I would draw the attention of the House to the fact that, pursuant to an Order made last Tuesday, I will be calling on the Minister for Finance at 6 p.m. to conclude on items Nos. 21 and 22 and at 6.45 p.m. I will be putting the question to bring the Second Stage of item No. 21 to a conclusion and to bring item No. 22, Financial Resolutions, to a conclusion.
Finance Bill, 1986: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time."
My first duty is to welcome you back, as our Leader did, I am glad to see you so well after your trip to Australia and hope that it will bring many Australian visitors to Ireland this year.
Thanks, Deputy. The delegation did their best and I am very grateful for the warm welcome. I hope it augurs well for great cooperation during the remainder of the year.
I understand the Speaker there was very kind to the Opposition. I trust you noticed that.
When he says he is going to the next question, he goes.
(Interruptions.)
Before the debate adjourned last Thursday I was speaking about motor taxation and county roads. The allocation for these roads is very disappointing. Sligo County Council are to be allocated £418,000, an inadequate sum to maintain the 1,428 miles of county roads in the area. The condition of county roads throughout the country is a national disgrace. It is almost impossible to travel by car on a number of such roads in County Sligo. VAT, excise duty, tax on motor vehicles and all other kinds of tax bring in £800 million, yet Sligo County Council are given an allocation of only £418,000. Such a very small allocation means that it will not be possible to maintain these roads.
Regarding national primary roads, an application was made by Sligo County Council for £150,000 for a by-pass in Tubbercurry but only £50,000 was granted. We are short £100,000 for this project which has been going on for a number of years. The last money granted for it was granted by a Fianna Fáil Government. When allocating money the Government should give an adequate amount to complete the job. Work has begun on a number of these roads in my county but the money has run out after, perhaps, half a mile or less and these roads may be left in a dangerous condition due to inability to complete the works. An application was made for a considerable amount of money for the Curry-Bellaghy by-pass but only £300,000 was allocated this year. That is a totally inadequate amount in terms of purchasing the required land and making a new road. We are not getting the moneys we need to keep the national primary roads in the west up to the standards required for this day and age and when there are so many heavy vehicles from Europe using our roads.
For a number of years there has been controversy regarding the building of a third bridge in Sligo. In 1982 Fine Gael people in Sligo were saying that the blame for the delay rested with Fianna Fáil. Now we are well into 1986, so one must ask whose fault it is that work on this bridge has not been started. This year there has been an allocation of £800,000 for the approach road from Collooney and for some work on the bridge to be undertaken. The total estimate in respect of that approach road from Collooney and for the bridge is about £7 million. Therefore, an allocation of £800,000 will not go very far in that regard. It is time a realistic allocation was made to every local authority to enable them to maintain our county roads. This should be possible in the context of falling oil prices and based on the statements made by the Minister for Finance on radio this morning. In addition, there is the factor that we pay the highest road tax in Europe and also that the Government "take" in respect of new cars is of a higher percentage than is the case in any other European country. In addition, we pay very high VAT charges.
I was very pleased to hear our spokesman on agriculture endeavour to raise today the question of the numbers of cattle that are dying in Sligo and Leitrim as a result of the poor fodder of last winter. The amounts of money allocated under the feed voucher scheme to alleviate the hardship in this respect was very inadequate. Farmers who applied for aid under that scheme did not receive any help if the farm development services people decided that the applicant had 75 per cent of his feed requirements. The question of the quality of the feed this year was not taken into account in assessing those applications. Last year silage was made mostly in the month of September, but also in October, when normally it would be made in the months of June or July. That meant that the quality of the feed was very poor. The Government, and the Minister for Agriculture particularly, must now take the blame for the number of cattle deaths in both Sligo and Leitrim.
County Cavan can be included also.
I am sure Deputy Wilson will refer to this problem as it affects County Cavan.
I have mentioned it already and am endeavouring to raise the matter on the Adjournment.
The Deputy who is due to speak next from the other side of the House may tell us about the allocations in respect of county roads in Cork, but whatever the story may be so far as that county is concerned the blame rests with the Government for the state of our county roads generally.
In 1974 I was working in the GWI factory in Collooney, where there were then 400 people employed, but that factory has since gone to the wall. When the present Minister for Finance was in charge of industry representations were made to him in the interest of saving the last 110 jobs there, but unfortunately help was not forthcoming and the jobs were lost. The Minister should reconsider that matter.
When I spoke last I expressed a welcome for the social employment scheme on the basis that, while it does not provide full time jobs, it gives at least some encouragement to the long term unemployed. While I welcome the announcement recently that married men participating in this scheme are to receive an increase in remuneration from £70 to £85, I submit that a similar level of remuneration should be granted to single men participating in the scheme. Perhaps the rate for both married and single men might be increased to £90. In the case of a single man some of the money is returned to the Exchequer by way of taxation. The scheme is very important in the sense that it gives to those participating in it an opportunity once again to return to work, even if only for a few days per week. I suggest that any money we save this year by way of reduced oil prices should be allocated to giving a little more to the unemployed.
On the last occasion, too, I spoke about emigration, and I wonder how many people have left Ireland in the meantime. I know of a few personally. Emigration is rampant again along the western seaboard. Our people go away because they have no wish to hang around without jobs. There was mass emigration from the west in the fifties, but many of those people returned. It is sad now that their children are finding it necessary to emigrate. The Government must make much greater efforts to create jobs for our young people. As a member of the North Western Health Board the Minister of State at the Department of Agriculture, Deputy Connaughton will be aware that there are drastic cutbacks in that health board area. I have heard of an elderly person who has been informed that he will now be expected to make a contribution towards the cost of a home help. This is the first time that I have heard of any charge for this service.
The Deputy is moving away from the Finance Bill.
Listen, a Leas-Cheann Comhairle——
The Deputy should listen to me. He is attempting to refer to matters that have no relevance to taxation, which is what the Bill is all about. While I appreciate his concern, he is out of order.
Are cutbacks in the health services not relevant to the Government's financial policies?
They would be relevant to an Estimate for the Department of Health, but we are dealing here with taxation proposals. The Chair would appreciate the Deputy's cooperation.
I could go on about many things which have been increased, such as the big increase in ESB charges last week.
You will not go on.
Considering the amount of money we are paying in VAT, motor taxation and excise duties, it is time once again that the Minister made a substantial increase in the allocation for roads. I feel very strongly about the amount of money which is made available to agriculture. That is why so many of our cattle are dying at present. Agriculture is at a cross roads. The Minister for Agriculture is in Luxembourg negotiating for our farmers. I hope he comes back with a good package particularly for the farmers in the west who depend so much on their small farms. Today more than ever we depend on our small farms. Once upon a time you could subsidise your small farm by getting a job. Unfortunately, it is very hard to get a job in the west today. I hope, as I have said, that the Minister comes back with a good package, or else with no package at all, for the farmers of the west.
In view of the fact that the debate is concluding at 6 p.m., I should like to remind all concerned that if the Minister of State, Deputy Doyle, is offering the order of speakers will be: the Minister of State, Deputy Doyle, Deputy Wilson, Deputy O'Malley and Deputy Sheehan.
I was ready to speak on behalf of my party. I got orders to be their speaker today.
The Chair has no control over that. I have to call the Minister of State as she takes precedence
I apologise to Deputy Sheehan but the Whips are quite clear, and have been since last week, about this order. I understand exactly what position it is putting us into.
Deputy Sheehan was in the House the last day.
I accept that fully.
I was trying to pull a fast one on Deputy Brennan.
I was entitled to speak the last day after Deputy Brennan.
Can Deputy Sheehan speak after Deputy Wilson?
I do not know at the moment. With the conclusion of the debate at 6 p.m. I am endeavouring to get Deputy O'Malley in also.
The order I suggest is, the Minister of State, Deputy Wilson, Deputy O'Malley and then Deputy Sheehan. It is up to the Deputies concerned to show their concern to get everyone else in by the brevity of their contributions.
On a point of order, last Thursday evening Deputy Sheehan and I were the only two Deputies in the House.
Deputy Wilson was hovering in the background.
And Deputy Wilson was here behind me.
If the Minister of State is offering, I must call her. I am sorry Deputy Sheehan.
I do so with great reluctance because I understood the Whips had this resolved and I apologise for any inconvenience. I will be as brief as I can and I urge you to try to accommodate Deputy Sheehan before 6 p.m.
I am urging all the Deputies to co-operate with the Chair so that we can get them all in.
There can be little doubt that the publication of the 1986 Finance Bill three weeks ago was an important attempt at giving the economy a boost as outlined in the most recent budget. The Minister while speaking in this debate last Tuesday pointed to the fact that for the first time in several years the Irish economy shows signs of improving. The steep fall in energy prices and the low rate of inflation have both contributed to this positive outlook for the economy. With the possibility of an upturn in economic activity in the near future, it is only fitting that a package of tax incentives aimed at encouraging savers and investors to move their funds into productive investment, at the rewarding of managerial initiative and at the promotion of research and product development should be introduced at this point in time so that the industrial and service sectors of the economy will be better prepared to benefit from the greater opportunities in a revitalised economy.
Profit-sharing schemes which are dealt with in section 8 of this Bill are given further encouragement in line with that given in the 1982 and 1984 Finance Acts. Provision was made in the 1982 Act for employees to receive shares to the value of £1,000 tax-free in any one year. Subsequently, in 1984 the value of shares which an employee could receive was increased to £5,000. The situation will now be further improved by means of the 1986 Act to the extent that the minimum retention period in order to avoid an income tax charge will be reduced from seven to five years and also there will be no stamp duty on the first sale of these shares. By having a stake in the business in which they work, employees will have a greater commitment and incentive to ensuring that their firm is efficient. In the UK in 1979 there were a mere 30 employee profit sharing schemes but by 1985, with much Government encouragement, there are over 1,000 covering 1.5 million workers. Most workers in Japan receive about 25 per cent of their total pay in the form of a bonus with strong profit-sharing overtones.
In Ireland at present there are 14-16 profit sharing schemes registered with the Revenue Commissioners with another possible 30 in preparation. This figure seems very insignificant, but two factors must be taken into account. First these schemes were established after the tax concessions provided in the 1982 Act so it is early days yet. Secondly, the schemes cover approximately 15,000 to 20,000 people but much more significantly those companies include some major employers, for example Waterford Glass, Bank of Ireland, Guinness and Carrolls. A promising outcome is that many multinational companies have shown a keen interest in these types of schemes and as more schemes come into operation it could be one factor to encourage further foreign investment as US and Japanese firms place a heavy emphasis on profit sharing schemes.
Persuading workers and companies to fundamentally change the way labour is paid will not be easy but it is the hope of many like myself that when both partners see the favourable tax treatment of profit-sharing schemes they will be prepared to participate. Provisions in the 1986 Act allied to those of previous years confirm the Government's commitment to profit sharing as a means of ensuring the success of Irish industry as well as the prosperity of Irish workers.
Section 7 of the Bill rewards managerial initiative and expertise as any benefit derived by a director or key executive from the granting of an option, that is, to acquire any asset including shares in a company, will not be taxable until it is actually exercised. It is imperative that by means of incentives like these executives with the necessary skills are retained in Ireland to assist in the development of business and the creation of jobs.
A major new innovative measure in this Bill is the encouragement it gives people to move part of their deposit funds and other under-utilised resources into productive investment. Therefore, it is a welcome move that the tax payable on the first £13,000 of dividend income from manufacturing companies will be reduced to 25 per cent as against 35 per cent charged on deposit interest. Also an individual who subscribes for shares in an Irish company engaged in research and development will obtain tax relief on condition that the shares are retained for a minimum of five years or for the length of the R and A project if less than five years. In France, since the "MONORY" system was introduced in 1977 which allows French citizens to invest a portion of their income on the stock market and offset it against tax, the number of individuals investing in shares has more than doubled. In 1977, 7 per cent of the population invested in shares while by 1982 it had risen to 17 per cent although it has since fallen under the Mitterrand Government. The number of individuals owning shares in the US has risen to 19 per cent during the Reagan years and it is interesting to note that women now make up the majority of new investors. Other figures for the percentage of the population owning shares are Sweden 20 per cent and Germany 17 per cent. While no actual figure is available for Ireland it is thought that considerably less than 5 per cent of the population own shares. Hopefully these new incentives for ordinary investors will encourage more and more people to have a direct stake in Irish industry by means of being share-owners.
Just to take up the subject of research and development for a moment, from many deliberations while working with the small businesses committee, a very successful committee chaired by my very able constituency colleague, there is a decided lack of awareness of the impact of technology on product development across Irish Industry. This is underlined by the fact that total R and A expenditure represents 0.32 per cent of gross domestic product in Ireland compared with 1.31 per cent in Sweden, 1.67 per cent in Switzerland and 1.56 per cent in the US. This is a cause for concern as Ireland being an open economy, as such is open to competition. As the First Report on Manufacturing Industry of the small businesses committee states:
Irish Companies whether they are exporting or not, must be fully aware of the changes in competitors products in the international market place. Companies which are not actively examining changes overseas will find themselves vulnerable to competition both at home and abroad.
In this context I have spoken before in this House about the need for co-operation in technological activity at national level between State agencies, industry and the higher education institutions. Universities in the US play a crucial role in industrial development. Expertise in Irish universities must be harnessed by industry in a similar way. Experiments like the Industrial Support Foundation taking place in the Limerick area which links higher education in the guise of the NIHE and various companies on the Shannon Industrial Estate are to be commended and should provide impetus for further experiments. Both at third level and second level education innovative thinking and a positive attitude to risktaking must be encouraged. Many believe as I do that one way of solving the awful problem of unemployment from which stems so many of our social problems at the moment is the encouragment of small businesses. Therefore, any attempt through the educational system to foster this awareness and improve our expertise in R and D for the benefit of small businesses is to be commended. Another related factor mentioned in the report and one which I think needs to be emphasised again is the question of quality control. The Irish Quality Control Association's national survey on attitudes to quality carried out in July of last year and involving 2,000 interviewees revealed that the majority of people regard quality as the most important feature when purchasing. It seems a shame if after all the effort put into R and D that a product should fail because of quality. Therefore, a successful small business is not merely a good idea, rather it is a combination of good marketing, R and D and good quality.
It is not surprising that after what I have said up to now I am delighted that the Minister has seen fit to extend the business development scheme which was introduced initially in 1984 for three years. Because of the Minister's action the scheme will now continue until 1991. Despite much criticism following its introduction in 1984 because of what was seen to be an array of complexities in the legislation the scheme is now showing signs of becoming a great success in the future. By January 1986 the scheme had raised more than £5 million for some 38 companies. The Industry Minister reported only a week or so ago that a further £5 million has been approved by the Revenue Commissioners for a total of 53 companies. This points to the developing interest in the scheme which has attracted investment in an extraordinary range of companies. There are two distinctive ways of getting involved in the business development scheme. Investments can be made directly into companies which are approved by the Revenue Commissioners or alternatively the money can be invested through designated funds which have been set up specifically for the individual company. The best publicised project to benefit from the scheme so far is the film production company Strongbow which is having a great success with its first feature film "Eat the Peach". In a 13 month period the Strongbow company succeeded in raising approximately £1.5 million under the business development scheme.
The range of companies who have availed of the scheme is astonishing — from lock makers to computer software to shoe makers. As the scheme continues there have been calls for refinements, for example, some of the designated funds find the need to make their investments before the end of the tax year in order to obtain the benefits of the scheme, somewhat restrictive. It is generally agreed at the moment that if an increase in employment is to be achieved the formation and nurturing of small business is essential. Of course it is much more difficult to actually do that in practice but one must take heart from the general success of the business development scheme which after some initial hiccups is beginning to look as if it could be a very major scheme for assisting in the establishment of viable small firms in the future.
The Ministers decision to give encouragement to the development of the newly-founded smaller companies market of the Irish Stock Exchange is an important one for the long term well-being of the small businesses sector of the Irish economy. A special category of the capital gains tax will be created for investors in these kinds of companies on the Stock Exchange. For a three-year period, the gains on shares traded in this market will be taxed at the rate of 30 per cent regardless of the length of time the shares were held. Many have complained that the Irish Stock Exchange has been concentrated around a small number of "blue chip" stock and speculative oil exploration shares. With that in mind the small businesses committee while looking at manufacturing industry recommended that:
The Stock Exchange should reassess its criteria to allow for "Small Business Stocks" in the case of companies seeking to raise funds at a lower level than that which now prevails.
While the number of shares quoted on the exchange has dwindled over the past decade, this year there are signs of improvement. In the early seventies over 100 companies had their shares quoted. This number is now down to 48 with a further 16 being quoted under the unlisted securities market. Already this year two new issues have come on the market; Wardell Roberts and Norish, while others are in the pipeline such as Jury's Hotel Group and Kerry Co-op. It was very interesting to read in to-day's Irish Press that the public has oversubscribed by 6.5 times for the Jury shares. I hope this argurs well for this type of investment in the future and for the involvement of the public generally in productive investment.
The smaller companies market is designed, as the small businesses committee recommended, to encourage further companies to seek a quotation for their shares at a much lower cost than being on the unlisted securities market or the main market. This new market was launched in January and it has yet to make its debut with an issue but my hope is that that will change, given encouragement by the Government, the Stock Exchange, CII and other interested parties. The market capitalisation of Irish publicly quoted shares represents only 10 per cent of national output compared with 50 per cent in the UK and the USA. The smaller companies market is a great opportunity to change this situation while at the same time offering these small businesses a great chance to obtain additional funds to help them in further expansion and development.
As many like myself who have practised what they preach, who encourage small businesses at every available opportunity, know, finance is one of the major obstacles to any new venture becoming a profitable business. Often these businesses experience difficulty in raising loan finance may be because they lack a track record with a bank. Even so, those firms that are successful have in the majority of cases the wrong mix consisting in the average case of 30 per cent equity and 70 per cent borrowed money. Various measures which I have highlighted previously in my speech, for example the BDS, relief for R and D, encouragement for shareholders in manufacturing industry, small companies market in the Stock Exchange can provide a means to broaden and strengthen the equity base of small manufacturing industry in this country. It is time for the financial institutions to encourage this climate of entrepreneurship by setting up funds similar to those of the BDS. On the other hand a change in attitude on behalf of many owners of small businesses is necessary. Many are reluctant to part with "their" company and would prefer to own 100 per cent of an unsuccessful company rather than own 40 per cent of a very successful company, as has been said before in this House. These provisions offer an opportunity to get away from the "us"versus“them” mentality that is prevalent in the country; the employer versus the worker, the big financial institutions versus the small businessman. By encouraging enterprise this Finance Bill, for those who take advantage of it, offers them a chance to acquire a feeling of direct participation and involvement in the wealth of the nation.
Turning to the important subject of tourism, there are few who would argue over the importance of this sector to the economy and to economic activity. The third report of the small businesses committee, on tourism, catering and leisure, sets out the key issues affecting this sector, for example, lack of planning, competitiveness and standards that need to be tackled if Ireland is to obtain an increasing proportion of the growing international tourism market. In this context I am delighted that the Minister has seen fit to reduce the rate of VAT on meals in restaurants and hotels from 23 per cent to 10 per cent, this being a major recommendation of the report.
Restaurants and hotel dining rooms have a major role to play in the tourist industry. Bord Fáilte figures for 1984 showed that 55 per cent of overseas visitors used restaurants and 41 per cent used dining rooms. Like other sectors, restaurants are suffering from the twin effects of declining disposable incomes and increasing costs. Thus the lower VAT rate gives them an opportunity to increase their already slender profit margins while providing a major boost to their business. However, I appeal to all tourist interests to ensure that some of this reduction in VAT is reflected in the cross-counter price.
Another major recommendation in the report was an increase in refurbishment grants for tourism hotels. Therefore, the grants introduced last October point to the Government's commitment to help the hotel sector which has had many difficulties in recent years. A major proviso of the new grants is that refurbishment work should consist of labour-intensive work. The grant is provided for 20 per cent of the cost of reconstruction, 25 per cent if the facilities cater for disabled persons.
There are two categories of reconstruction work eligible: improvements to hotel premises and improvements to hotel facilities, such as all-weather facilities, sauna, swimming pools and so on. There was an allocation of £2 million for these grants in 1986 and the maximum grant available to any one hotel is £30,000. The Department of Tourism are very happy with the interest shown in the scheme so far and hope it will be continued in 1987. At present there have been 59 approvals for grants and 100 are in the pipeline, which is very promising when one takes into account that the majority of renovation work in hotels would be done after the peak season in the summer. I am sure these two measures will give an impetus to the tourism sector in Ireland and thereby make a significant contribution to the development of the economy as a whole.
As a Minister of State whose responsibility includes areas of the Department of the Environment, I think it is important that I mention some grant schemes which have been introduced in an effort to boost activity in the very depressed construction industry. As the very fine report of the small businesses committee on the construction industry pointed out, Ireland differs from most countries in Europe in the lack of priority given to the renovation, improvement and preservation of existing buildings. The condition of parts of central Dublin illustrate all too clearly that by neglecting such investment, decay and dereliction become all too rampant not only affecting the state of buildings. It also results in declining business, increased crime, reflecting some of the major social problems of today and negative implications for the tourism sector, our third largest generator of foreign earnings.
We in Ireland have failed to understand fully the major contribution that an attractive urban environment can make to successful tourism. With this in mind I am wholly in favour of the sections of this Bill which deal with urban renewal and are a means to implement the tax reliefs referred to in the Taoiseach's statement of 23 October concerning the redevelopment of the Custom House docks area and certain other designated inner city areas in Dublin, Cork and Limerick. These reliefs are also being extended to designated areas in Waterford and Galway. The incentives involved include a 50 per cent capital allowance for commercial development; double rent allowances offset against tax; a 5 per cent tax allowance on the purchase price of private dwellings to apply annually for ten years. These incentives are welcome and long overdue. Thus they deserve the encouragement of all in this House who seek the renewal of our inner cities.
Later this week, the Urban Renewal Bill will receive its Second Reading in this House. The provisions of that Bill, together with the provisions contained in sections 35 to 41 of the Finance Bill, represent a major step towards implementation of the measures announced by the Taoiseach last October relating to unemployment and taxation and the initiation of a special programme to secure the reconstruction and revitalisation of the inner areas of our five largest cities.
The relevant provisions of the Finance Bill provide for a range of taxation incentives for construction and reconstruction works carried out in the designated areas of the five county boroughs in the period between 23 October 1985 and 31 May 1989. The comprehensive range of incentives being provided is specifically designed to encourage private sector involvement on a large scale in the revitalisation of the inner areas of the five cities and the success of the scheme will depend largely on the response of developers and investors in taking up the incentives on offer.
The special financial incentives included in the Finance Bill are: (a) capital allowances for the construction or refurbishment of commercial buildings, including offices, shops, leisure and car parking facilities; (b) the granting of relief to lessors under section 23 of the Finance Act, 1981, for the provision of dwellings for letting in the Custom House docks area in Dublin; (c) the granting of a very generous relief to owner-occupiers for expenditure on the construction or refurbishment of dwellings; and (d) double rent relief for traders occupying newly constructed or refurbished buildings.
All these incentives taken together represent a generous package of taxation reliefs aimed at stimulating a positive response from the private sector and as the incentives will have a relatively short life span it is important that investors, builders and the construction industry should respond quickly to the incentives on offer.
My Department will monitor closely the operation of this scheme of incentives and will do all in their power to ensure its success. The managers of the five county boroughs have already been requested to promote their areas in order to achieve maximum results in terms of development and redevelopment in the inner city areas in question.
I will refer briefly to the new home improvement grants announced some months ago by my Department. At the moment some 67,000 applications have been received. They are coming in at the rate of 4,000 per week and, as can be appreciated, there could be a short delay in inspection and in approving grants. Be that as it may, it proves how attractive is the scheme and how, in conjunction with the urban renewal measures, it should result in more work for the construction sector, particularly for the smaller building contractor for whom labour-intensive activity is most suitable. In addition, these measures will also help towards combating the invidious black economy in the construction industry. It will also have the beneficial effect of preserving our secondhand housing stock for the future.
I will turn to the subject of agriculture and speak a little about the implications of last Thursday's vote in the European Parliament. As we know, there have been proposals by the European Commission to reform the CAP in the European Community in an effort to alleviate the EC's budgetary crisis and reduce farm surpluses. The Minister for Agriculture told this House on March 20 that these proposals "could cost Ireland at least £150 million if pushed through in their present form". It is, therefore, with the greatest of concern for the well-being of Irish agriculture that the vote of the European Parliament for a set of price proposals even together than those of the Commission, is viewed. The vote gives some "moral" support to the Farm Commissioner in his negotiations with the Council of Ministers this week in Luxembourg. We must all hope that the new French Minister of Agriculture will maintain his stance stated at a meeting of EC Ministers on March 24 for a 4 per cent farm price increase and his strong opposition to any proposals that would alter the basic principles of the CAP. If Europe was to mean anything to Irish farmers it was that agricultural production must be based in countries of greatest natural advantage. Our Minister deserves the support of all in this House, in the farming organisations and the country as a whole in the task before him of convincing our Community partners of the concessions that must be made to Ireland.
Of those sections of the Finance Bill dealing with agriculture I must commend the decision to extend for another year, from next October, the exemption from stamp duty on voluntary transfers of agricultural land where the person receiving the land is under the age of 30 years and has completed an appropriate training course. We have extended the hours of training necessary from 100 hours to 150 hours and I hope that ACOT will be able to accommodate this, albeit at short notice. This scheme has proved to be very popular and has the full backing of the farming organisations. The injection of young blood into the farm industry is a welcome move and one which ensures that the ownership or management of our agricultural land is in the hands of those best fitted to work it and to produce from it what the market demands.
It has been said that a people without a cultural heritage is like a man without a name and therefore devoid of an identity. There are differing opinions as to what constitutes the heritage but surely no one's image of Ireland is complete without its abbeys and castles, round towers and Celtic crosses, Killarney and Connemara. It is a particular pleasure for me to have it as one of my responsibilities to oversee the activities of the Commissioners of Public Works under the parks and national monuments heading. The commissioners have in their care some of the brightest jewels of both the built and natural heritage and I will be taking a special interest in their programme of work in the conservation and interpretation of those properties.
There is, of course, a close link between this programme and the functions of the Department of the Environment for which I also have responsibility. Our environment is now more at risk than at any time in history. Economic growth and modern technology have given man the ability to destroy his environment at an unprecedented rate. The planners have an important role in trying to regulate economic growth so as to minimise its impact on the environment. The commissioners main job is to acquire the very special buildings and places and to conserve them free from exploitation and damage for this and for future generations. In recent years they have seen the need to widen the scope of their activities and they are now actively involved in the field of interpretation. They have also stepped up the pace of archaeological survey, one of the principal objectives of which is to advise the planning authorities and other organisations involved in environmental change of the items of our built or man-made heritage which should be preserved. It is about those two subjects that I wish to speak today.
"Interpretation" in this context has been defined as "an educational activity which aims to reveal meanings and relationships through the use of original objects, by first hand experience and by illustrative media, rather than simply to communicate factual information".
Recently I had the pleasure of making a visit to the magnificent Glenveagh National Park in County Donegal and seeing there the beautiful new visitor centre which is now nearing completion. The commissioners had the good sense to take advantage of the money provided by the EC special fund for Border areas to build this centre which will provide an ideal setting for the interpretation of national parks in general and of Glenveagh in particular. It will, I believe, be second to none in Europe.
Interpretation is the key to conservation and, as our Finance Bill underlines for us with its various considerations in this regard, the immediate aim of interpretation is provocation rather than instruction, a principle which Freeman Tilden regarded as the father of interpretation linked with another phrase "through interpretation, understanding; through understanding, appreciation; through appreciation, protection". Interpretation is worthless unless it motivates people to have a concern for their environment and heritage. A conservation message is a fundamental part of interpretation.
In conclusion, it was well documented that tourism is a major earner of foreign exchange as well as having major links with many industries throughout the economy. The Government's measures in this sector are very welcome but much more is needed in order that at Government level it is no longer treated as the Cinderella within the overall national economic policy. Likewise, further measures will have to be taken within the constraints of Government expenditure to encourage the rehabilitation of our older buildings and our inner cities, thereby improving the environment we all live in. But the major aspect of the Finance Bill before us today is the attempt to provide for greater private investment in manufacturing industry. This type of investment is encouraged via the BDS, R and D, the smaller companies market on the stock exchange and, finally, a lower rate of capital gains tax which in time, I hope, will be brought into line with similar taxes in other EC countries. In the majority of cases in Europe the similar capital gains tax is lower or non-existent, thereby giving our competitors a decided advantage vis-àvis private investment in industry. There is no way that industry in Ireland will ever be able to attract the necessary equity funds which will lead to growth if the advantages from investing in Government bonds and other forms of institutional savings far outstrip those of industry. Individuals and private institutions have the opportunity, through the incentives of this Bill, to make a choice. Therefore it is my hope that many in the future will look upon investment in industry in a far more favourable light than before. That is good news for industry, small business, the economy and ultimately the nation as a whole.
The Minister, Deputy Bruton, said "there is a new optimism in the economy". I thought I heard that before on a Finance Bill and I checked the budget speech made by Deputy Alan Dukes on 30 January 1985, and we find there a new optimism as well. His purpose was to improve the environment for increasing employment. He said that although it was projected that, given moderation in pay developments, employment should begin to pick up this year, special Government measures would be needed to stop the growth in unemployment. The optimism that we heard from Minister Dukes in 1985 is echoed by his successor, Deputy Bruton, in 1986.
The House will be pardoned for being a little dubious and a little cynical about those messages of optimism at the beginning of the year which are not backed up by reality as the year goes on. We have had, in recent years, an unparalleled drop in oil prices. The Economist used to quote light Arabian Crude spot as the standard at about $28 12 months ago and it has dropped, using North Sea Brent as the standard, to about $12—it dropped down to $10 and even below at one time. Consequently that huge amount of money that was lifted straight out of our economy and placed in the economy of the Middle East or Britain or Norway is available and should be available to encourage investment both private and governmental and impact on employment which was the major objective of Deputy Dukes's budget last year and which remains a major objective because there has not been any success in that field. When, by direct Government action, will the benefits of this reduction in oil prices be allowed to trickle down, to seep through to the various sectors of our economy without having penal taxes or excise duties imposed by the Government in office?
Inflation has also been referred to and some credit taken by the administration for the drop in inflation. There has been a drop in inflation. The two major impacts on inflation were in 1973 with a much greater and more serious one in 1979 when there was a big boost because of the oil boost at that time. The drop in oil prices now has enabled the consumer price index to drop and, in our contention, it should have dropped still more. It is my opinion that the drop in inflation on its own is worthless as a stimulus to the economy. Anybody who studied the economic history of the thirties would know that a £1 in 1939 would buy more than a £1 at the beginning of the thirties, at least before the big Wall Street crash. But the sad thing was that there was no developmental philosophy until Keynes came along and while the pound would buy a good deal it was impossible to get a hold of the pound. The Government should take that into consideration when they are talking about the benefits of inflation. The benefits of inflation, if there is no developmental philosophy, will simply make people who are already employed a little bit better off and will leave the others either rotting in unemployment or, if they have the initiative—as many of them have at the moment—taking to the emigrant ships or the emigrant planes. We do not see any sursum corda in this Finance Bill. While we have a short sentence about optimism from the Minister, we do not have anything like the kind of developmental policies that we should have to justify this optimism or hope for the future.
I almost dislocate my jaws laughing when various Ministers, including the Minister with responsibility for the Office of Public Works, come here and talk about the benefits of the house improvement scheme. This should be impacting now on employment in the building and construction industry. I have some statistics to hand. As on 28 March 1986, there were 237,204 people on the register. In building, contracting and works of construction there are 48,000 people unemployed. These people have skills but no opportunity to deploy them because of a lack of a proper developmental plan. In the Central Statistics Office leaflet covering February 1986, dated 27 March 1986, it is estimated that the level of employment in building and construction firms with five or more persons engaged decreased by 2.9 per cent over January 1986, and fell by 10.9 per cent in the 12 months since February 1985. Will people stop trying to sell us this dummy that there are a few schemes which are bringing life back to the building and construction area, because it is simply not true. It is time we spoke the truth in this House, faced reality and demanded proper developmental schemes that will impact in this area.
I have here the statistics published by the Central Statistics Office giving tonnes of cement sold in 1983, 1984 and 1985. The average for 1983 was 115,200 tonnes, in 1984 it was 108,200 tonnes and in 1985 it was 102,800 tonnes. The situation is getting worse as time goes on. In December 1985 the figure was 66,900 tonnes as compared with 70,100 tonnes in 1984 and 80,500 tonnes in 1983. This shows that the figure has dropped from 80,500 tonnes in 1983 to 66,900 tonnes in 1985, a very substantial drop. In the face of the facts let us read the cement sales, read the unemployment figures in this industry, stop this codology and ask the Government, and this House, to do something practical and effective with regard to the building and construction industry.
We should look at the volume of retail sales and see what grounds there are for the optimism the Minister was talking about. I am referring to the volume of sales which is the only genuine touchstone because of the differences in prices. With a base of 100 in 1980, the average figure for 1985 was 91.8: this shows that from 1980 to the end of 1985 there was a drop of almost 10 per cent. I am not being cynical when I look askance at statements from the Minister for Finance about optimism and hopes for the future. According to the figures provided by the Central Statistics Office from January to December 1985 18 per cent of the work force were unemployed. At 28 March 1986, in round figures there were 237,204 people unemployed.
On a number of occasions in the past I spent some time talking about the European Monetary System, the desirability of having a petro-currency based on the EMS, the desirability of getting Britain involved in the EMS and so on. Some of the most influential economic journals are pushing very hard in that direction. It is not of such significance this year as it has been, but it may become very significant in the future.
I want to refer now to well placed policies for development which should be a priority. Some time ago Conniffe and Kennedy did a study on employment and unemployment in Ireland. I quoted it in this House on a number of occasions not because I regard it as something which has been brought down from the mountain, like the Decalogue but because in my opinion it was doing what we should be doing, namely, looking at employment and unemployment, the women content of unemployment, the increasing number of women in employment and the possibility of emigration. They dealt with a nil emigration figure, a middle percentage emigration figure and a higher percentage emigration figure, and drew conclusions with regard to employment and unemployment. But in my opinion they did something even more important — and I am not claiming infallibility for it — they made an attempt to point the way for developmental policies which would result in increased wealth and increase employment. That study got no attention in this House. It got a formal, cold sendoff note from the Government, but nobody addressed themselves to specific problems mentioned in that report. I dare say this report would have to be updated because emigration is now a reality and when they were carrying out that study it was not, but they were wise enough to see that it could be on the way and they set out three different scenarios. An updated version of that or some other study geared to the primary objective of the production of wealth and consequently of employment should engage the interest of Members of this House.
I mentioned oil and the drop in the price of oil. As the House will understand, coming from a Border constituency I have an interest in the price of petrol, diesel, etc. Just before I came into the House I rang a friend of mine in Blacklion, a village with just a bridge between it and Belcoo in County Fermanagh, and asked what the price of a gallon of petrol is at the moment in Belcoo. It is £2.10. If there was a filling station left in Blacklion — which there is not — the price there would be £2.85. Of course, this is a serious problem for traders along the Border. The Minister referred to what is happening along the Border. Everybody in the House knows about it and all the Deputies from all the parties from all the constituencies along the Border from Dundalk to the top of Inishowen have been shouting about it in this House. It has been taken on board at least statistically by the various Ministers, but sweet damn all has been done about it. I have talked about light Arabian crude, North Sea Brent etc., and it is all linked into that.
I come now to the retention tax, or DIRT as it has come to be called. People have been exercising their ingenuity in criticising and ridiculing it and talking about piggy banks being raided and the few bob taken from the children and so on. I want to address myself to one matter, taking it from pensioners and refunding it to them. If it will take a full 12 months to get a refund, many of those pensioners will be dead and the money which they should have got, which should never have been taken from them in the first place, will not be available even to bury them. I have had representations about this. People become over nervous perhaps about that period of their lives and about dying. In particular the more underprivileged are concerned to have a few £s around when they are dying so that they can escape the pauper's grave. Taking £35 out of £100 from pensioners — or £17.50 out of £50 which would be more or less the range I am talking about — is unpardonable and the Minister should not take it.
Can we get a definition of a charity? It is exercising the minds of many people as to what the technical definition of a charity is. These areas were mentioned which would be covered by the word "charity" in something issued by the Revenue Commissioners. I come from an area where funds were collected with difficulty by minority religions for various purposes, partícularly educational, recreational and social. I understand they will be exempt, but I would like to get confirmation of that from the Minister in his reply. What does this area cover? Does it cover social, recreational and educational funds? Does the word "charity" cover all those areas?
Although it seems to be used as a sledgehammer to crack a nut. I am pleased with the section of the Bill which covers the area of research and development. Quite regularly the OECD Observer gives us an indication of the percentage of our GNP, Government expenditure, or what have you spent on research and development. A small country very often has to wait for the results of research and development which can be very expensive coming from other countries. There is nothing wrong with that, and I am pleased that there is an effort to encourage research and development here. Sometimes in small scale research and development schemes in this country when something has been researched and developed the benefit goes out of the country. I have experience of two products in my constituency which were researched and developed by good applied scientists and in one case the benefit moved to Liverpool and in the other case to Newtownards in Northern Ireland.
An area which my constituents feel has been neglected by the Minister for Finance is adequate provision for investment in agriculture. A truism we hear regularly in this House is that our land and what we can get out of it are our greatest resource. Like many platitudes it is accepted and that is that. I mentioned the OECD Observer in another context a moment ago. Recently, Members of the House got an edition of it which indicated how comparatively rich we were even in acreage of arable land — for example, we have more than Japan has — but now we are not getting out of it what we should, nor are we investing in it what we should. We will have to deploy the investment and encourage development along other lines.
At times I am inclined to be critical of agricultural scientists who, for example, told farmers in a certain area — it is the wrong metaphor — to put all their eggs in one basket, to put all into dairy farming. There is no question about it, the development was needed, and dairying, to which encouragement was given, was the most suitable industry there. Now we have reached the super-levy and the end of the road in so far as quantity is concerned. Qualitatively we can still do better. We can get 50 cows to do what 75 had been doing by improving our techniques etc., and then land will be available for another type of development.
It is a disgrace that in my native village I see stacks of potatoes from the Netherlands piled up. That village can grow potatoes of far superior quality. I will not go into that. I have spoken about it in the House already. Frozen chipped potatoes to the value of £25 million should not be coming into this country. The type of potato I am talking about, the ware potato which we were accustomed to eat here, is not suitable for making chips and expensive mistakes were made in that line. Now we have done some research on that and we know that Dells and Pentland Dells are breeds of potato which will process well. Investment can go into that area and development which is being blocked in the dairying line, in the beef line where the danger is grave, and in the cereal area, can take place.
I will not deal with cattle dying and the fodder problem in my area because I have asked the Ceann Comhairle for premission to raise that on the Adjournment. I hope he will give me an opportunity to do so as it is very important.
The encouragement of indigenous investment in the Finance Bill is welcome. I will not exult in the removal of the 1 per cent income levy. Of course I am glad it has happened, but it is like someone banging your head against a wall: you are grateful when it stops. In the term of the previous Minister VAT was raised and lowered and he looked for plaudits for doing so. The 1 per cent levy was supposed to be temporary, but it lasted a long time, and we are now supposed to be delighted at its removal.
The new child benefit scheme is used in all kinds of illegitimate areas for justifying Government action. The middle income couple with a large family pay for everything and, although they got an increased tax allowance, the new child benefit scheme is no good to them after a certain stage. To say that you can justify the removal of subsidies from milk, butter and other foods is no consolation to a person who will not benefit. There is no point in pretending that the new child benefit will adjust the inequities in regard to those who have to pay for medical treatment for themselves and their children.
The date for the implementation of social welfare benefits should be brought forward. I wish to commend the Minister's announcement regarding increased share ownership. He said that section 8 would reduce the qualifying period for full tax relief from seven years to five years — in other words, by holding the shares for five years a person could benefit, which is desirable.
Section 10 deals with the full rates of income tax on dividends paid out of the income of companies qualifying for the 10 per cent rate of corporation tax. That is a move in the right direction. I do not know if it will have the desired effect, but the country is crying out for investment and perhaps that will help. I should like the Minister to publish a list of companies which qualify for that relief. I have already mentioned the retention tax and I will not go over it again. However, the Minister has not justified the most glaring examples of inequity following from it. I know that the banks had been jabbering about the advantages which the building societies had and I suppose the introduction of this tax was to make the tax more equitable between the two groups. Some people seem to think that there will be a greater element of confidentiality in the banking business as a result of the tax and that there will be considerable advantages. Needless to say, I do not have any great funds for investment, but many people complained over the years that there was not sufficient confidentiality in regard to banks and that people who were exempt from tax here because they were living in other countries did not have confidentiality in regard to their transactions with the Irish banks because of the system or the income tax authorities. They felt very aggrieved by this. The Minister felt he had to defend himself against a charge of double taxation in regard to the retention tax and he said that interest had always been subject to tax. That is a partial truth because individual amounts up to £50 were free of tax. That is concealment of the truth rather than a direct falsity.
At present modest sums of money in banking and other institutions which are subject to tax can deprive a person of a non-contributory old age pension. I see such people in my clinics. They have saved a couple of thousand pounds, many of them living very frugally to do so in order to make themselves feel secure. What will happen in future in that regard? Will the money which they have in financial institutions have to be revealed resulting in the non-payment of the contributory old age pension? Perhaps the Minister for Finance or the Minister for Social Welfare will make a statement in that regard. I am very pleased that the black economy will be taxed. After all, the money he or she makes will have to be lodged somewhere. If income tax is paid on that money, it is to the benefit of the Exchequer and, if proper use is made of the money, it will also be to the benefit of the people.
I recall with some pride that the announcement to develop the inner city was made after I had put down a motion asking for development of the Dublin docks area. In particular, I called for residential and office development, the development of manufacturing industry and sporting and recreational facilities. I am glad that something is being done about this and that there is a provision in the Bill to deal with it. I note that a special Bill has been published about such development. There is a marvellous opportunity here for an overall plan and it is important that architects and planners of distinction and taste should be in on this project. The publications of Mr. Beard with regard to the development of the London docks area are of interest in this regard and we may have an opportunity of debating them in the House shortly. With good planning and design and a proper mixture this money will be well spent. I am aware that there has been an invitation for private investment, as well as public investment, and I am sure the House will not suffer from any ideological hang-ups on that provided the project gets under way.
With regard to home improvement grants — they were referred to by the Minister of State at the Department of Finance earlier — I should like to reject the claims being made for that scheme. We have heard the figure of 3,000 jobs but that is stercus taurinum. There is not any such development and the statistics I have quoted from the Central Statistics Office with regard to the number of skilled people out of work, not to talk about the ones who have gone, and the fall in the sales of cement, are indications that something better will have to be thought up for that sector. Fianna Fáil are studying that area with a view to the selection of worthwhile and economy enriching projects. I should like to refer in passing to the fact that when Fianna Fáil had an inner city development plan ready it was ridiculed and reviled and drums were beaten about extravagance and excess but the exact same plan today has become a respectable one. All one has to do, apparently, is to live long enough and one's respectability increases.
I welcome the 10 per cent reduction for services. We have been concentrating a little bit too much — it is almost a heresy to say this in the House because it has become a type of belief on all sides — on manufacturing industry. An analysis of employment in the US which is regarded, despite the big deficit, as the most powerful economic unit in the world — watch out Japan; watch out USSR — shows the high percentage of people employed in the service industries. That is an indication of the importance we should attach to that sector. The reduction to 10 per cent is something to be desired.
The petrol, oil and car tax path has been trod sufficiently. As far as my area is concerned, and the country in general, that area needs urgent attention. That, and the added car expense of insurance, particularly for young people, are matters the House, which is supposed to be dealing with the realities of life here, should address. The Minister has harmed those living along the Border with the increase in VAT from 23 per cent to 25 per cent. It is like trying to confuse Pavlov's dogs; take something off one year and put it on the next year; applaud one year and decry the next year. The reality is that for the traders along the Border a 2 per cent increase in VAT is a hard blow. It can be said that at times in our economic history the flow of money was the other way, from Newry to Dundalk or Derry to Buncrana. Where there are large conurbations the problem is not as great as it is in my constituency where we do not have large towns to attract people to buy things when items are cheaper on this side of the Border. Many people in my constituency head for Enniskillen and little towns like Clones are severely affected. Other towns like Belturbet and Ballyconnell also suffer. I do not have to go through all the towns that suffer because the House realises the problem. If that happened in other countries there would be a revolt, trucks and tractors would block the roads and business in the area brought to a standstill. It may be a dangerous thing to say that but the people are very patient about the whole thing considering how severely handicapped they are.
As the DIRT was introduced to bring some kind of balance between the building societies and the banks the 9 per cent was hammered on to the insurance people lest they would have an advantage over the building societies and the banks. I do not intend to do an analysis of that but my criticism is that taxing is something that discourages people from keeping their money in the country or investing it here. The Minister, in the course of his speech, made an important point about young farmers. He told us that section 92 provides for the continuation of the stamp duty exemption for transfers of agricultural land to young trained farmers. He said he was conscious of the fact that the scheme had over the past four years facilitated the transfer of land to young farmers. That is correct and has been the experience of people dealing with young farmers.
The Minister also said that he was conscious of the fact that its indefinite extension would remove the urgency for an early transfer of land and so would defeat the object of the scheme. That is where I part company with the Minister. Admittedly, if the intention is to ginger up some people to make the transfer as quickly as possible and that this will be followed by a big influx of young farmers into the offices of solicitors to take over the land, it is not a bad idea but I hope it is only pretence and that the scheme will be continued after next September, as mentioned in the Bill. It is a great incentive. The second incentive which is more important than the first is the education element in this area. The Minister reduced the limit from 35 to 30 and said the qualifying ACOT courses will be extended from 100 to 150 hours. When I heard that I wrote to the ACOT director general to inquire about the matter. A man from a farming background, he was pleased with the scheme and its extension. The fact is that he will find it somewhat difficult to gear up the ACOT courses. There are 50 extra hours being added and that has not been implemented as of yet. One might well ask what good that will be to a young chap of 16 or 17 about to begin a course. Even though September next has been mentioned it is highly desirable that the Minister should go on record indicating that the scheme will be continued after September next. The scheme carries two advantages — one, the encouragement of the transfer of land, and the other very significant one of increasing the education and expertise of the farming community.
There were many other matters with which I had intended dealing in the transport and education areas but I see there are two more speakers and I shall refrain from doing so.
In the short time remaining — and I want to facilitate Deputy Sheehan within that period — I will confine my remarks to a few aspects of this Bill rather than range more widely over it as I would wish had I been given a fuller opportunity to speak.
Both Ministers for Finance whom we have had in office this year made great play about the concessions being given in income tax in the budget and in the Finance Bill. If there is any one area in which it is necessary to grant concessions, because of the appalling disincentive obtaining, it is that of income tax. I would ask the House to examine the figures, ascertaining where those concessions with regard to income tax have been granted. The 1985 yield from income tax was £2,103 million. The estimated yield for this year is £2,356 million, showing an increase income tax burden of £253 million or 12.03 per cent higher than it was last year. It should be remembered that this is taking place at a time when the now projected rate of inflation for this year is between 2½ per cent and 3 per cent. In other words, we have an increase in the income tax take this year four times greater than the rate of inflation. If that does not constitute a considerably heavier burden in income tax in real terms I do not know what does. It seems to be absolutely ridiculous to suggest that the provisions of the budget or of this Bill do anything other than increase very seriously, in real terms, the impact of income tax on taxpayers generally this year.
It is worth examining the deposit interest retention tax, which has been so widely criticised and which has been amended in a very minor, cosmetic way in the Bill by the Minister for Finance. Notwithstanding those cosmetic amendments, the yield from this tax is estimated to remain the same. That underlines how cosmetic are the amendments.
In this respect I should like to refer to a statement of the Minister for Finance on 4 April, when the Finance Bill was circulated, made at a press conference on that day. He said, in relation to changes made in this DIRT tax, that anywhere the line is drawn there will be genuine cases on the wrong side of it and that the only way of avoiding that would have been refunds for all non-liable persons. However, he said that was ruled out because it would have been far too costly, that it probably would have reduced the yield of the tax in 1987 by £60 million. I do not think that figure has been adverted to at all. It underlines what an incredible new imposition of tax this is. The estimate of the yield of this tax for 1987 is £100 million, but if all people who are not liable to tax were excluded from it the yield would be reduced by £60 million. In other words, 60 per cent of this tax is being collected from people who would not otherwise be liable for income tax because their incomes are so low. If that is not injustice written with a capital "I", I cannot imagine what is. These are not my figures, or the estimates of an economist or somebody else. They are the figures of the present Minister for Finance, who said that if those who were not liable to income tax were excluded then 60 per cent of the yield would be done away with.
Therefore, it is the most cruel and vicious tax one could imagine if 60 per cent of it is going to be paid by people whose present incomes are so low they are not liable to any income tax. God knows, there are not many people in this country who are not liable to any income tax. That sort of tax is proceeded with and given a popular face, as far as the Government are concerned, by describing it, as it was in the budget and this statement of the present Minister for Finance, as a tax on financial institutions. It is even described in the Finance Bill as a tax on deposit takers and, therefore, financial institutions. The truth is that it is nothing of the kind. The banks do not mind. They are not paying the tax. The tax is being paid by depositors and not be deposit takers. This fallacy that it is the financial institutions that are being hit and that nobody worries too much about them is perpetrated by the Government in order to give a populist impression to what they are endeavouring to do and, I suppose, in deference to their colleagues who have ideological hangups about these things, who think that if one attacks a financial institution one must therefore be doing a very good thing for the country irrespective of the damage it does to individuals or the economy at large.
In that context of financial institutions it is worth drawing attention to another financial institution on which taxes are imposed for, presumably, similar ideological purposes, that is, the purported tax on life assurance companies. It is described in those terms but it would be my suggestion that there is a very considerable fallacy in that description because the tax will operate as a tax on ordinary people who take out ordinary life assurance policies, paying the premium every year, six months or whenever. The former Minister for Finance, in his Budget Statement, said that a 15 per cent levy would be charged on the gross income and funds of life assurance companies during 1986. As a result of that proposal I understand there were strong representations made to the Department of Finance. I understand there was an admission that a serious error of judgment had taken place, because the tax was virtually halved when it come to the Finance Bill and the rate reduced from 15 per cent to 9 per cent. A promise was extracted that this taxation would operate for the year 1986 only, that a second set of amendments would be introduced on Committee Stage of this Bill in order to implement a different system of taxation on life assurance companies next year and for future years.
If that is not an admission that what was introduced this year is untenable, I cannot imagine what else it could be. On paper ostensibly the proposal is that it will be the life assurance companies that will be taxed and the ostensible reason an attempt is being made to tax them in this fashion is that they have been selling a very large number of what are called guaranteed income or growth bounds in recent years, that these allow people who are in a position to pay a large single premium of a substantial amount of money to obtain a tax free income at a relatively high rate that would not be available to them elsewhere. It is perfectly arguable that one should seek to get at that device to which these individuals have resorted on a fairly wide scale in recent years. It was adverted to by the then Minister for Finance in 1983 when he said changes would be made in the 1984 Bill to that effect, but the changes did not happen then, though discussions took place and it was made clear by the Department and the industry that any changes that would be made would not be retrospective but would apply to new business written after the change.
Nothing happened in 1985, but suddenly in 1986 changes were made, ostensibly to take account of guaranteed income bonds and guaranteed growth bonds. In fact, the changes apply to all the funds of life assurance companies other than their industrial branches, which would be very small, or their foreign business or credit unions and similar things which would not arise. Now we are forced to draw the conclusion that the proposals as drafted amount to a tax on small savers rather than lump sum investors.
All this is set out in section 85. Though there will be a substantial tax liability arising from the several hundreds of millions of pounds invested in guaranteed bonds in recent years, the tax bill will not be paid by the investors of those huge sums because their benefits in virtually all cases are guaranteed by law under the contracts they have entered into. Instead, the bill will be passed on in one way or another by reduced benefits in regular premium policies through which people are insuring their lives against unfortunate contingencies such as the death of the wage earner rather than entering into arrangements to avoid payment of tax. The retrospective nature of the tax will undermine the security of the prospective benefits of all policy holders.
In some cases it has been stated that the solvency of companies would be in question as a result of this retrospection. This is obviously a major concern to the insurance industry here, following so soon after the collapse of two major general insurance companies in Ireland. Companies which are not immediately threatened by insolvency will have only one way to meet a retrospective liability without reneging on promised benefits, and that is to draw on working capital. As in any other business, the use of working capital to pay taxes can place severe and total restrictions on the ability to trade in the future. In the life assurance business, working capital is essential both to finance future new business and to underpin the security of benefits for current policy holders.
In summary, I submit that the proposal to raise a substantial amount of tax revenue on a retrospective basis from the life assurance industry must take account of the industry's ability to pay, without creating insolvency or causing broken promises to policy holders. This is not some remote point that might arise in the future if this is to be operated in a particular way. The life companies have adverted to this in a way which is extremely detrimental to the well being and financial standing of Ireland. I will refer to the 1985 annual report of the Canada Life Assurance Company, perhaps one of the largest life companies in the world, a mutual company based in Toronto, writing business in nearly every civilised country in the world. On page 8 of their directors' report on operations for 1985 they find it necessary, though Ireland is only a tiny part of their world wide activities, to devote a paragraph to developments in Ireland since the end of the financial year because of the proposed retrospection into that year. I will quote that paragraph:
At the end of January, 1986, the Government of the Republic of Ireland introduced a Budget which, if the proposals were passed, would institute a 15 per cent tax on insurance company investment income. Not only would this tax be retroactive to January 1985 but it would tax very heavily our nonparticipating deferred annuity business where pricing margins and the terms of the policies make it possible to recover the tax from either Irish policy holders or the pricing margins in our products. The proposed tax is unfair as it could, in effect, place a burden on policy holders not resident in Ireland. Discussions are taking place with the Irish Government about the proposed tax and negotiations are continuing to try to ameliorate and clarify the matter. We are hopeful that substantial changes in the proposed tax will result.
Since that was written some weeks ago the proposed tax has been reduced from 15 per cent to 9 per cent, but the principle is exactly the same, the difficulties and the unfairness of the retrospection are no less. The necessity for this tax to be paid not by the people who have the benefit of the bonds and not by the companies but by the ordinary policy holders has not changed in any way.
It is not just Canada Life that have felt it necessary to draw attention already in formal annual reports and to put a note in the accounts for the Republic of Ireland and make a provision in the accounts for the Republic of Ireland for retrospective tax: a number of the larger British companies, I understand, have discussed this matter and have conveyed to the Department of Trade in London their strong feelings about it. They have asked the Department of Trade to convey those feelings to the Departments of Industry and Commerce and Finance here. The general feeling of those British companies is that this proposal and its nature call into question the wisdom of continuing to write life assurance in Ireland. That is a very serious matter for Ireland which goes far deeper than so-called taxes on financial institutions, taking up to £40 million extra from some insurance company or bank. Nobody cares very much about those.
In each case the tax is not on the financial institutions, although it is portrayed in that way by the Government. In each case the tax will be on the person doing business with the financial institutions. The Government seek to could the issue and to mislead people in this respect. Not alone, therefore, are they doing considerable harm to individual depositors here, and no harm to the financial institutions concerned, but in the case of life assurance they are doing tremendous harm to ordinary life policy holders here and in other countries, because the funds available in other countries will have to be made available to pay this retrospective tax being charged on money that was set aside in funds to meet liabilities which cannot be changed by the companies if there is to be retrospective taxation. The boards of companies concerned and their managements will not stand for that.
They consider that, if this is allowed by this House to happen, it will happen again. They take the view that they will have to consider the wisdom of continuing to write life assurance in this country or, if they do, to continue to write it on the same basis as previously, where Irish policy holders would have access to the funds of the worldwide organisation. Rather, Irish policyholders will be forced to rely on Irish assets only, the Irish assets of a newly formed subsidiary of the company, which is far less attractive from that point of view.
The Minister should seriously consider the whole problem raised by section 85 of this Bill. It is perhaps not likely to set the world on fire because it has been put across by the Government in a way which is misleading — and I can only conclude deliberately misleading — as some form of tax on large institutions which will have no effect on ordinary people. It will have a very great effect on ordinary people. So far as the insurance aspect is concerned, it also has a serious effect on the financial standing of this country worldwide.
The Chair understands that there was agreement to give some time to Deputy Sheehan.
There was.
I congratulate the Minister for Finance on this Bill. Nobody else could have introduced such a comprehensive Finance Bill. I appeal to my friends on the other side of the House for the cooperation which is the keynote of success. We stand or fall on the Bill before the House. The Minister is faced with a tremendous challenge. The Government must spend two-thirds of the country's domestic output. Government borrowing is proportionately by far the highest of the OECD countries. One-third of the tax revenue must go on interest payments for previous borrowings — and I emphasise the word "previous".
We must tackle the problem of unemployment. We should increase by 20 per cent the natural gas offtake. This would increase State revenue by about £25 million immediately and hundreds of additional jobs would be provided on pipeline construction. The success of the East Link bridge across the Liffey indicates that roads and bridges can be built without cost to the State, if we pursue the right policy. Where possible, stretches of roads and bridges should be offered for competitive tender to private firms. There is need for massive investment in housing, roads, natural gas distribution and industry. The level of economic activities and opportunities for employment can be raised without increasing State expenditure. There is need for radical and imaginative measures to stimulate and foster growth in investment and employment, while stopping the spiral of public spending and penal taxation.
The road development plan of 1980 indicates an investment requirement from the State of £1,500 million during this decate in order to bring our national primary routes up to the minimum international standards. What primary route milage have we in south-west Cork, an area far greater today than several county Council territories? We have not one mile of national primary road. A native Government sold our railway system and left us in that position.
(Limerick West): Has the area potholes?
Who created the potholes? It was the Deputy's party that caused those potholes in south-west Cork, because there was no rescue package from them when we suffered the dreadful blow of the loss of our railway system. There was a rescue package when Whiddy collapsed, thanks to a good Coalition Government.
To bring our roads up to EC standards would cost the Exchequer £3,000 million, but public spending on roads is estimated at £140 million for 1986. I urge the Department to investigate as much as possible the use of private enterprise in the construction of roads and bridges. We must create a climate in which enterprise can prosper. This will generate growth and create the jobs which are so badly needed.
Europe should be a large home market for us to explore. We should sell our wares there. It is a challenge to which we should rise; our future depends on it. The mood is changing. At long last we have turned the corner. We can boast of a few achievements. We have the largest lead crystal plant in Europe, one of the largest breweries in Europe, the largest manufacturing company of industrial diamonds in Europe and the largest single cheese processing plant in Europe, the largest beef operating plant and the largest aluminium plant in Europe. Much has been achieved, but much more remains to be done.
The recent collapse of sterling had major implications for our export manufacturers. The price at which our products can be sold on the British market is now more than 10 per cent lower than six months ago and the cost of importing consumer products has dropped substantially. It is essential that immediate adjustments be made in all sectors of the economy to reflect the very significant cost changes of the last two months, to maintain the viability of manufacturing industry and to protect employment. There are no short-cut policies for the survival of this country. It is illusory to believe that the creation of service jobs can be anything but a short term measure if not accompanied by industrial growth. Our primary economic and social focus must be on creating conditions enabling a 10 per cent expansion of industry, thereby benefiting the economy. Since 1973 industry has expanded by an average of 5 per cent per year. Despite two major international recessions, now more than 50,000 people are employed than were employed in 1975.
(Limerick West): There are 250,000 unemployed.
We hear only tales of woe from across the floor. These are positive facts. At a time when employment in the Community fell by over one million, there was a steady increase in our workforce.
(Limerick West): More than that emigrated.
The expansion of employment here was hardly noticed because of the simultaneous rise in population of more than 500,000 in that period. This swelled the ranks of the unemployed. Faster industrial growth is necessary to support this population. We produce less than 1 per cent of the European industrial output. I urge a national commitment to increasing that share to 1.5 per cent within the next seven years in order to achieve a major cutback in unemployment. This cannot be brought about without an unswerving commitment on the part of the Government to provide a supportive environment as well as a commitment from all industrialists, who must play their special part.
I appeal to the Minister to repeal the VAT charge at point of entry. This is a crippling tax imposition and is hindering the development of industry and the creation of jobs. I thought it was intended to look seriously at that when the Coalition Government took over and still think it should be done.
This country is exceptional in the speed with which an individual starts to pay tax at an extremely high rate. The taxation system provides a very strong disincentive, even at relatively low incomes, to further increase one's earnings or output. Why not give recognition for every additional worker taken on by an employer. If we did that, and gave a tax reduction as an inducement to take on these additional employees, it would save the State millions of pounds in unemployment benefit and assistance. Development of our economy will depend largely on the success in reducing Government spending compatible with high economic growth. The ability to achieve that goal is seriously undermined by high Government spending and taxation. There can be little doubt that a more aggressive and more innovative policy could play a major role in reducing unemployment. The orientation towards innovation is very low because of lack of opportunity for private individuals to make a net tax profit. The imposition of the highest capital gains tax in Europe, inadequate technological skills and the lack of a strong, innovative structure throughout Irish society are inhibiting factors.
It is now 6 o'clock and in accordance with an order made last Tuesday I should call the Minister for Finance.
I should be happy to allow the Deputy to conclude his remarks.
We must sow the seed of industrial growth. This will require continuing upgrading of skills, making the best use of new technology. There must be persistent pursuit of excellence and quality and the creation of an entrepreneurial climate, the conditions which will encourage and reward initiative and enterprise to create employment.
This Coalition Government have tackled the problem to the best of their ability. We have shown that we are pursuing the right policy to get this country on the road to prosperity and success. The time is fast approaching when this country will benefit from the sound expertise of the Minister for Finance. The initiative, drive and determination of this Minister for Finance ensure that the country is in safe hands and there will be a fast recovery which will establish this country as one of the strongest countries financially in the EC.
I call the Minister for Finance to conclude on Item No. 22.
I thank Members of the House for their contributions. I will begin by advertising to some points made by Deputy Sheehan. He is correct in saying that what is needed is a spirit of innovation in the technological field. This is something which can be provided in a number of ways. It can be done through tax concessions such as we have introduced in this budget whereby people who put money into the development of a new product will be able to write off that money for tax purposes, as long as the product is developed and the employment given as a result is in Ireland. That is part of the ingredient. We are, to the best of my knowledge, the first country in Europe to introduce a specific tax concession designed to assist research and development. Other countries such as Britain have introduced schemes such as the business expansion scheme designed to help manufacturing generally. There is no doubt that we in Ireland spend less proportionately on research and development and new products. This is due to a number of reasons one of them probably being the relatively low profitability of firms, but I hope this will improve as a result of increased demand in the economy following on the reduction in oil prices.
Deputy Sheehan referred to the lack of an innovative culture in this country. No tax measure can remedy that. Our people must develop the idea that they are being educated not simply to work for somebody else, doing what somebody else tells them to do, but to work for themselves and ultimately to be their own employer. That encapsulates essentially the spirit of innovation we wish to encourage.
The need for innovation could best be illustrated by a visit to a supermarket or a hardware store. If one looks along the shelves in one such shop and asks how many of the products were not on the shelves five years ago, one will probably find that half of them were not on the market five years ago. The logical corollary is that half the goods at present on the shelves will not be there in five years time since they will no longer be in demand because they have become absolescent technologically or in terms of taste.
If we are to survive in the race to hold our share of the world food market or the manufacture market we must constantly develop new products. It is very important and could well be of historic value in the long term development of this country that we are providing in the 1986 Finance Bill a tax concession specifically designed to encourage people to put private money into research and development. This is being done for the first time in Europe. Obviously making a tax incentive of this kind available is better than giving grants because people who are putting their own money in will want to be quite sure that the research project has a prospect of producing something which will be sold at a profit; otherwise there would be no royalties returning to the original investors. We are combining a generous tax concession with a profitdriven incentive to the investor. I hope this tax concession will be seen in five, ten or 15 years' time to be of equivalent importance to the Irish food and manufacturing industries as was the initiative of one of my predecessors, the late Deputy Gerry Sweetman, in introducing export tax relief which undoubtedly was responsible for the transformation of Irish industry throughout the sixties and even into the seventies. I hope the initiatives in this Bill will have some similar effect in renewing Irish industry in the same sense.
I now turn to the importance of this Bill for agriculture, still our most important industry, apart perhaps from electronics. It is more important in terms of employment and slightly less important in terms of value of its exports. Some will perhaps not have recognised the extent of the contribution that is being made to the development of agriculture in this Bill. They may be tempted to look solely at the provisions which have the word "farmer" attached. It is important to recognise the potential of each of these incentives designed to assist the development of manufacturing: the business development scheme which is designed to bring more outside equity to business, the research and development scheme, the reduction in the rate of income tax on income from dividends in manufacturing, the reduction in capital gains tax for companies floated on the smaller companies market or on long term gains generally to 30 per cent. Each one of those incentives designed to get more investment will not just be of benefit to the manufacturing industry but will also be of benefit to the food industry by enabling that industry to get more capital to develop new products which, without the provisions of this Bill, would not be available.
Necessary thought such forms of EC aids as export subsidies, intervention and so on may be for the generality of products, the future of Irish agriculture must be in the area of the development of new products that can be sold on their own merits, products that have been well developed in terms of research and development and also of market research and development. Therefore, the provisions in this Bill are of critical importance and value to the development of agriculture. By providing a means whereby products processed from the farm can be sold at a profit, we are providing the basis for secure, durable and good prices for farmers in the years ahead.
It is my intention that there will be growth in the area of the various incentives designed to assist the productive sector—the business development scheme that has been extended to 1991, the research and development scheme, the dividend scheme, and so on. It is my intention that my Office as Minister for Finance will be used to the maximum extent possible to promote each of these schemes and thereby to attract more investment to the productive sector. It is extremely important that everyone responsible to me and to the Revenue Commissioners as well as to those Departments associated traditionally with the development of the productive sectors—the Departments of Agriculture and Industry and Commerce—should see themselves as engaged in a common endeavour to make these new tax incentives work because the most effective way of broadening the tax base, something that is being sought earnestly by many commentators, is by putting more people back to work and creating wealth for our country on a viable basis.
I am anxious that the tax base should be broadened and that more revenue should accrue to the Exchequer, not by way of increases in rates of tax but by having more people in a position to pay tax. The best way to achieve the objectives of the Revenue Commissioners, of the Department of Finance and of the Government as a whole, is to encourage productive activity. Consequently, it is my intention to promote these incentives in every way possible, both publicly and directly and in contact with anyone in a position to invest. From the contributions that have been made to the debate I am confident that in that endeavour we will have the support of all parties, including the people directly opposite, even if we have support for little else.
Is it intended to spend more public money advertising the schemes?
It is extremely important, too, that people, whatever their position, own a share in a productive business. That is important in the context of building as wide a constituency as possible for the creation of wealth. It is why I have provided in this Bill for improvements in what are already general provisions for the giving of shares in companies to workers employed by those companies. It is beyond doubt that when employees of a company own part of that company, their loyalty and commitment to the company and their efficiency in reaching the company's objectives are far greater than is the case if there is some artificial division created in the constructs of traditional industrial relations between workers and management.
The population generally should be encouraged to avail of the provision whereby income from dividends in manufacturing will be subject to a rate of income tax that is virtually half the rate they would pay if their income was derived from another source, that is, a rate of about 25 per cent on income from manufacturing companies if those companies are subject to the 10 per cent tax rate. It is important that this incentive be availed of by every family in the community. I have no wish to see a situation in which only those who traditionally have invested in manufacturing, only those who have regarded themselves traditionally as people of some financial substance, take up these incentives to invest in the productive sector.
There is no doubt that the traditional operation of the Stock Exchange is not suited to promoting wide share ownership among the population. Stockbrokers' offices in obscure streets somewhere in the Dublin 2 area are not accessible to the broad mass of our people. If we are to promote widespread share ownership in productive Irish manufacturing companies which are providing jobs and making profits for the shareholders, the Stock Exchange and the other institutions interested in finance must find ways of offering their services direct to ordinary people through normal outlets for financial transactions.
On a point of order, allowing that the Minister was not able to be here for much of the Second Stage debate, I understand that the purpose of a reply to a Second Stage debate is to allow the Minister concerned to deal with the points raised by all those who have contributed to the debate. In this instance the Minister does not seem to be addressing himself to any of the points raised in his absence. Instead, he seems to be making a Second Stage speech again. We know what he wishes us to understand from his Bill, but we should like to hear his comments on the various points made, including those points made by me while he was not here.
The Chair has no control over a Minister's speech.
It is a matter of order. We should like some replies.
I can quote precedents from as far back as the time of the late Mr. de Valera who subsequently became President of Ireland. I can quote instances of his devoting his entire speech to saying what he believed and paying no attention to what other Deputies had said during the debates concerned. There are precedents as antique and as august as that for so doing, but I assure the Deputy that I do not intend to follow those precedents and that I will be dealing, though not perhaps entirely to his delight, with some of the comments he raised. However, as this is a debate in which time is limited, perhaps Deputy O'Kennedy would be so kind as to allow me to reply to the debate in my own way. I do not say that with any sense of hostility.
We should like to hear a reply to the debate.
I will be replying but I shall be saying also what I think needs to be said. That is what I am here to do.
On a point of order, I do not think the Minister can quote precedents in support of his saying that he intends to ignore the points made during the debate and let us know what he wishes to say. This Minister has presented himself as the great reformer in this House but he proceeds to ignore anything he has proposed, including the presentation of Estimates. At least he should pay the House the courtesy of replying to the points made during the three days of the debate. If we continue on those lines, there will be no reply to any of the questions raised.
The Deputy is only wasting time. He should give the Minister a chance.
We know who is wasting time.
The other matter I should like to refer to generally before proceeding to the individual contributions to the debate is the suggestion which emanates sometimes from the other side of the House that somehow there is a need for fiscal stimulus, in other words, to spend more than is being taken in, in order to create employment and there is the suggestion that such a policy works. I do not know how widely Deputies opposite study European experience before making such bland and appealing statements, but I must tell them that the international evidence is not very reassuring from their point of view. I looked down through a table of countries which have the largest borrowing record which I must regret to say——
The largest what?
Borrowing record. Perhaps, the Deputies opposite——
This point was not made in this debate and it does not arise on the Finance Bill. If the Minister wants to engage in a general economic argument, he should at least pay us the courtesy of replying to what was said. That point was never made and the Minister is misrepresenting what was said.
A Leas-Cheann Comhairle, I ask you to restrain some of the Deputies opposite from these divisive interventions.
I am trying to ascertain what the Minister has said.
The evidence, I would suggest to them, is that this policy does not lead to increases in employment. The evidence, for instance, from countries such as Denmark indicates that they have been able, while reducing substantially the amount of government expenditure, to increase employment by 100,000 and reduce unemployment by 40,000. Clearly, to my mind, the notion that Government spending and new schemes, new Departments and new promises create jobs is, in fact, directly contrary to the evidence. The evidence suggests that the best way of creating more employment is by prudent management of the public finances.
The Minister has the biggest deficit in Europe.
This is something Deputies on the other side of the House might usefully contemplate. I am struck by some of the promises Deputies on the other side of the House have made. For instance, Deputy O'Kennedy, in the course of his contribution, indicated that he would spend somewhere in the region of £70 million. He wanted to spend £50 million on reductions in VAT on the building industry and £20 million or more on reductions in duty on diesel. That, of course, is added to the £200 million which Deputy Burke told us over the weekend he would spend on the construction sector. I would have to ask Deputies on the other side of the House where will this £270 million Deputy O'Kennedy and Deputy Burke talk of come from? Will it come down from Heaven? Is there some fairy godmother, perhaps in America, Deputy Haughey has been in touch with who will provide this money?
I have no doubt that there is nobody in the world, be they foreign banks or otherwise, who will provide a living for the Irish people other than the Irish people themselves. Therefore, it is extremely important, if I may say so, that before Deputies opposite make promises, such as the £270 million worth of promises made in combination between Deputy O'Kennedy and Deputy Burke, they should say where the money is coming from. The people would like to know.
Indeed, that is a question Deputy Haughey himself might usefully ponder because I think it is fair to say that his address over the weekend set a new concept of Fairyland. He was certainly in a position that he was elevated above the delegates. I would also say he was probably elevated to the extent that his feet were at least three feet above the ground, because he was certainly not speaking in any sense of reference to reality in the promises he was making.
It is interesting to recall the fact that, about a year or 18 months ago, at a time when the party opposite had a very high level of support in the polls — they are now about 11 points below that — Deputy O'Kennedy was rapped over the knuckles for having the temerity to suggest that he might have some ideas about restructuring the tax code. He was told by his leader, Deputy Haughey: "Tut tut, you are not supposed to be saying things like that." Something has changed because, over the past weekend, every spokesman who spoke at the Fianna Fáil Ard Fheis seemed to have been given precise riding instructions: "Do not worry about the cost; promise as much as you can. We are desperate. Our standing in the opinion polls has dropped 11 points. It is time to dust down the tactics of 1977 and start promising all over again. That is the line we have to throw out."
So, the mantle of responsibility in which Deputy Haughey clothed himself in such a statesmanlike mien a year or 18 months ago, when he told Deputy O'Kennedy not to be so crass as to be making promises, has somehow or other for some reason been cast aside. I think this decision to slough off this unwelcome garment could have something to do with the fact that Fianna Fáil support in the polls has fallen from 58 per cent to 47 per cent. I am glad to say that there were many people watching what Deputy Haughey had to say on Saturday night. The more he went on the more people I am sure became convinced that the man, sincere and all as he was, was not speaking about or living in the same country that we ourselves are inhabiting.
The Minister has some nerve.
I would like to refer further to the development of the construction industry. I believe the construction industry is a very important part of our economic infrastructure. However, the construction industry has suffered in the past from politically motivated short bouts of expansion which could not be sustained. What the construction industry needs for its long term health is——
Another Government.
——a sustained programme of privately financed development which people can pay for because they have the money to pay for it. To my mind, the most important ingredients for increased prosperity in the construction industry lie in the fact that people this year are going to have a substantial increase in their disposable incomes as a result of the tax reductions contained in the budget; the fact that pay increases were set in relation to a higher rate of inflation than is actually obtaining, 4 per cent to 6 per cent as against 3 per cent; and the fact that oil prices have fallen. These three ingredients — lower oil prices also mean that coal and other energy prices have fallen as well — mean many people will have more money in their pockets. This certainly will mean considerably increased private demand on the part of people for additional housing either in the form of extensions to their existing houses for which substantial incentives have been given and to which there has been a tremendous response or in the form of buying new houses.
The long term future of the construction industry depends on the continuance of the sustained economic recovery and sustained improvement in disposable incomes which is under way at this time. What the construction industry does not need is the sort of temporary short term panic expenditure of funds on ill-thought out projects, which cannot be sustained beyond a period of six to eight months such as the construction industry unfortunately was beset with in the past under Governments of a different colour from the present one. The best future for the construction industry and for workers in the construction industry is in the pursuit of the current steady policies of the Government which are achieving a substantial improvement in the spending power of ordinary households, because it is ordinary householders buying improved houses who will provide a significant improvement in the position of the construction industry.
There are 250,000 unemployed.
I am very interested to hear Deputy Haughey mentioning the unemployed, because he will recall that when he left office, unemployment was increasing at the rate of approximately 40,000 a year. As a result of the efforts and the success of the policies of this Government, we have reduced the rate of increase in unemployment to one tenth of that which obtained at the time Deputy Haughey left office. I do not think Deputy Haughey or any of his colleagues are in a position to make any criticisms of this kind.
(Interruptions.)
Seeing that Deputy O'Kennedy wants to interrupt, I would perhaps say something to him as well. He spent about a quarter of his speech talking about petrol prices and the fact that the Government were so awful to put 10p on the price of petrol. Deputy O'Kennedy, as Minister for Finance in 1980, when 20p was worth slightly more than at present, put 20p on the price of petrol in his budget. Yet he comes in here and complains about a much more modest impost. Deputy O'Kennedy should have the wisdom to recall his own record before offering it as advice to others in a situation of considerably greater difficulty than that which he faced.
If the Minister applied taxation at the same level as I did he would be doing very well.
I would like to refer further to the position in regard to the deposit interest retention tax. I would like to reiterate that charities will now be exempt from the tax. Incapacitated persons and persons aged 65 and over may claim repayment of retention tax deducted to the extent that they would not otherwise be liable to income tax under relevant deposit interest. There is evidence of some confusion about the eligibility of elderly people for a refund of tax. I would like to take this opportunity to confirm that it is not necessary to be an old age pensioner in order to benefit from a refund. All persons aged 65 and over may claim a refund irrespective of their status. In the case of a married couple it is necessary for only one person of the couple to be aged 65 or over in order to make the claim.
Some Deputies expressed concern in relation to the procedure for the refund of tax to eligible persons at the end of the tax year. This procedure is inevitable since it is necessary to wait until the end of the tax year for a taxpayer to prove that he or she has no liability to tax. I can assure the House that in making refunds every effort will be made by the Revenue Commissioners to ensure that such refunds will be made with a minimum of delay. There have also been requests——
Will 80 year olds have to disclose full details?
—by Deputies, particularly Opposition Deputies, for an extension of the exemption to other categories of persons and bodies. I must again emphasise that since exemptions are costly to administer, increase the complexity of the tax code and reduce the tax yield, there can be no question of any further concessions being granted. Refunds for all non-liable persons cannot be considered as this would be far too costly.
Deputy O'Kennedy interrupted to ask a question and I will of course answer it. He wanted to know if people aged 65 or over will have to provide details of their income in order to establish that they are not eligible for income tax and therefore entitled to a refund. Of course, they will. Surely Deputy O'Kennedy is not suggesting that somebody aged 65 or over who has perhaps £1 million on deposit in the bank should be entirely exempt from any tax on that and should not be required to disclose it to anyone? I am sure that is not what Deputy O'Kennedy would suggest in his more reflective moments. It is certainly not what I intend to do. It is my intention to ensure that the Revenue Commissioners will satisfy themselves, as they should, before a refund is made that people are not liable to income tax.
How many old age pensioners have we in the country?
Deputy, please.
Deputy Haughey does not seem to be listening to me. The point I made is that this concession of a refund is not confined to old age pensioners but to people over 65 regardless of whether or not they are pensioners.
On a point of order——
Therefore, people who might be millionaires and who are aged over 65——
Deputy O'Kennedy wishes to raise a point of order.
Is the Minister replying to points made in this connection when he talks about a concession to 80 year olds?
Millionaires.
What concession are we talking about — that 85 year olds will be allowed to apply to the Revenue Commissioners to get their own money back as a concession?
That is not a point of order. Would the Deputy please resume his seat.
(Interruptions.)
The Minister has ten minutes to conclude.
As I indicated, this concession whereby people can claim this tax back is available to all people over the age of 65 whether or not they are pensioners, whether they have a large income, a large amount of property, large bank holdings or no bank holdings of any consequence apart from a small amount of money. All of them are entitled to claim back the tax if they can establish that they have no tax liability. Obviously, in order to determine whether or not they have a tax liability, we must be in a position to obtain certain information from them. I do not think there is anything in the world wrong with that. I am surprised that Deputy O'Kennedy or any other Deputy would want to criticise such a reasonable provision in the code to prevent the abuse of the tax measure for which the Government have made a decision.
On the other hand, you are giving the banks the right not to disclose details.
Please, Deputy. The Minister must conclude.
Deputy Yates referred to value-added tax on puncture repairs which would be something in which the party opposite would be interested in view of the inflated ideas which they have been putting forward in recent days. I am glad to say that in the event that any of the ideas they put forward are punctured, 10 per cent rather than a 25 per cent rate of value-added tax will apply to the service concerned. I am glad to be able to inform Deputy Yates and the party opposite that this will be the case and that the puncture can be mended at the lower rate of tax.
(Interruptions.)
I think Senator Smith might have different ideas about the matter. As I am advising Deputy O'Kennedy on a number of matters that is something that he might also contemplate with profit to himself. I am concerned that everybody should make a profit, even Deputy O'Kennedy.
Deputy O'Malley, interestingly, devoted most of his contribution to pleas on behalf of the insurance companies. He quoted with approval the international report of the Canada Life Assurance Company published in Toronto recently which had some remarks to make about the Irish Government. I am sure the Canada Life Assurance Company will be pleased to know that their contributions have been read into the record of Dáil Éireann. However, I think there were certain contradictions in Deputy O'Malley's approach. He seemed to suggest on the one hand that the tax would be paid by the companies and that therefore the companies would not want to do business here. On the other hand, he suggested that it would be paid entirely by the policy holders. If it is paid entirely by the policy holders there would be no question of the companies being at any loss and if it is being paid entirely by the companies there would be no question of the policy holders being at any loss. I do not think Deputy O'Malley can simultaneously make the criticism that the tax is undesirable because it is being paid in its entirely both by the companies and by the policy holders. His analysis of the facts is therefore somewhat inaccurate.
However, I am glad to say that the provision is being replaced, in an amendment to the Finance Bill which will be introduced, by a fuller provision to change the basis for calculating corporation profits tax for insurance companies in future. This will remove anomalies that have existed for some time. It will put the taxation of these companies on a much more satisfactory basis than has been the case in the past. I believe that this will prove to be of considerable benefit.
A number of Deputies referred to the concession for young trained farmers who have not paid stamp duty on the transfer of land since I proposed such a concession in the 1982 budget. I am glad to say that this provision has been extremely successful in two respects, first, in transferring large areas of land to young farmers and also in achieving a much higher degree of interest on the part of farmers in obtaining training from ACOT and other educational institutions in agriculture than would otherwise have been the case. It has been an outstanding success and a good example of how the tax code can be used to achieve an economically desirable objective. In my work with Deputy Dukes and other members of the Government in putting together this Finance Bill I have been determined to follow on the example of the success of the concession regarding stamp duty to introduce other similar concessions in the tax code designed to promote economic efficiency and wealth creation.
Why did the Minister not change the age limit?
I changed the age limit because I believe it is important that those who are considering transferring land to people between the ages of 30 and 35 years should get on with the job. It should be done between now and 1 October rather than putting it off for another year. I make no apology for raising the educational qualification under the ACOT scheme for people to qualify. We should try to encourage the transfer of land to young farmers and to those with higher educational qualifications.
During the debate there were references to interest rates. It is the policy of the Department of Finance, the Government and the Central Bank to bring down interest rates as quickly as possible.
The Minister could have fooled us. We have the highest interest rates in the world.
The Government have no interest in maintaining rates at an unduly high level. It stands to reason that the should be the case because the Government are a substantial borrower and they have no interest in paying higher rates than they need to pay. Hence, it is the intention of the Government to do everything they can, along with the other sectors in the money market, to encourage a reduction in interest rates. Such rates are nothing more than the price of money and the price of money reflects two things, supply and demand. If demand for money exceeds supply there will tend to be upward pressure on interest rates and when the reverse is the case the pressure is downward. The Government by interventions of any kind cannot change that unalterable, fundamental reality of the money market but within those constraints it is our intention to encourage the rates in a downward direction. This is because we believe interest rates are a crucial factor inhibiting investment now because they are too high. Lower interest rates will provide the other funds to complement those that will flow into industry and agriculture as a direct result of these most innovative tax initiatives in the Finance Bill.
This Finance Bill provides for the extension of the business development scheme to 1991, the first tax concession in Europe for research and development and the first tax concession with regard to income on dividends in manufacturing companies. No other country in Europe has a similar tax concession to encourage investment in manufacturing. There is also a special provision for the encouragement of smaller companies and the giving of shares in business to workers in industry. When these measures are combined it is fair to say they provide the best package ever presented to this House in a Finance Bill in terms of concrete incentives to invest.
Rather than greeting these measures with the dismissive cynical sneers that we get from the other side of the House, it behoves everyone in the House and in the country interested in the greater prosperity of the country and in increasing the number of employed to give their full support to these incentives. I can assure the House it is my intention to use whatever influence I have in contacts with those who have money to invest to encourage them to invest in Ireland. We will not ask them to invest in uses that have no productive value and that merely serve to maintain the value of capital but in active wealth creation in manufacturing and in the food processing sector. That is the best way forward for the country.
In accordance with an Order of the House made on 15 April I am putting the following question: "That the Finance Bill, 1986, be now read a Second Time and that Financial Resolution No. 13 moved on 30 January last be agreed to."
Question put.
The Dáil divided: Tá 69; Níl, 60.
Tá
- Allen, Bernard.
- Barnes, Monica.
- Barrett, Seán.
- Barry, Myra.
- Begley, Michael.
- Bell, Michael.
- Bermingham, Joe.
- Bruton, John.
- Bruton, Richard.
- Crotty, Kieran.
- Crowley, Frank.
- D'Arcy, Michael.
- Desmond, Barry.
- Donnellan, John.
- Dowling, Dick.
- Doyle, Avril.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard J.
- Enright, Thomas W.
- Farrelly, John V.
- Fennell, Nuala.
- FitzGerald, Garret.
- Flaherty, Mary.
- Glenn, Alice.
- Harte, Patrick D.
- Hegarty, Paddy.
- Hussey, Gemma.
- Kavanagh, Liam.
- Kelly, John.
- Kenny, Enda.
- L'Estrange, Gerry.
- McGahon, Brendan.
- McGinley, Dinny.
- McLoughlin, Frank.
- Carey, Donal.
- Collins, Edward.
- Conlon, John F.
- Connaughton, Paul.
- Coogan, Fintan.
- Cooney, Patrick Mark.
- Cosgrave, Liam T.
- Cosgrave, Michael Joe.
- Creed, Donal.
- Manning, Maurice.
- Mitchell, Gay.
- Molony, David.
- Moynihan, Michael.
- Naughten, Liam.
- Nealon, Ted.
- Noonan, Michael. (Limerick East)
- O'Brien, Fergus.
- O'Brien, Willie.
- O'Keeffe, Jim.
- O'Leary, Michael.
- O'Sullivan, Toddy.
- O'Toole, Paddy.
- Owen, Nora.
- Pattison, Séamus.
- Prendergast, Frank.
- Quinn, Ruairí.
- Ryan, John.
- Shatter, Alan.
- Sheehan, Patrick Joseph.
- Skelly, Liam.
- Spring, Dick.
- Taylor, Mervyn.
- Timmins, Godfrey.
- Yates, Ivan.
Níl
- Ahern, Bertie.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Paudge.
- Briscoe, Ben.
- Browne, John.
- Burke, Raphael P.
- Calleary, Seán.
- Collins, Gerard.
- Conaghan, Haugh.
- Coughlan, Cathal Seán.
- Cowen, Brian.
- Daly, Brendan.
- De Rossa, Proinsias.
- Doherty, Seán.
- Fahey, Francis.
- Faulkner, Pádraig.
- Flynn, Pádraig.
- Foley, Denis.
- Gallagher, Denis.
- Gallagher, Pat Cope.
- Geoghegan-Quinn, Máire.
- Harney, Mary.
- Haughey, Charles J.
- Hilliard, Colm.
- Hyland, Liam.
- Keating, Michael.
- Kirk, Séamus.
- Kitt, Michael.
- Lenihan, Brian.
- Leonard, Jimmy.
- Leonard, Tom.
- Leyden, Terry.
- McCarthy, Seán.
- McCreevy, Charlie.
- McEllistrim, Tom.
- Mac Giolla, Tomás.
- Moynihan, Donal.
- Noonan, Michael J. (Limerick West)
- O'Connell, John.
- O'Dea, William.
- O'Hanlon, Rory.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond J.
- Ormonde, Donal.
- O'Rourke, Mary.
- Reynolds, Albert.
- Treacy, Noel.
- Wallace, Dan.
- Walsh, Joe.
- Walsh, Seán.
- Wilson, John P.
- Woods, Michael.
- Wyse, Pearse.
Tellers: Tá, Deputies F. O'Brien and Taylor; Níl, Deputies V. Brady and Browne.
Question declared carried.
Financial Resolution No. 13 moved on 30 January 1986, has been agreed to. When is it proposed to take Committee Stage?
Tuesday week, by agreement.
Committee Stage ordered for Tuesday, 6 May 1986.