a capital gains tax exemption to certain individuals on the disposal of assets. The individuals concerned are those who already have an income tax exemption on the income derived from those assets, for example, persons in receipt of court compensation arising from incapacity. Where the gains and income of a year from those assets are the principal source of income and gains in that year of such individuals, then both the income and gains will be exempted from tax. This will facilitate the use of a wider range of investments by these individuals.

Given the sometimes contradictory debate on tax reliefs and expenditures, it is important to remember that such reliefs are normally introduced to achieve desirable public policy objectives. It must be recognised that it is in their nature that such schemes will be used by high earners to reduce their tax liabilities. The value of such schemes must be balanced against the important objective of ensuring a wide tax base if we are to maintain low rates. Accordingly, we must keep such schemes under review.

The business expansion scheme and seed capital scheme reliefs are good schemes as long as they remain focused and targeted. Having reviewed the schemes in the lead-up to the budget, I am satisfied they continue to serve their purpose as now focused, and section 18 provides for an extension of these schemes for a further three years until 31 December 2006. It also provides an increase in the maximum amount a company can raise under both schemes from €750,000 to €1 million as announced.

The increase in the limit and extension in time from 5 February 2004 to 31 December 2006 and certain other changes to the schemes will be subject to a commencement order to allow for clarification of potential EU state aid issues raised by the European Commission. Other changes include an increase in the non-PAYE income limit for investor eligibility for the seed capital scheme and the phasing out by the end of 2004 of the application of the seed capital scheme to trading activities in an exchange facility established in the Custom House Docks area in Dublin. Separate to the commencement order, an initial extension of the scheme to 4 February 2004 is provided for and sections 18 and 19 provide for transitional measures, including for arrangements and investments made before 4 February 2004.

I have stated before that it is essential that tax avoidance schemes and loopholes are tackled vigorously. In a press release last March, I made clear my intention to close a loophole which had come to my attention. It related to the relief available to individuals in respect of interest paid on money borrowed for the purposes of acquiring an equity stake in, or lending money to, a company where the moneys are used to acquire certain premises. This is provided for in section 22.

Section 23 amends the scheme of capital allowances for qualifying residential units associated with registered nursing homes. These are units which allow older people to continue to live independently but to have access to nursing home facilities. The minimum number of qualifying residential units is being reduced from 20 to ten to allow for smaller developments. The condition for buildings to be two-storey at maximum is being amended to allow that the units may be in a building of any number of floors where a fire safety certificate is issued.

Section 24 is a technical change and redrafts one of the eligibility conditions for investors in private hospitals to bring it into line with other reliefs by removing an unintended effect of disqualifying all investors in a project where one is ineligible.

Sections 25, 26 and 27 provide for an extension of various tax reliefs and set out transitional provisions where appropriate, as well as clarifying the conditions associated with the reliefs, for example, where planning issues arise. Many places in Ireland have enjoyed a regeneration directly due to area-based tax reliefs. While these reliefs are now being phased out, arising from concerns expressed by various individuals and groups, including various local authorities, I felt, on balance, there was a rationale for allowing a longer wind-down period for the various tax reliefs referred to in these sections. This will allow for a more orderly completion of projects where delays had arisen for various reasons.

Section 28 confirms my budget announcement that the termination date for film relief is being extended from 31 December 2004 to 31 December 2008 and the cap on the amount that can be raised under the section in respect of any one film is increased from €10.5 million to €15 million per film. Changes to address instances of abuse are provided for in the section and these include the revision of the certification procedures, provisions to deal with overcomplicated financial structures and enhanced record-keeping requirements for film production companies. European Commission approval will be needed for the continuation of the scheme and the increase in the overall investment.

It is important to ensure that Ireland remains competitive as a location for attracting and retaining foreign investment. The Bill provides measures that enhance the prospect of attracting further high quality investment projects in Ireland leading to additional future employment opportunities. Sections 31, 34 and 42 are designed to encourage multinational corporations to locate their regional headquarters and holding companies in Ireland. The Bill provides for an exemption from tax on gains for holding companies on the disposal of a shareholding in a subsidiary, whether Irish or foreign, and makes a number of related changes to the scope of our provisions for relief against foreign tax in respect of dividend income paid to parent companies. Specifically, sections 31 and 34 amend the provisions on relief for foreign taxation in the case of dividends paid by a subsidiary to a parent company. To qualify for relief for foreign taxation in the case of dividend income under a unilateral credit relief provision where no double taxation treaty applies, the shareholding involved must up to now have been at least 25% of the subsidiary company. This is being reduced to 5%. Relief is also being made available for foreign tax imposed on company tiers lower than the immediate subsidiary. The provisions in sections 31 and 42 will come into effect by way of a commencement order following clearance by the EU Commission from a state aid perspective. Section 34 will implement Ireland's obligations under the EU Parent and Subsidiary Directive.

Section 31 will also allow companies to average the credit tax for foreign tax across dividend streams on shareholdings of 5% or more for the purpose of calculating the relief. The section also extends the credit mechanism to certain sub-national taxes imposed in tax treaty countries where those taxes are not covered by the relevant tax treaty. This issue arises in particular in the cases of the US and Canada where non-federal taxes are not covered by the relevant tax treaty.

The CGT exemption provided in section 42 will apply where the shareholding held by the holding company is a minimum of 10% of the subsidiary concerned and at least €15 million in value, or where the shareholding held is a minimum of 5% of the subsidiary concerned and at least €50 million in value. It is also a requirement that the subsidiary is primarily a trading company or, taken together, the holding company and its subsidiaries are primarily a trading group. The minimum shareholding must be held for a continuous period of 12 months in the three years prior to the disposal.

These measures will encourage foreign direct investment by facilitating multinational companies with operations in a number of different countries to set up holding companies in Ireland. The objective is to bring regional headquarters companies to Ireland, which would include corporate functions such as control of regional operations, group treasury and centralised administration. These initiatives have been welcomed by IDA Ireland and by key industry players.

The programme for Government includes commitments to build the capability of firms to carry out and manage research and development in Ireland and work to ensure that Ireland develops a world-class research capacity. Following on from my announcement in the budget, section 33 provides for a 20% tax credit for companies for qualifying incremental expenditure on research and development.

The Irish economy needs to make a decisive transition from high-volume, lower value enterprise to high-value, high-innovation, knowledge-intensive enterprise, and research and development activities can encourage such enterprise. In addition, increased research and development activities can help embed an existing firm's activities in Ireland as well as developing additional high quality employment. Senators might be interested to note that tax incentives are widely used to stimulate research and development in other advanced economies. Their effectiveness has been established by a series of empirical studies, particularly among large firms in high-tech sectors, and this is where the need in Ireland for greater research intensity is most pronounced. As with all tax reliefs it is important that the measure be focused. Accordingly, the measure is targeted at encouraging additional research and development by basing the scheme on incremental expenditure rather than permanent additional tax deductions for all research and development activities.

Full details of the scheme, including a core definition of research and development activities, are set out in section 33 and detailed guidelines will be issued by my colleague, the Tánaiste and Minister for Enterprise, Trade and Employment, on what activities will constitute research and development activities for the purposes of the credit. Companies will be able to deduct 20% of the incremental spend on research and development from their corporation tax bill in addition to its normal deduction as an expense.

Incremental spend will be calculated by reference to a base year. For expenditure in 2004, 2005 and 2006, incremental spend will be calculated by reference to expenditure in 2003. In 2007 the base year will be 2004, 2005 will be the base year for 2008 and so on. In order not to distort the year-on-year calculation of incremental expenditure, capital investment on construction and refurbishment of building will be treated separately with a 20% credit made available to companies to invest, irrespective of its incremental nature.

Section 35 is aimed at assisting the leasing sector of our financial industry and it provides that lessors engaged in finance leasing may elect to pay tax on income from the finance leasing of short-life assets on the basis of accounting income rather than income based on current tax rules. The option will be subject to a number of conditions detailed in the Bill. The section allows lessors of such assets to account for them for tax purposes in accordance with accounting rules. This will result in the "interest element" of lease payments being taxed but no capital allowances being available. It will not change the amount of tax paid but will involve a more even spread of the tax over the lease period. As I said in the other House, this provision is being introduced to address specific issues which arise with the phasing out of the IFSC regime, but the new provision will apply across the board to all lessors of short-life assets. This change will help to keep Ireland competitive in this important sector.

Section 39 extends the qualifying period for the scheme of tax relief for corporate investment in certain renewable energy projects from 31 December 2004 to 31 December 2006. An EU directive dealing with the taxation of interest and royalties was agreed in 2003, the purpose of which is to eliminate withholding taxes on cross-border interest and royalty payments between associated companies and branches in different member states. The directive was transposed by way of statutory instrument in late 2003 and its provisions are being repeated in section 41 and Schedule I to the Finance Bill, with a number of minor technical additions.

Part 2 deals with excise duties. Sections 45 and 48 confirm respectively the budget increases of 25 cent, including VAT, in the excise duty on a packet of 20 cigarettes and of 5 cent per litre, including VAT, for petrol and diesel. As indicated in the budget, changes to indirect taxes were limited this year in the light of our goal of reducing inflation. Section 46 enables certain quantitative restrictions on cigarettes and tobacco to be retained in respect of travellers from the new EU member states after 1 May next. In effect, the regime applying to travellers from other existing member states will not be applied to cigarettes or tobacco acquired by travellers from the new member states in question during the transitional arrangements for accession states.

Sections 49 and 50 provide for a qualified exemption from the excise duty on biofuels for use in certain approved pilot projects including projects undertaken to test the technical viability of using biofuel as a motor fuel.

Part 3 of the Bill deals with VAT. Sections 55, 56 and 58 provide for the EU directive on the VAT treatment of cross-border supplies of gas and electricity to be transposed into Irish law. Increased liberalisation of the electricity and gas markets and increased cross-border trade between member states required a change in the rules to clarify that supplies of gas and electricity were taxable in the member state of final consumption, avoiding the need for a supplier to register in every member state which he or she supplies.

Section 57 confirms that where a house and site are sold together, the VAT treatment is that both the house and the site are subject to VAT. An interpretation of the VAT Act 1972 has been used to attempt to exempt the sale of developed sites where a site and new house or apartment are being sold together. The Bill provides that where a developed site is sold in such circumstances it is subject to VAT.

Sections 59 and 61 confirm the budget night financial resolution to increase the farmers' flat rate addition for VAT purposes from 4.3% to 4.4% with effect from 1 January 2004. There is a corresponding increase to 4.4% for the sale of livestock by VAT registered farmers.

Section 63 clarifies that where a trader in Ireland supplies goods or services to a trader abroad, in a situation where the recipient in the other member state is liable for VAT on a reverse charge basis, then the Irish trader must issue a VAT invoice. This will not impose any extra burden on traders and reflects existing commercial practice. Sections 64 and 65 contain a number of technical amendments to clarify the VAT treatment of fund management and administration services provided to Irish and foreign investment funds. The stamp duty provisions are contained in Part 4 of the Bill. Section 68 closes off a loophole whereby an exemption from stamp duty, in the case of certain company reconstructions and amalgamations, was being used to seek to avoid stamp duty on transfers of real property. The stamp duty exemption for owner-occupiers of new houses and apartments has up to now been dependent on a floor area certificate from the Department of the Environment, Heritage and Local Government, indicating that the building is not greater than 425 sq. metres. However, this particular certification process is linked with the now abolished new house grants and will cease on 2 April 2004. Consequently, section 72 provides for a new floor area compliance certificate for such houses and apartments, which will also certify that the property conforms to approved building standards. The certificate will be issued by the Department of the Environment, Heritage and Local Government for the purpose of the stamp duty exemption.

Section 74 replaces the current section of the Stamp Duties Consolidation Act 1999, which provided for a stamp duty exemption for certain international trademarks. This new section provides for an exemption from stamp duty on the sale, transfer or other disposition of intellectual property as announced in the budget. Intellectual property includes any patent, trademark, copyright, registered design, design right, invention, domain name, supplementary protection certificate or plant breeders' rights. This measure is aimed at making Ireland a more attractive place for the location of such intellectual property.

Section 75 provides that the 2% duty on non-life insurance policies will not apply to dental insurance as is the case with medical insurance policies generally.

Section 78 amends the definition of a holding company for the purposes of the CAT business relief to take account of situations involving family companies where there may be more than one holding company and where there are intermediate companies between the holding companies and the underlying trading companies.

Sections 79 and 82 provide for an extension of the legislative framework that underpins tax information exchange agreements with certain jurisdictions in order to include gift and inheritance tax. An amendment is also being made to the relevant legislation to apply the existing Revenue powers to encompass the foreign equivalent of estate, inheritance and gift tax.

Section 85 amends the scheme of tax relief for donations of heritage items to cultural institutions of the State. The minimum value of an item or collection which can qualify is being increased from €100,000 to €150,000 with the additional requirement that, in the case of a collection, at least one item in the collection must have a minimum value of €50,000. In addition, there are detailed changes in the rules governing the selection of heritage items. These changes are designed to facilitate the work of the selection committee, which is made up of representatives of the cultural institutions and bodies concerned.

I referred earlier to the need to keep tax reliefs and expenditures under review. To facilitate this, it is important to improve the information available regarding the cost of such reliefs. Changes are being made to various tax forms to capture more information.

Section 86 provides for a number of statutory changes to the annual tax return forms for the 2004 tax year, and thereafter, to underpin this work. Essentially, persons wishing to claim certain reliefs will be required to provide additional information by completing an additional part of the form. Persons not complying will be liable for the standard surcharge and penalties for incorrect returns, where the error is not remedied without unreasonable delay. Section 86 also amends the end-of-year P35 employer return to require employers to show the overall amount of employer and employee pension contributions together with the number of employees contributing and the number of employees in respect of which the employer is contributing. These changes will take effect for the February 2005 P35 returns. In time these changes will yield accurate information on the cost of tax reliefs, such as the property-based tax relief schemes and on the cost of pension tax relief.

Subject to certain conditions, Revenue already has the power to apply to the High Court for an order requiring a financial institution to make records available for inspection or to furnish information relevant to the tax liability of a taxpayer, including a group or class of person whose individual identities are not known to Revenue.

Section 87 extends this power so it can apply in respect of information and records held by certain foreign financial entities, which are under the control of a domestic financial institution. This is a recommendation made in the Revenue powers group report, which is being proceeded with now because of the current Revenue initiative on offshore accounts. I published the report of the Revenue powers group on 4 February 2004 with a view to allowing time for all interested parties to discuss and debate the issues raised by the group. I will consider the various recommendations made in the report in the context of next year's Finance Bill.

Section 90 and Schedule 4 confirm the transposition into Irish law of the EU directive on the taxation of savings income in the form of interest payments. The aim of the directive is to enable savings income in the form of interest payments made in one EU member state to individuals resident for tax purposes in another EU member state to be taxed in accordance with the laws of the latter member state.

Section 91 provides for the carryover from one year to another of unspent Exchequer capital allocations up to a limit of 10% of each year's total capital allocation under the rolling five-year multi-annual envelopes for Departments announced in the budget. The Government is committed to keeping capital investment at 5% of GNP over the period 2004-08. Under the capital envelopes, a total of €33.6 billion will be available for capital investment to support the economy's future growth potential. The ability to carry forward from one year to another unspent Exchequer capital is an important element of multi-annual budgeting for capital purposes and for the management of capital programmes.

In successive budgets and Finance Bills I have managed to create a low tax rate environment. This policy has boosted investment and created jobs. Shrewd observers will be aware that governments and administrations throughout the world are pursuing this approach because they have witnessed its success. The rules are relatively simple: create the conditions in which enterprise and employment are rewarded through a low tax burden and people will respond accordingly.

Probably the most telling statistic in recent years is that over the past six years the numbers at work have increased by over 300,000. Unemployment today remains at historically low levels. Much has been achieved in this respect but we cannot take future prosperity for granted. This Bill includes significant measures that ensure further investment for Ireland and jobs for its people.

I hope Senators have benefited from this outline of the provisions in the Bill. I look forward to the debate on the legislation and I commend the Bill to the Seanad.

I welcome the Minister. I apologise for the absence of my colleague, Senator Higgins, who has asked me to deputise for him. Hopefully, I will be able to deliver a few political blows on his behalf, although that may be difficult.

The Minister referred to the low tax base but it is important to point out that while we have one of the lowest levels of taxation in the EU as a percentage of our GDP, statistics show that more than 50% of taxpayers are now paying tax at the higher rate of 42%. In 1999, personal tax credit under the equivalent tax code amounted to €1,000. By 2001, the Minister had reduced this to €814. In 2002, it had doubled to €1,520 and in 2003-04 there has been no change, so it has been eroded. The year 2002 was significant as a general election was held, so I do not need to dwell further on that point.

The Bill is flimsier than most of its predecessors because the December budget contained very few financial measures. In his budget speech, the Minister spoke predominantly about decentralisation. This caused much surprise because people felt that a budget speech was not the place in which to outline such proposals.

Since its election, the Government has introduced 27 stealth taxes and is the primary culprit in the creation of a rip-off society. While the Minister may talk about low taxation, and few in the House would disagree with him on that point, he should also mention the stealth taxes that affect our daily lives. They range from the non-indexation of tax credits to higher VHI and ESB charges, and as a result the Government is responsible for 100% of inflation. The stealth taxes introduced in 2002 were as follows: VAT went up 8%, motor tax rose 12%, hospital charges increased by 26%, drug refund scheme up 31%, VHI up 18%, cigarettes and alcohol, up 15%, bank and car charges, up 108%, bin charges, up 29%, ESB bills, up 13%, college fees, up 9%, parking, up 25%, bus fares, up 9%, and the TV licence, up 40%.

In the November 2003 Estimates the drug payments scheme threshold rose by €8 to €78 per month, accident and emergency charges increased €5 to €45, and the cost of private beds in public hospitals rose by 15%. The cost of an overnight stay in hospital has risen by €5 to €45, with a cap of ten nights per year. The third level student registration fee increased by €80 to €750 while the reintroduction of third level fees remains a possibility. The fee for junior certificate examinations increased by €10 to €82 while the fee for sitting the leaving certificate increased by €10 to €86. Development levies will increase from €6,000 to €30,000 and will raise €700 million from house buyers. The minimum contribution all recipients of supplementary welfare allowance rent-mortgage supplement are required to make towards their accommodation will increase by €1 to €13 per week and the allowance is no longer available to couples where one member is in full-time employment.

The fee for a standard ten year passport increased on 1 March by almost one third from €57 to €75 and there has been a significant percentage increase in the cost of children's passports, which is grossly unfair. The cost of a three year passport for infants has increased from €12 to €15 and that of a five year passport for those aged three to 18 from €12 to €25. The emergency fee for passport applications processed outside office hours has been increased by €37 to €100 for adults. Motor tax increased by 5%. Further stealth taxes were announced last December, including an increase in bus and rail fares in line with inflation.

What is wrong with that? That is not a tax.

Basic personal tax credits have not been increased under the legislation. It relies heavily on increased charges and it has totally failed to reduce levies that are putting homes beyond the reach of first-time buyers.

There is a complete absence of joined up thinking. The Minister is introducing property-based tax breaks, barely 12 months after he won public praise for his decision to eliminate them because they had outlived their usefulness. No ceiling has been placed on the degree to which well placed individuals can reduce their tax contributions through the use of these reliefs. The Minister accepts this because he stated in his contribution that the value of such schemes must be balanced against the important objective of ensuring a wide tax base if low rates are to be maintained. Accordingly, such schemes must be kept under review.

A recent newspaper article estimated the State's urban and town renewal schemes will cost the Exchequer €750 million in lost taxes by July 2006. The two renewal schemes, which have attracted a massive €3.8 billion in investment since they were established in 1989, were due to expire at the end of this year. However, the Minister extended the deadline in the budget for the schemes and eight other property-based tax incentive schemes, even though he said he had difficulty doing so. This is a backward step and such tax breaks should be re-evaluated. Worse still, almost 130,000 people are on waiting lists for social housing. Less than 64% of net average industrial earnings was required to pay off a 20 year mortgage on a standard dwelling in the Dublin area in 1980 whereas this had increased to 82% in 2002 and it is even higher now.

Following the furore over the scrapping of the first-time buyer's grant, the Minister attended the House and indicated that even he accepted it was unfair in the absence of an alternative. He gave the impression he would examine an increase in mortgage interest relief for first-time buyers and scrap stamp duty for first-time buyers on smaller properties but, unfortunately, nothing has been done. I was sore about this issue following the budget. I urge him to re-consider these proposals considering that not only was the first-time buyer's grant abolished but VAT increased on all house purchases and development levies have been increased twofold, if not threefold, particularly in Kildare, his own county.

I refer to the decentralisation programme, about which there is confusion. Bus Éireann is due to be relocated to Mitchelstown, County Cork, but the Minister for Transport plans to privatise the company. How can a State agency be decentralised given that it more than likely will not exist in a few years if the Minister for Transport's plans are implemented? It was disingenuous of the Minister to announce the decentralisation of Teagasc in the Budget Statement. I was amazed when I read under the Carlow heading that, in addition to the 250 jobs that are to be decentralised from the Department of Enterprise, Trade and Employment, which are welcome and for which we lobbied hard, the headquarters of Teagasc is also to be decentralised, because that was a done deal.

The Minister landed in difficulty over this announcement because the Civil Service unions involved were not happy. A deal had been concluded whereby compensation of more than €6,000 would be paid to civil servants who opted to relocate to Carlow. The trade unions felt a precedent had been set, which would expose the Government to payments of millions of euro in compensation for the relocation of civil servants. Will the headquarters of Teagasc still be decentralised to Carlow? Did the Minister jeopardise the move by announcing it in his Budget Statement? I hope he has not because the people of Carlow will be disappointed if that is the case.

Fine Gael will table numerous amendments on Committee Stage because the legislation should address the following crucial issues: revelations that the Revenue is unable to collect enough evidence to prosecute breaches of the tax amnesty or to prosecute officials of financial institutions who promoted tax evasion vehicles; the lack of proper scrutiny of special reliefs in the tax code; the absence of a ceiling on the extent to which well placed individuals can reduce their tax contributions to zero through the use of these reliefs; the need to examine afresh the financial support of families through tax and welfare systems during their life cycles; and the imminent introduction of the carbon tax system, which poses serious challenges in terms of the competitiveness of certain businesses and the capacity of families on low incomes to cope.

The Minister is due to make a decision on carbon taxes at the end of the month and it is expected a carbon tax system will be in place by the end of the year. However, the Minister has given no inkling of the approach he plans to adopt. The Government is obliged to notify its decision on the emissions trading regime for Ireland by the end of the month but people are unclear about it. Perhaps the Minister will address the issue when he concludes the debate.

The Revenue admitted recently that it is unable to prosecute breaches of the 1993 tax amnesty and no evidence has been furnished which could facilitate the prosecution of officials in financial institutions who promoted bogus non-resident accounts. That has not gone down well with the public. The public is also sick and tired of being told no money is available for certain projects while significant infrastructural projects such as Luas go €600 million over budget.

That is totally wrong. The Senator has not been listening.

That figure was quoted recently. Even if it is only half right, it is still appalling.

The Senator should inform himself.

Senator Browne, without interruption.

Senator White might be in the know and, if she has other information, I would be glad to get it from her. It is appalling that a major infrastructural project can go €600 million over budget.

A different project is being built.

There has been no proper financial scrutiny and no penalties have been applied. This needs to be examined. The same scenario applies to the Dublin Port tunnel and the construction of motorways. Individuals can be scrutinised over minor tax breaches, yet significant projects are not scrutinised properly.

I wish to refer to an issue which highlights for what Fianna Fáil stands. Two weeks ago, I attended Buswells Hotel to meet the GPA, which was seeking a tax break for amateur sports people. I was almost knocked down by a number of Fianna Fáil Deputies and Senators who were smiling beside the group's representatives as they posed for photographs and signed petitions. The same Fianna Fáil Deputies entered the Dáil that evening and voted against the amendment tabled by my colleague, Deputy Deenihan, under which such sports people would receive a tax credit of €2,000, provided they made themselves available for drug testing.

The caveat was that by making themselves available for drug testing, it would differentiate them from the ordinary amateur sportsperson. I was amazed to see the Government Members voting it down, having made positive soundings on the issue on the plinth. However, when it came to a vote, they voted against it and I look forward to seeing how my Fianna Fáil colleagues react on this occasion because we will table amendments on it tomorrow.

I urge Senator Mansergh not to give us a history lesson on Fine Gael before 1997 and I look forward to his positive contribution.

I warmly welcome to the House the Minister and his officials, former colleagues of mine on the tax strategy group.

The Minister for Finance is now the longest serving Finance Minister since the 1930s and there is no doubt that he has made an impact, which both friend and foe will agree is greater than any of his predecessors. His period in office since 1997 coincides, but is not coincidental, with the greatest period of economic expansion in the history of the State and long may it continue. I was at an art exhibition in Cologne where I saw a picture of a tiger in a European setting. I thought it was the symbol of the Celtic tiger and I will send the Minister a copy.

The Minister — when I give the statistics, Members will see this is not hyperbole — has discovered the philosopher's stone of increasing tax revenues while reducing tax rates, greatly increasing public expenditure and at the same time improving the public finances. If one goes back to 1996, the last full year of the rainbow Government, tax revenues were €16 billion and in 2004 they will be €33 billion, a little more than double. The Minister did not achieve this by doubling the tax rate. The standard rate of income tax was reduced from 26% to 20% while the top rate was reduced from 48% to 42%. Corporation tax was reduced from 36% in 1997 to 12.5% and capital gains tax was halved from 40% to 20%. While we are on the subject, gross current expenditure in 1996 was €19.5 billion and this year it will be €39.3 billion. Capital expenditure at €2.1 billion in 1997 increased to €5.5 billion in 2004, more than double. However, the general Government borrowing level was 64.5% in 1997 which has been reduced to 33% in 2004. All the signs are that the public finances are in very good shape. I note Senator Browne did not comment on benchmarking, which last autumn was thought would wreck and ruin the public finances. In general, he raised only quibbles but I do not blame him for doing his job.

I was in Germany after St. Patrick's Day and a headline in one of the German newspapers caught my eye. It stated that full employment was possible in eight years, according to a comment by the president of the external trade chamber. We practically have full employment, with an unemployment rate of only 4.5%. I also note that the current issue ofDer Spiegel commented that with its tax policy, Ireland attracts entrepreneurs from all over the world who are willing to locate abroad — more or less suggesting, albeit in a slightly exaggerated way, that Ireland is hovering up foreign investment. I heard the Labour Party’s Senator Brendan Ryan state that the Fianna Fáil philosophy was winner takes all. I do not agree with him. The Fianna Fáil philosophy is that everyone is a winner and they have been under the Government’s tax policies.

The Minister gave priority and nobody, including CORI, could fault him on weighting the benefit to the low paid. For those on the minimum wage, 90% of his or her income is free from tax. It was a move unassailable from the point of view of equity. Senator Browne has to take account of the content of the Minister's speech, that 35% of people registered with the tax authorities are not paying tax at all. When one states that 50% are on the upper rate of tax, one is referring only to those paying tax. However, if one is referring to income earners subject to the tax code, it is only 33%. I wish it were fewer, but it is a good achievement.

We have got much credit for having the lowest tax wedge in the European Union and that is particularly family friendly. I was particularly struck by the Minister's statistic that the amount of income tax paid by those on the average industrial wage is 6% today compared to 14% in 1997. The Opposition should recognise the general advance and its equity. Part of that was due to the tax credit revolution during the last period of office. The Minister has been very good over a number of budgets to the elderly. A tax exempt income of €31,000 for a married couple is impressive. The Minister, although he might not always be credited for it, has good relations with the trade unions and the social partnership is shown by the increase in the credit for trade union membership.

I am glad to note that Luas will be included on the travel pass. I remember that in the tax strategy group, we had a great many discussions on what to do with the income of the bean an tí. In a sense, the pragmatic solution is to do nothing and let it be tax free. I query whether a mother who looks after two or three other children is a similar case and whether the sensible approach would be to make it tax free, thereby encouraging a solution to the child care problem.

If we want a film industry in this country, film relief is essential and this is partly a competitive issue. If other countries are giving generous tax reliefs to films and if we want to compete, we have to do the same. The Minister is right to point out, and everybody realises it, that, as a result, inevitably high earners use this mechanism to reduce their tax bill, but it is a question of the overall economic benefit.

The two most important measures in the Finance Bill are those relating to the location of company headquarters and I suppose that is particularly relevant to the Financial Services Centre but also the 20% tax credit for research and development. I was at a dinner with the executives of multinational companies last night and they take the view that this is a welcome start, but they may want to discuss with the Minister how it could be further extended. I understand the Minister is anxious to avoid dead weight and that he wants incremental benefits. At the same time I am sure the Minister realises that we have to compete with the United Kingdom and Mr. Gordon Brown has made it clear that he will focus on research and development, making Britain one of the most competitive countries in the world. That we have to compete with that may have implications for the funding of higher education.

I wish to comment on something which is not contained in the section on excise duty. I point out to the Minister for Finance, who was previously a Minister with responsibility for tourism, that Ireland has the highest level of excise duty on wine in the European Union. On the next occasion on which the Minister is being pressed by the Minister for Health and Children to jack up the price of cigarettes and does not wish to affect the consumer price index, he should consider reducing the excise duty on wine. Wine drinking is no longer an elite activity. It is important for the tourism industry as the price of wine is something tourists, particularly those from the Continent of Europe, notice most. There is a economic case to be made in this regard.

Gordon Brown announced in his budget a measure whereby tax avoidance schemes will have to be cleared with the revenue authorities. I gather the USA operates a similar system which means there is not a presumption of legality on the part of such schemes. Before next year's Finance Bill, the Minister should examine these measures closely. I congratulate the Minister and the Revenue Commissioners on the amount of tax money they have collected. Huge progress is being made though this is partly because we are in the euro zone and a run in the currency is no longer possible. It is possible to accomplish things today that would not have been easy ten or 15 years ago. While people may not like that from a moral point of view, it is the pragmatic reality.

I welcome section 88 which deals with capital envelopes and I note the Minister for Transport announced this morning that some €3.5 billion is to be invested in public transport over the next few years.

I have some sympathy with the position of the Minister for Finance. I have been lobbied like most other Senators as part of a very strong push by charities to exempt contributions from taxation. The point can be made that charities are exempt from most forms of taxation. The Minister made a significant provision for charities in 2000 when every contribution over €250 was exempted from tax.

Quite generous construction reliefs are in place and the construction industry has been a major underpinner of the economy, particularly in the less strong growth years of the last couple of years. However, the reliefs should not continue indefinitely. The problem with Senator Browne's suggestion on mortgage interest relief and reductions in stamp duty is that experience tells us builders simply increase prices and pocket the difference. The young first-time buyer finds he or she is no better off. I am a little surprised by today's report that there is not a stronger take up of affordable housing in Cork. I must talk to my brother who is an employee of Cork Country Council. Perhaps it is a short-term phenomenon.

The issue of carbon taxation has been around for a great deal of time. We must be very careful in introducing a tax of that kind and consider our competitiveness. The economy of the USA is built in part, whether we like it or not, on cheap energy. If we are not very careful, Europe will increase its competitive disadvantage. If this step is taken, countervailing measures will be necessary to ensure our competitivenessvis-à-vis the USA is not affected.

A matter which was mentioned in the Budget Statement but does not appear in the Finance Bill is decentralisation.

Gordon Brown announced decentralisation in his budget speech also.

I was about to come to that. I do not recommend Gordon Brown's approach, which is very different. According to Gordon Brown, 20,000 civil servants are to be moved out of London and, God help us, those who do not want to go will be made redundant. The civil servants will experience a 27% cut in salary and lose London allowances. We have a different way of doing things here, which I much prefer. It is an illustration of how fortunate public servants are to live in this country rather than across the water. I hope a constructive approach will be adopted.

As I pointed out in an article inThe Irish Times, if one takes existing decentralisation programmes, which have worked perfectly smoothly, every hub and gateway has decentralised offices in it. It was perfectly clearly stated in the Fianna Fáil manifesto that decentralisation would be to substantial and well-placed towns which had difficulty attracting industry. Many other towns are mostly near national spatial strategy highways, or main routes. I hope decentralisation will proceed expeditiously. It is the key to the regeneration of certain parts of the country and to a better spatial balance.

Britain is, geographically, a less well-shaped country than Ireland, but Gordon Brown does not appear to be overly worried about the coherence of Government or that something infinitely precious will be disrupted. On the contrary, Senator McDowell's Labour friends across the water are going about decentralisation in a rather more brutal fashion than we are. Public servants should examine the way in which decentralisation is being planned here and consider how much more fortunate they are to live and work in a country which operates according to a proper principle of social partnership.

I will address the issue of decentralisation before I finish, but I will begin with some general remarks about the economy. This must be the shortest Finance Bill the Minister has published during his time in office. Certainly, it is almost completely devoid of the grand gestures, ideas and the singular ideological shifts, swathes of tax cuts, cuts in expenditure and various other traits for which the Minister has become renowned over the last seven years. As such, there is very little with which to disagree in the Bill. In as much as the Bill offends, which it does, it is through sins of omission rather than commission. I will address those in detail in a few moments.

It is appropriate to comment from this side of the House on the resilient and sturdy state of the economy. Most of us feared 15 to 18 months ago as we looked into the near future that circumstances would be a great deal worse than they are. To be blunt and clear, if 2% growth, less than 2% inflation and virtually full employment is as bad as the recession is to get, we have not done half badly. It is appropriate to acknowledge that the economy has demonstrated a toughness and resilience which has surprised me and, I imagine, a great many economists and commentators. It does not serve the interests of the country or the Opposition to understate or fail to acknowledge that fact.

I say that by way of acknowledging that when things were going badly over the last 18 months, I found less to criticise in what the Minister did than I did when things were going well. When he had money to spend and choices, he made all the wrong ones. He cut taxes in the wrong way and spent money poorly. He operated counter to the cycle I would have chosen or thought appropriate at the time. Nevertheless, I acknowledge that in the last 12 to 18 months, the Minister has adopted the cautious approach appropriate in the circumstances.

I do not support all the cuts the Minister imposed on his colleagues. The Minister for Social and Family Affairs made for a rather sad sight when she was here. It looks like she is preparing the way for a climb down on a particular cut with which the Minister will be familiar. The social welfare cuts amounted to €50 million. With the benefit of hindsight, and even at the time, it shows how pointless they were in the circumstances.

I do not think anyone would argue that in the aftermath of the general election there was not a need to cut back the then runaway level of current expenditure. This is not to say that I was not in favour of planned public expenditure in the previous period — I was. Neither is it to say that I am not in favour of planning public expenditure in a way that will lead to improved public services over time. However, I do not believe this can be achieved by failing to increase spending one year, increasing it by 20% the following year, and cutting back according to the electoral cycle. The Minister has, by and large, got it right since the election. I say this in the knowledge that anything uttered at 7.30 p.m. in the Seanad on a Tuesday evening is unlikely to be reported by anyone.

The Minister and the social partners set out three main aims on income tax in Sustaining Progress, namely, reducing the upper rate of tax to 40%, removing those earning the minimum wage from the income tax net, and completing the individualisation process. It is now unlikely that any of these three aims will be achieved. While I will not shed tears about two of the three aims, efforts should be made to remove those on the minimum wage from the income tax net. Notwithstanding the increase in the minimum wage this year, the Minister has more or less stood still with his increase in tax credits. Secure in the knowledge that no one is going to pay a blind bit of attention to what I say, if choices are to be made in the tax code they should made in order to remove the minimum wage from the income tax net. This should be done even at a time when there is little scope.

It is nonsensical to forbid employers paying employees less than €7 per hour and then taxing these employees. It does not make sense. There is no logic or coherence to it and it should be changed. This should be done even if it must be done within the income tax code. While I recognise most Oireachtas Members would not share my view, this should be done even if the standard rate cut-off point must be changed. We need to take this measure to a conclusion and it must be done now when the opportunity exists.

The Minister has had an interesting experience in interacting with the tax code over the past seven or eight years. Senator Mansergh also referred to this. The Minister has not had to do much in the way of distribution; it has largely been a matter of deciding where to cut taxes. While I do not necessarily agree with the argument, I accept that cutting taxes in some cases has not reduced the tax take. We are now in a position where we cannot cut the overall take and where changes in the tax code are necessarily redistributive. Harder choices must now be made and the Minister has clearly taken the decision not to make changes. This is interesting and instructive in itself.

Based on previous experience, I feel the Minister and I share a similar view on tax breaks. If it can be shown that breaks are filling a need and provide a value added element, then I believe they are good. My real difficulty is that we have not carried out any serious work in showing that multi-storey car parks tax breaks and health-based initiatives actually work. While the Revenue Commissioners have made an effort to quantify the loss to the Exchequer arising from these breaks, the work seems to have been carried out on the back of an envelope. I am not convinced that the numbers stand up to scrutiny. We must be sure that there is a need and that the tax breaks fulfil it.

It is 15 months since the Minister announced that he was going to end these tax breaks. I did not believe him then and I still do not. People whispering in the Minister's ear about strategic and logistical reasons that these breaks should not be ended have clearly persuaded him. It would not surprise me to hear the Minister announce in next December's budget that they will be prolonged yet again. We should be honest about this and accept that they are justified in certain circumstances. They are a way in which high earners can often substantially reduce their taxes due. It is fine if the breaks help achieve targeted and defined social ends. However, if they do not they should be ended. I support the changes in the film tax relief, at least as a measure for the foreseeable future. I know the Minister has had some opposition to this measure from within his Department.

I am concerned about the move on private hospitals. While I am speaking off message again, I broadly support the Hanly proposals. There is merit in centralising specialities in larger hospitals while maintaining as good a service as possible in local hospitals. My wife is from Clare and I know the way in which people regard the hospital in Ennis. While tens of thousands demonstrated on the streets of Ennis, there is no doubt that in the event of a car crash, many of them would be slow to go to Ennis hospital. They would rightly choose to go Galway or Limerick hospitals.

While there is merit in the Hanly proposals, it is only in the context of the overall implementation of the health strategy. The Minister and his colleague undertook to increase the State's hospital bed capacity by 3,000. People are afraid that if the Ennis casualty ward is closed they will end up in longer queues in Limerick or Galway hospitals. If the capital investment for increased beds promised in the health strategy is not released, it is folly to follow the Hanly route. The Minister will not be able to persuade his backbenchers. Nor do I think he can reasonably expect support from independent commentators or even the miserable few of us on the Opposition benches who see some merit in the overall strategy.

Others have mentioned the issue of carbon taxes. I know the draft emissions strategy has been drawn up and I gather the full strategy will be submitted to Brussels in the coming weeks. While I have thought about this issue deeply in recent years, I have not come to a full conclusion. Taxes on energy only have merit if we bring about a behavioural change that will reduce carbon emissions. I do not see this happening unless there are significant increases in taxes on dirty energy sources and not on others. I do not see how we can do this without significantly impacting on our competitiveness and the poorest in society. If the great and the good in the Departments of Finance and the Environment, Heritage and Local Government can develop a scheme that will secure competitiveness, ensure the impact on the poor is not excessive, and will bring about the required behavioural change, then I will happily support it. I am not persuaded that the Departments will be able to do this and I suspect the Minister is not persuaded either.

I suspect the Minister either has not decided or does not want to impose carbon taxes. If this is the case, it is silly and hypocritical to suggest we are going to introduce measures on 1 January next. We deserve more honest debate in this country and we have had little of it on this issue. There is a notion that if one is concerned about the environment then one should be in favour of carbon taxes. I am in favour of protecting the environment and favour taking hard choices, including tax measures, if they positively impact on the environment. There is a responsibility on those who favour carbon taxes to demonstrate that they will impact positively on the environment. As of now, I am not persuaded this is the case. I am interested by the provisions in the Bill for research and development. In a somewhat different context, I read carefully a short time ago the Lisbon strategy documentation prepared in the context of our Presidency. There is an aspect of motherhood and apple pie in its talk of improvement of IT facilities throughout the European Union, and in R & D, and so on. Yet there is no doubt that R & D forms an important part of the strategy, and will in the future form an important part of our capacity to maintain our cutting edge in terms of competitiveness, attracting foreign investment to Ireland, and, down the line, retaining the product of that R & D in this country.

The proposals in section 33 of the Bill are quite well formulated. One certainly needs a minimum level of research and investment, and the €50,000 tax credit allowed in that area seems reasonable. One element I worry about is the link with property incentives, with buildings constructed for the purpose of carrying out R& D. It does not need genius to suggest that this is open to abuse, and will need to be carefully policed. We want to see the work carried on in Ireland, and I appreciate that some of the investment will be in buildings, but we do not want to see all the additional benefit which R& D will now attract going into the construction of buildings. If that were to happen, it would be a mistake and would be wrong. I urge the Minister to keep a careful eye on how this R& D benefit and relief will be channelled in future.

I remember in our short debate on budget night being sceptical about decentralisation. I am now quite critical of it, and not even sure that it is right in principle. Administering policy outside Dublin is fine, but as for the formulation of policy by people occupying offices in different parts of the country, whether the formulation is done by email or phone, I cannot see it working as effectively as through face to face meetings. We already have difficulties with a number of policy areas spread across different Departments. Children provide the classic example, with three or perhaps four Departments regularly involved in policy making. We appointed a Minister of State to co-ordinate matters, yet inadequacies remain in the policy-making process and in the final polices that emerge. People need to meet regularly. They need to look at each other directly, to sit down, debate, discuss and formulate policy. That cannot be done effectively if people are in different offices throughout the country, even if they sometimes come to meet the Minister in Dublin.

On behalf of the civil servants who want to stay in Dublin, someone must say that this is a fine city. There are jobs here. If one says to perhaps 1,000 or more people, along with their families, in each constituency in Dublin, that we do not want them here but in some part of country, then some will wish to go as the Minister is happy to tell us, but many will want to stay in our fine city. These people should not be disadvantaged in their career prospects because of that simple choice, which is a logical one for them. Some of them, God help us, are Dubliners, and do not necessarily want to live in the country. Someone should break the consensus of political correctness, something which the Minister is usually anxious to do, which seems to surround the issue of decentralisation and assert that Dublin is a good place in which to live and that civil servants should not be blamed for wanting to stay there. I do not blame them.

I have not put down any recommendations for tomorrow's session. Last year we asked the Seanad staff to toil into the night and eventually got onto recommendation No. 2. Nonetheless we had a useful debate. I hope we will have the opportunity for something similar tomorrow.

I welcome the Minister and his officials. It is right for us to throw bouquets at the Minister and at the officials who have so robustly supported him in his seven years as Minister for Finance. I am proud of what has been achieved in our economy over the last seven years.

I thought the Senator was a socialist.

One can look at the international economy and at that of the United States. The latter thought the economy was turbo-charged at the end of 2003. US productivity has risen, but the employment level has not. I follow the American economy closely on a daily basis. I readThe New York Times on the Internet every day. America is in economic disarray and fear because despite all the tax cuts, no improvement has taken place.

Senator McDowell generously complimented the Minister on what has been achieved. That was gentlemanly of him.

It never got me anywhere.

The Senator should stay the way he is. It is a good way to be. There is no point in disagreeing and finding fault just for the sake of it.

The items in the budget which are most significant to me are the personal income tax changes. Since 1977, average tax rates have fallen for all categories of taxpayers, including those on lower incomes. We all recall when we were paying high tax, and how awful it was that no matter how much one earned, one had little disposable income left. We know the difference the improvements in the tax system have made. What warms my heart is that an increasing proportion of those on the income tax books, currently over 35% of them, pay no tax. It is critical that people on lower incomes pay no tax.

The second item of significance to me is the BES. Having started a business with Connie Doody, I know the importance of the BES. It was critical to us at a certain stage in our business. It is very difficult to get money and the BES kept us going. We were about three years in business at the time and it was the life blood of the company. The Minister is correct to say the scheme should be focused and targeted. It cannot be applied in a slapdash manner. The increase in the maximum amount of money that a company can raise under the BES as well as under the seed capital scheme, from €750,000 to €1 million, is very important to new, young entrepreneurial companies, which are finding it hard to get money.

At a meeting of the Joint Committee on Finance and the Public Service we listened to a very passionate plea by members of the film industry and the unions involved. They begged us to ask the Minister not to remove the tax relief on films. I accept there were abuses, but it is good to give the industry another chance. The trade unions told us there were about 4,000 people directly or indirectly employed in film-making in Ireland. There are also thousands of young people studying film in different colleges around the country. It is a very important industry. I was conscious at the meeting of the committee that different groups were attending. It might be good to have an umbrella group, a film industry authority, similar to the IDA, selling Ireland as a film industry base. The Minister's decision is, however, correct. Those involved in the film business felt it would collapse if the relief was removed.

Tax credit on R & D is critical. In his speech in Dublin Castle on his priorities for the EU Presidency, the Taoiseach said that regarding R & D, Ireland and the EU were only in the halfpenny place compared to the United States. The competition that Ireland will face from China, India and the new entrants to the EU will be extraordinary. As a business person I know the reality of competition. It is hellish to survive in the market. As a country, we will have to be very hungry for survival in the face of cheap labour in China, India and the eastern European countries which want to be like us. We must improve our performance on competitiveness which concerns not just wages but many other issues and of which there is not an awareness. As my company does half of its business with the UK, I have experience of overcoming the growing strength of the euro. We struggled to sustain our business in the UK and had to get extra sales to make up for the loss in the exchange rate. It may sound easy, but to be competitive requires extraordinary dedication by all concerned. I also wish to personally thank the Minister for Finance for introducing a tax exemption on the transfer of intellectual property. I was delighted that he did so and I will appreciate it for the rest of my life.

The Minister for Finance has kept a steady course through a terrible world recession. We are doing much better than any other country. I found it sickening to listen to the UK Chancellor, Gordon Brown, blowing on about how Britain was best at this and that. Ireland is far superior to Britain in the handling of its economy. The next step is to declare war on poverty in Ireland. There are pockets of people who cannot compete and work in the economy and who need to be helped. A sustained and targeted ten year war on poverty is where our attention should next be directed. Those of us who can work and compete are doing grand. However, those, such as the disabled and Travellers, in poverty need help. I have seen it in my own business with young employees coming from dysfunctional homes. I have seen them bursting for a job, wanting to be good at it only to return to a dysfunctional family in the evening. This affects them coming to work the following day.

In the coming years, child care will become the most important issue for the age 25-40 years cohort. With the cost of child care, it is now a luxury for some to have a second child. The Government has done its best to increase the number of child care facilities. However, a family with two children, one of six months and another of two years, and earning €30,000 will only break even. A second child has become a luxury to such families. The supply of child care has increased but the demand is still greater, leading to expensive charges. It is also stopping highly qualified women from that age group from working. They are dispirited as they are inclined to stay at home to care for the children. Reintegration into the workplace then becomes a further problem. This issue must be dealt with as it is critical to that age group. I have worked on this issue and I hope the Minister will address it.

A war on poverty needs to be declared and the child care issue needs to be addressed. I am proud of what the Minister for Finance and his officials have achieved. It is marvellous how they have put their hands on the tiller, particularly when one sees the state of the US economy.

I welcome the Minister for Finance to the House as he is always a pleasant individual. I hope he is not too glum after Cheltenham.

Is the Senator speaking on the Finance Bill?

I am indeed. That was a reference one of his colleagues made to me earlier.

Can we get back to the Finance Bill, Senator?

Absolutely, a Chathaoirligh. Would I ever disobey you?

I thank the Minister for outlining the Bill's provisions. I am surprised that Senator White is upset with some aspects of it. The Finance Bill 2004 will go down in history as one of the shortest Finance Bills to come before the Houses. This is understandable in the context of the significant attention the Minister must be giving to his role and responsibilities as chairman of the European Council of Finance Ministers. The Budget Statement also gave rise to huge hopes and expectations for decentralisation. As a Killarney man, I look forward to seeing the legions of public servants that have been promised to the town in the wake of the Minister's budget day announcement.

There is one important area where this Bill has done a disservice to the public. In the 2003 budget, the Minister introduced new stamp duty regimes for credit cards. Measures were introduced to prevent the avoidance of stamp duty which have had a negative impact on consumer choice, innovation and competition. While all Members support measures designed to prevent the avoidance and evasion of tax, it is important they are proportionate and effective. In the 2003 budget, the Minister's measures imposed a charge on any credit card that a cardholder had in a given year. This has the unfortunate effect of penalising cardholders who wish to change credit card provider. In other words, a cardholder who moved from AIB to MBNA got hit twice by the card tax, although still only holding one card. This is wrong and discourages competition which we want to see in all sectors.

I urge the Minister to review the stamp duty on credit cards introduced in the 2003 budget. Amending it would lessen the burden imposed on consumers. There must be some way of amending these measures while maintaining the integrity of the collections system. I welcome the Minister's amendments to the Bill on Report Stage in the Dáil relating to research, development and innovation. I hope he will show equal generosity and foresight in other budget measures that will have direct implications for consumers.

Our famous tax exiles do much charitable work in this State. However, there is something wrong in a society where wealthy individuals pay practically no tax by taking bed and breakfast for 183 days outside the State. To paraphrase US Senator John Kerry's call of "bring 'em on", can we bring them back? They are not being patriotic even though they are as Irish as the rest of us. The Minister has been a man of innovation on many occasions, so perhaps he will have a way to tackle this issue.

The hard-pressed consumer is the loser under this Bill. At a time when Ministers are telling consumers to shop around, the Minister for Finance has perpetuated features of the tax code that prevent shopping around for financial services. The stamp duty on credit cards is still structured in a way that when one moves card provider, one is hit twice. The stamp duty on mortgage instruments also means that the consumer who decides to move their mortgage account gets hit with a stamp duty bill. I would like the Minister to reconsider the issue of stamp duty for first-time buyers, because he made some more than sympathetic soundings in that respect last year. I look forward to hearing his comments in that regard.

Many people felt that decentralisation was not a suitable subject for a budget day announcement, but the Minister decided to make the announcement in the way that he did. I am delighted that the Department of Arts, Sport and Tourism will be relocated to Killarney. If I may say so, the town of Killarney and the Department in question are well-matched.

Killarney, which is the tourism capital of Ireland, is a strong and vibrant town.

That is true.

The 27,000 acre Killarney National Park comprises a large part of the town's tremendous hinterland. Killarney has great facilities and a wonderful environment in which to enjoy a superb standard of living. We could wax lyrical about the beauty of the town's surroundings all night——

The Senator frequently does.

——but I am watching the Cathaoirleach with my left eye, which is my poor eye. I have read and heard references to the suggestion that some of the Sir Humphreys, according to the results of surveys conducted in various Departments, may not be too keen about decentralisation. I am glad that there was no need for a survey in the Department of Arts, Sport and Tourism, because the indications are good. The Secretary General of the Department, Mr. Philip Furling, is a superb public official who was formerly of the Department of Arts, Heritage, Gaeltacht and the Islands.

I would prefer if the Senator did not mention names.

I understand. The kindly gentleman in question has a great appreciation and understanding of Killarney. Dúchas was within the ambit of his former Department, but it is now under the control of the Department of the Environment, Heritage and Local Government, for reasons that I do not fully understand — it is probably misplaced. The man to whom I referred will give tremendous leadership. I do not know much about other Departments, but the Minister, Deputy McCreevy, can rest assured that everything is fine in respect of the Department of Arts, Sport and Tourism. The Minister, Deputy O'Donoghue, knows that he is "on to a good thing", regardless of how he did with the ponies.

I wish to speak about Dúchas, without showing disrespect to anyone. I have discussed the organisation with the Minister for the Environment, Heritage and Local Government, Deputy Cullen, and the Minister of State at the Department of Finance, Deputy Parlon. I do not understand the decision to move responsibility for Dúchas to another organisation. I am aware that there are turf wars within the Civil Service — many people's attitude is "what we have, we hold" — but I genuinely believe that Dúchas has been misplaced. I say that in the presence of the Minister who is responsible for the Office of Public Works. Responsibility for environmental and built heritage has been divided and there is a crazy situation in Killarney as a result. Killarney's built heritage includes Ross Castle, Muckross House and the cottages in Killarney National Park. However, responsibility for Muckross House, which is an integral part of Killarney's built heritage, rests with Dúchas and the Department of the Environment, Heritage and Local Government. With respect to the Minister, it does not make any sense. The solution to this problem is probably to reunite the former elements of Dúchas under the aegis of the OPW, within the Department of Finance.

The Senator might be right.

This is where Dúchas properly belongs. I am serious about this matter and I am glad to have mentioned it. I look forward to discussing it with the Minister on the margins at some suitable future stage, although I appreciate that he is busy with other duties.

I welcome the Minister and his staff to the House. I welcome the Bill. I congratulate the Minister and his staff on his firm control of the public finances. The Government's fiscal policy was endorsed by the European Commission a short time ago. The suitability of the Minister's budgetary policy has been endorsed by the Central Bank and the ESRI in recent reports.

I am glad that the Bill's impact on inflation will be minimal, the budget deficit is prudent and discipline in current expenditure looks set to continue. We have been experiencing an international downturn, but so far we have survived it better than most other countries. Nobody can dispute that the downturn has been disappointing and painful for some and that tough choices have had to be made, but we can be grateful we have a Government that acts decisively.

The public recognises the need to have fiscal restraint and to avoid excessive borrowing, which is the real stealth tax. We need to limit our spending to what we can afford. When I first entered the House, the national debt was over 100% of GNP and the IMF was at the door because of irresponsible borrowing policies pursued by Governments of all stripes between 1972 and 1987. There are encouraging signs, such as strong domestic and US growth and Ireland's GNP growth figures for the first few months of 2004.

The fall in inflation is welcome. A great deal of nonsense is talked about inflation. The rise in inflation in recent times was caused by the euro's weakness and the fact that much of our trade is with countries outside the eurozone. In any case, inflation is now falling, which is especially welcome in terms of our competitiveness. I hope this decrease will encourage moderation in pay rises when the discussions take place.

The Bill before the House yet again reaffirms Fianna Fáil's commitment to the less well-off in our society. No Minister for Finance has provided more for the lower-paid than the present incumbent. The budget protected the weaker sections of the community through substantial real increases in welfare payments. Social welfare expenditure is twice what it was in 1997, even though employment has been halved.

It is not just through social welfare increases ahead of the rate of inflation that the Government has done its duty. It has also improved the tax position of the lower-paid. The Bill delivers an increased employee credit, which ensures that tax is not payable on up to 90% of the minimum wage. When the minimum wage was increased in April 2000, less than 64% of those earning it were exempt from paying tax. The minimum wage was increased to €7 on 1 February last and it is now the third highest such wage in the EU. On a monthly basis, it is almost three times that of Portugal.

Some 700,000 people will be exempt from income tax in 2004, representing an increase of 40,000 from 2003 and of almost 300,000 since 1997. A single earner's entry point to the tax system has increased to €246 per week from €223 in 2003. As the Minister stated after the introduction of the budget, the average tax rate for a person on the average industrial wage will be ten percentage points lower than it was in 1997. An increasing proportion of those on the tax record — over 35% of all earners — will pay no tax this year.

The Finance Bill will legally enact the Government's provisions to foster enterprise and to protect our jobs base for the future by putting in place measures to support our ability to sustain and expand employment. I am pleased that the rural renewal scheme is in place, particularly in the west. It has made a difference and brought benefits to parts of counties Leitrim, Roscommon and Sligo. A young couple can buy a three-bedroom semi-detached house in a nice housing scheme for €150,000. I have spoken to a number of friends in the Civil Service who were fortunate enough to have mortgages to help them to buy their homes ten years ago. I am aware that such people, who have equity of almost €300,000 in respect of their Dublin homes, are only too delighted to move. People from Sligo are only too delighted to move from Dublin to Sligo, where they can buy a home for approximately €150,000.

It is important that we acknowledge the Minister's extension of the timeframe for the rural renewal scheme from the end of 2004 to June 2006, in order to complete construction. I congratulate the Minister on that necessary change. Planning permission has been secured for a number of developments and a number of developments are in planning at present, despite the best efforts of some councillors and the changes made to county development plans. I know people who applied for planning permission a month ago for small schemes of between 18 and 20 houses in the rural renewal areas. The first problem is having the application validated. Then there is a request for further information and even though we do not have our development plans, further information can only be requested once. Now there is a new problem: a request for clarification, which takes another five or six weeks. While the timeframe to build is sufficient, I ask the Minister not to close the door on schemes for which permission has not been granted by the end of 2004 because there are serious hold-ups in the planning process.

I welcome the Minister and congratulate him on his seven years as Minister for Finance. As Senator Mansergh pointed out, he has probably served the longest term as Minister for Finance since the 1930s. I congratulate the Minister on pulling a fair few rabbits out of hats during that time. He sold Eircom and the TSB and then he raided the Central Bank. When he could find nothing else to do he introduced the decentralisation programme. He has presided over the introduction of lower tax rates of 42% and 20%, but he is shifting the tax base by introducing what other Senators have described as stealth taxes.

Many other Departments are also making use of stealth taxes. Rather than funding local authorities, for example, the Department of the Environment, Heritage and Local Government is asking them to raise taxes locally. This is of concern to members of local authorities, particularly those councillors who are facing into local elections, because they must raise refuse, development, water and sewerage charges. Many of these services are being funded under public private partnerships. We will not see the real cost of this until the increased rates come into effect in a year or two. The Minister has been very shrewd by shifting the blame, so to speak, in such areas.

Everybody fought for the establishment of the BMW region, but the funding that is being drawn down is not working its way to the poorer areas. I have raised this issue a number of times with the Leader of the House and asked for a debate on how funding is distributed in the region. It has not been receiving its fair share of funding over the past number of years. I ask the Minister to take this into account.

I recently tabled a Private Members' motion for the attention of the Minister for Transport, although the Minister that dealt with the matter was the Minister of State at the Department of Transport, Deputy McDaid. The motion was concerned with the national primary route from Westport to Castlebar, which has been put on the long finger. The Minister of State pointed out that roads such as this will not be completed until the larger projects in Dublin are completed. He mentioned the M50, the Luas project, the port tunnel and the recently announced rail link to Dublin Airport. While all these projects are welcome and necessary, so are the other routes.

It is only fair that a balance is struck in regional development. We are not receiving our fair share. The Minister's decentralisation programme did not feature towns such as Castlebar, Westport and Ballina, although they are at the heart of the BMW region. I ask the Minister to consider how the Government can fund projects such as the Westport to Castlebar road. There are other roads such as this throughout the country. Why can projects in the BMW region not go ahead until the bigger projects in the Dublin region are completed? In a city that is growing as fast as Dublin, when one project is finished another will need to start. There will be an endless number of projects in the pipeline. We recently heard of a report which mentioned another outer ring road for Dublin.

It has already been started.

If that is happening, the land will need to be acquired and funding put in place. The Minister might consider these issues.

This is one of the least controversial Finance Bills to pass through the House for many years. There are some issues that could be discussed further. As has been pointed out by a number of Senators, we should investigate more closely the position of the underprivileged and the less well off. There are many poor people out there and many who are suffering. Housing is very expensive and frequently both members of a couple must work to keep up with mortgage payments. Although interest rates are low, there is great hardship in some homes because of the high cost of housing. The housing situation in Cork was highlighted on television recently. Those who can avail of schemes such as these cannot even afford the house prices. Finally, although we have not had a debate in the House on funding for the BMW region, I hope the Minister will address this issue in his summing up.

I thank all Senators who contributed to the debate. By way of a general comment, I point out to the House that the budget and its implementation, including the Estimates and tax provisions in the Finance Bill, are part of a strategic approach to our economic development. I agree with Senator McDowell that the economy has shown itself to be resilient and sturdy.

Senator Coghlan mentioned that we currently have the privilege of holding the Presidency of the Council of Ministers. For some time now, the policies advocated at the Economic and Finance Council and by the European Commission consist of lowering the tax burden on labour and capital to stimulate the EU economy and keeping down the ratio of public spending to GDP so that Europe may regain competitiveness. These policy prescriptions are shared by the right and the left in Europe and are already being followed to a large extent by the Government. I assure Members that Ireland's economic situation is the envy of many other states in the Union and has been widely praised by all the main and reputable economic commentators.

I now turn to the income tax changes in budget 2004. I reject any criticism that the Government has failed to index credits and bands. Senator Browne referred to stealth taxes and highlighted the non-indexation of tax credits in this sector. I dismiss the notion of stealth taxes. The measures to implement Government income tax policies are laid before Dáil Éireann in the Finance Bill and are debated openly. There is no stealth involved. All PAYE workers benefited from the income tax changes in budget 2004. However, the resources available were focused on the lower paid and the elderly, providing significant increases in PAYE credits and exemption limits for the elderly. This approach ensures that 90% of the minimum wage, annualised, is maintained free of tax and that the real value of income for pensioners on low incomes is protected. It is fully in line with the commitments contained in An Agreed Programme for Government and Sustaining Progress.

The increase in the PAYE credit means that in 2004, for a single PAYE worker, the first €12,000 per annum or €246 per week of earnings will be tax free. For a married one-earner with a carer in the home, the first €24,250 per annum or €466 per week will be free of tax. I remind Senators that in 2004, 35% of all income earners will now be entirely outside the tax net.

Senator Browne referred to more than half of all PAYE taxpayers paying tax at the higher rate in 2004, suggesting that the Government had abandoned its policy of having 18% of income earners pay tax at no more than the standard rate. To talk about half of all PAYE taxpayers paying tax at the higher rate this year gives the wrong impression. If one talks about taxpayers rather than income earners, perversely the more people we exempt from tax, the higher the percentage of taxpayers at the top rate, even if there is no increase in the numbers. There is nothing incorrect in shifting the basis for comparison. This became necessary once we moved to tax allowances or tax credits. Some commentators are not comparing like with like. Under the allowance system, a person does not enter the top rate band until allowances are used up but under the tax credit system, which currently applies, the bands apply from the first euro with credit deducted afterwards.

I also draw the Senators' attention to the real reduction in the tax burden for those on average incomes. May I remind Senators that since 1997, the average tax rate for a single worker on the average industrial wage has dropped by ten percentage points from 27% to 17%. In addition, it is expected that in 2004, those earning at or under the average industrial wage will contribute approximately 6% of the total tax take; the equivalent in 1997 was 14%.

I wish to mention international comparisons. The tax wedge, which in simple terms is the difference between what the worker receives into his or her hand and the total payroll cost to the employer of hiring that worker, is crucial from an employment point of view. For the average production worker who is married with a carer in the home, Ireland now has the lowest tax wedge in the European Union and the OECD. Furthermore, recently released OECD data show that the tax wedge for workers has fallen more sharply in Ireland than in any other OECD country, reflecting the progress the Government has made in this area.

Senator Browne referred to housing and the position of first-time buyers in regard to stamp duty. The Government considers that one of the main objectives of housing policy is to increase supply and we have been phenomenally successful in achieving this. Last year, almost 70,000 new housing units were constructed which is a record and per head of population must be the highest ratio in the European Union.

Half of them are for investors.

Order, please. The Minister without interruption.

As regards stamp duty, first-time buyers and other owner-occupiers pay no stamp duty on new houses up to 1350 sq. ft. On houses bigger than this duty is only paid on a quarter of the total value of the house plus the site or on the site value only. In practice a new house must cost approximately €760,000 for first-time buyers before this duty arises.

The Senator also referred to the issue of prosecutions and the tax amnesty. As Minister for Finance I have done more to combat tax evasion than any previous holder of the office. I have provided powers to the Revenue in the Finance Act 1999 and in later years, which have facilitated the collection of over €1billion in tax interest and penalties through the various investigations carried out by the Revenue in recent years. Revenue powers have recently been reviewed by the Revenue powers group and I will be receiving its recommendations in the context of the 2005 Finance Bill.

The Senator called for the introduction of a €2,000 annual tax credit for relief to amateur sportspersons. This proposal was discussed at length in the Dáil on both Committee and Report Stages where I made my views clear. This proposal of a tax credit for relief to amateur sportspersons has been promoted by the Gaelic Players' Association whose members are not paid in respect of their direct participation in the games. In effect it means that the taxpayer should subsidise the Gaelic players when their own governing body is unwilling to do so. This is the nub of the matter. Furthermore, the proposed tax credit of €2,000 per annum per sportsperson is more than the total tax credit available to a non-PAYE single person, which stands at €1520 while a PAYE tax credit of €1040 is almost half of what the GPA propose to be granted to a select group of players. A tax credit of €2,000 is the equivalent of exempting €10,000 of income from tax for a standard rate taxpayer and is hardly justifiable in the circumstances. For these reasons as well as the inevitable consequences that the introduction of this credit would lead to other categories of individuals who give of their time and incur expenses in a wide variety of community, youth and other voluntary work demanding a similar credit on equally supportable grounds, I cannot agree to this proposal.

The extension of the urban and town renewal schemes is intended to provide for an orderly winding down of the schemes. I received numerous representations from across the political spectrum, including Members of the Opposition, urging me to extend the deadline for such schemes. All the extensions are subject to conditions which will limit the number of projects that can avail of the extensions. For example, the urban renewal scheme must have incurred 15% of the total project costs under the scheme by 30 June 2003. Furthermore, these schemes are also based in integrated area plans which set out the plans of relevant local authorities which deal with the redevelopment of these often deprived areas from an economic, social and community point of view.

Senator Browne referred to capping the level at which an individual may claim certain reliefs and allowances. The Senator may be interested to learn that in the budget of 1998 I introduced a cap of €31,750 in relation to an amount that an individual passive investor can offset against non-rental income. Any unrelieved allowances can be carried forward for offset against the individual's rental income. Other relief schemes, such as the business expansion scheme and the film relief scheme, also have a limit of €31,750 which individual investors can set off against their general income. The placing of additional limitations on the setting-off of income from such schemes is not something I would favour as it may limit the effectiveness of these schemes in providing the economic and social benefits to the areas concerned.

A number of Senators, including Senator McDowell, referred to the issue of tax expenditures and tax incentives. There is no doubt that tax reliefs and incentives can be very effective. The evidence of this is for all to see in the shape of significant developments, regenerations and improvements. The question which has to be posed on a regular basis, not least by myself, is whether such reliefs continue to be as necessary in the current situation when we have lowered tax rates so significantly in the past seven years. In other words, when rates are brought down, does the tax base need to be broadened or at least, stabilised, in order to protect the flow of revenue to the Exchequer?

There is another prong to this theory, namely that when one lowers tax rates, the incentive to shelter from the Revenue Commissioners should be similarly reduced. Regardless of the theory, the hard reality is that there will always be an understandable inclination among certain taxpayers to try to reduce their tax liabilities. This has proven true despite the reductions in the rates of income tax and corporation tax. It has been acknowledged the world over. One has only to observe the debate about tax evasion in the United States, hardly a high tax economy, to have an understanding of the complexities surrounding this issue.

In Ireland, Ministers for Finance of all political hues have recognised this and have for many decades accommodated this by introducing tax incentive schemes in order to harness the inclination so that it will be put to some use for the wider economy. I have spoken before about my experiences of the end of the tax year rush to participate in certain schemes in order to reduce the tax being paid regardless of the merits or otherwise of the scheme in question.

In my time as Minister for Finance, I too have introduced a number of incentive schemes. I have also abolished a number and amended, clarified or curtailed others. I believe that in order for tax incentives to be effective, we must have people who are paying tax and are prepared to invest. Tax expenditures reduce the tax base and it is, by and large, higher earners who avail of them. As with most things in life, the issue is one of balance. We need to strike a balance between encouraging higher earners to avail of tax incentives in order to meet a need in our economy or society and the cost of this.

I thank Senators for their contributions to the debate and I look forward to Committee Stage tomorrow which will offer an opportunity for more detailed discussion.

Question put.
The Seanad divided: Tá, 27; Níl, 15.

  • Bohan, Eddie.
  • Brady, Cyprian.
  • Brennan, Michael.
  • Callanan, Peter.
  • Cox, Margaret.
  • Daly, Brendan.
  • Dardis, John.
  • Dooley, Timmy.
  • Feeney, Geraldine.
  • Fitzgerald, Liam.
  • Glynn, Camillus.
  • Kenneally, Brendan.
  • Kett, Tony.
  • Kitt, Michael P.
  • Leyden, Terry.
  • Mansergh, Martin.
  • Minihan, John.
  • Mooney, Paschal C.
  • Morrissey, Tom.
  • Moylan, Pat.
  • O’Brien, Francis.
  • Ó Murchú, Labhrás.
  • O’Rourke, Mary.
  • Scanlon, Eamon.
  • Walsh, Jim.
  • White, Mary M.
  • Wilson, Diarmuid.


  • Bradford, Paul.
  • Browne, Fergal.
  • Burke, Paddy.
  • Burke, Ulick.
  • Coghlan, Paul.
  • Coonan, Noel.
  • Cummins, Maurice.
  • Feighan, Frank.
  • Finucane, Michael.
  • Hayes, Brian.
  • Henry, Mary.
  • McDowell, Derek.
  • Norris, David.
  • Ryan, Brendan.
  • Terry, Sheila.
Tellers: Tá, Senators Minihan and Moylan; Níl, Senators U. Burke and McDowell.
Question declared carried.
Committee Stage ordered for Wednesday, 24 March 2004.

When is it proposed to sit again?

Tomorrow at 10.30 a.m.

The Seanad adjourned at 8.30 p.m. until10.30 a.m. on Wednesday, 24 March 2004.