Will the House please come to order?
Finance Bill, 1991: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time."
I trust the exodus from the House is not an indication of the interest of Members in the Finance Bill or indeed of my capacity to enthral the House with an illuminating address on its intricacies. I appreciate that Members have to leave the House and I am waiting, Sir, with your agreement for the noise to die down.
Yesterday evening I reminded the Minister that it will be necessary for him when replying to Second Stage to set out quite clearly the assumptions and premises on which the Finance Bill is based as it will give legitimacy to the budget of 1991. In the course of my remarks I drew his attention to the fact that on 30 January this year he forecast an economic growth rate of 2.25 per cent for this year. However, in introducing the Bill yesterday he was less forthcoming and stated:
Though it will be no easy task to attain our budget day forecasts for growth, I remain optimistic about the short term prospects for the Irish economy.
The Minister is obliged to tell not just this House and the nation at large but those institutions who have an important role to play in our market economy what estimate for growth the Department of Finance are working on at present.
Yesterday evening I outlined the way in which we can evaluate the performance of the economy during the next year and the implications of the Finance Bill. We will be able on Committee Stage to go into some detail on the various sections but I ask the Minister to devote some time when replying, if he can within the time constraints imposed, to the question of the policy of the Department of Finance and the Revenue Commissioners on self-assessment and the taxation system. The Minister indicated in the course of his address that income tax and capital taxes related to personal income will increasingly be included in a package of self-assessment measures to be administered by the Revenue Commissioners but it is fair to say that until such time that there is a perception among the body politic that self-assessment is going to be enforced and the sanctions applied people will continue to feel it is worth the risk or taking a chance and not comply with the regulations.
Most people in this country have a connection with or are familiar with the United States and are aware of the dread of citizens and taxpayers of that country of the IRS, the Internal Revenue Services. I am not going to take up the time of the House by outlining just how draconian the powers of the IRS are but until such time that the person who can be shown to have wilfully attempted to evade his tax liabilities by reducing significantly or falsifying the self-assessment return, the amount of tax that he is obliged to pay to the Revenue Commissioners, is punished —it is up to the Minister and the Revenue Commissioners to determine what the punishment should be — I do not think the self-assessment system is going to work.
We have faced for many years the problem of alcohol abuse and of drink driving. Until we collectively put together a system of sanctions and penalties that, among other things, results in the automatic loss of the driving licence for 12 months — with a possible return after six months — there will be a certain disregard for the law. There is now a clear understanding here of sanctions in relation to that abuse. The sanctions have brought home the seriousness of that problem.
I would like the Minister in his reply to elaborate on the state of discussions between his Department and the Revenue Commissioners on the administration of the taxation system in the area of self-assessment. As we move more and more into self-assessment the public at large will be convinced that self-assessment means realistic self-assessment and compliance with the figures put together by them when submitting their returns.
Yesterday the House heard Deputy Noonan talk about the Temple Bar provisions. I do not want to repeat observations he made except to say that the Government of which I was a member brought forward the initial concept of designated areas for Dublin city in the first instance and a number of other cities. There was a recognition that at any time in any economy there is a demand for construction activity. All designation can achieve is to try to direct that activity to certain areas where, in the first instance, if there was a level pitch of competitiveness, it would not be because there were more attractive locations.
We are now running the danger — perhaps in some respects we have run the danger — of tax-led construction being in excess of demand. Estimates suggest that in the Dublin area alone there is a tax-led supply of approximately two million square feet of office space when the annual demand for such space is of the order of 500,000 square feet. Indeed, a casual drive around Dublin city will show that some of the tax-led inner city development projects have stalled and have not proceeded past their first phase. I am giving a very truncated exposition of what is well known in the property market in Dublin, is well understood by property and construction economists and by officials in the Department of the Environment and, I am sure, the Department of Finance. Against the original background of recognising that designation was related to overall maximum demand and the capacity of the economy to ensure there would be supply to meet that demand, the first designation was drawn up in the Finance Act, 1986. That was subsequently enlarged and in Dublin, where designation has been least successful, the operation that took place approximately a year ago was very extensive. As a consequence it has diluted the impact designation was intended to have because of the sheer physical scale of the city.
The impact of the Temple Bar provisions is something we need to look at. It is a very attractive area of the city. The fact that it happens to be in my constituency is irrelevant because virtually nobody lives there. The number of people on the electoral register for that area is small and so I am not talking about a constituency interest. That part of the city really belongs to the entire city of Dublin and, indeed, to the nation, but it is on the right side of the river from a commercial market point of view. The amount of stimulus needed is comparatively limited in contrast to areas north of the river with nothing like the same degree of established wealth or institutional presence. If it was not for the presence of a State company, Irish Life, in their headquarters in the Irish Life Centre at the top of Abbey Street and the Ilac Centre which they have funded for a long time, the north side of the inner city would be very impoverished.
The concessions to the Temple Bar area are very substantial and it remains to be seen how they will work to give owners of property the capacity to writeoff the value of their property against development. I would like the Minister to come back to the House on this. He is the person responsible. Certainly, I would expect nothing from the Minister for the Environment. I do not know if the capacity or willingness to be frank with this House on this exists. If we are to get the hub of the greater Dublin area right — we are interfering in complex market forces in urban development terms — we need to see if there is the right balance and mix between incentive and confinement of territory within the Temple Bar area.
I do not intend to sound ungracious or suspicious in the comments I am about to make. It seems extraordinary that in the Bill we are in effect giving statutory authority, directly and indirectly, by way of a most generous array of tax concessions, to two companies over whom this House has no control. They will be accountable to nobody that I can see and will be under the direct control of the Department of the Taoiseach. We have effectively made the Department of the Taoiseach the most influential and, potentially, the most significant property developer in Dublin city. There is nothing intrinsically wrong with the State becoming an effective property developer to rejuvenate a central area of our capital city but what worries a republican democrat like myself is that I can see no mechanism of accountability to ensure that the vagaries of the human condition do not prevail over the rights and expectations of the citizens of this Republic.
I understand this company, whose managing director is an Assistant Secretary in the Department of the Taoiseach, have been given the authority to borrow £500 million from the European Investment Bank, are the beneficial recipient of £3.5 million or thereabouts of Structural Funds from the EC, no doubt on the recommendation of the relevant statutory authorities here. They negotiated the purchase of approximately 20 per cent of the property in the Temple Bar area from Dublin Corporation and the CIE family of companies, two statutory bodies, one a local authority and the other a semi-State company. I am not aware if the normal provisions for the sale and disposal of such property have been complied with, to wit public tender advertisements and the like, and I would like to be informed on this.
I am given to understand it is the intention of the Temple Bar property company to undertake, in conjunction with Dublin Corporation, the pedestrianisation of the central spine street of the area involved, a proposal which in principle I welcome. It seems extraordinary that this should be a private company, not accountable to the Oireachtas and not publicly quoted on the Stock Exchange, although set up by the State, the principal shareholder being the Taoiseach of the day. How can they anticipate decisions of the local authority? I am not a member of Dublin Corporation but I am not aware of any public involvement in what is proposed. Having said that, I welcome the rejuvenation of the Temple Bar area and the general focus of attention on the renewal of the inner city. The entire nation will benefit. The mechanism raises questions which need to be answered. There is no other venue in which such questions can be raised and I am not aware of any place where details of the two companies in question have been promoted and reported. They have not been directly reported to this House, which is being asked to confer on behalf of the taxpayer the most generous array of tax concessions which will transform overnight the assets of people who own property in the Temple Bar area.
In terms of the definition in the Second Schedule to this Bill, the Temple Bar area is not very run down. The perimeter of the area can be covered by walking from O'Connell Bridge along Westmoreland Street, around the Bank of Ireland and along Dame Street, past the Central Bank and Parliament Street to Christ-church Cathedral, turning at Kinlay House down Fishamble Street to the river, past the rather attractive sculpture of a Viking ship embedded in the ground and back along the Liffey to O'Connell Bridge. This is the area defined in the Schedule. It includes some derelict property but also some very substantial properties whose value could be dramatically transformed. Who will be the beneficial recipient?
I wonder if the Taoiseach has lost the run of himself in his zeal to produce a flagship for the European Year of Culture which Dublin has the honour to host in 1991. The dilution in the second extension of the designated areas resulting in this package of concessions for Temple Bar may produce some unattractive and some unforeseen side effects. We need far more detailed analysis of the urban and construction economics which went into the making up of this package of provisions, to which this House is being asked to assent. The area happens to be in my constituency, a part of the city I know very well. Its transformation and rejuvenation will enhance the entire Dublin region, but we are being asked to give specific consent to a range of allowances which need to be teased out, otherwise there may be unforeseen effects for which we will be held accountable. I want to avoid a negative reaction in years to come.
The Minister for Finance might address himself to the question of setting up a new property company to deal with this task of urban renewal and the diverting of the personal energies of a presumably overworked Assistant Secretary in the Department of the Taoiseach to run this company as managing director. Did the Departments of Finance and the Taoiseach not consider assigning this task to a body already established by law and accountable directly and indirectly to this House, namely the Custom House Docks Development Authority? They already have an infrastructure of expertise and a board of directors appointed by different Governments and, therefore, relatively comprehensive in their political coloration, with an existing management structure and knowledge of the territory since they are doing business rather successfully about 300 metres down the Liffey. Why re-invent the wheel and duplicate an existing body whose major task is substantially underway? The learning curve of the intricacies of urban redevelopment has been clearly established within that company. Was that a consideration in the Department of Finance and the Department of the Taoiseach?
Has the new body the necessary expertise to assess the eligibility of prospective developers to qualify for these allowances? To whom will they be accountable? The grant of eligibility for an allowance will be a substantial transfer of paper wealth. This wealth will be tax foregone. I do not begrudge the development of the city. I am acting as a responsible public representative charged with the equitable distribution of taxpayers' money collected at some pain from all of us as citizens and in this instance the foregoing of taxpayers' money. As a member of the body ultimately responsible for the Finance Act which will give effect to this provision, I want to be confident that the systems necessary to administer the legislation have been properly thought through and are accountable ultimately to the Comptroller and Auditor General. I welcome the focus of redevelopment but I question whether it has been thought through.
Section 22 is an extraordinary section which will have to be teased out in great detail on Committee Stage. There was speculation prior to the publication of this Bill that the unitisation of a property which would qualify for substantial tax benefits could be parcelled out into a large number of small parts and the capital allowances assigned to individual persons. There was great speculation that this method of tax allowance would be introduced to benefit a wide number of people in the property market. When the Minister is replying on Second Stage we will want a substantial and explicit explanation of what exactly is meant in section 22 and how it is intended to function. If I may have the indulgence of the House, I will quote section 22:
(1) In this section—
"property investment scheme" means any scheme or arrangement made for the purpose, or having the effect, of providing facilities, whether promoted by way of public advertisement or otherwise, for the public or a section of the public to share, either directly or indirectly and whether as beneficiaries under a trust or by any other means, in income or gains arising or deriving from the acquisition, holding or disposal of, or of an interest in, a building or structure or a part thereof, but does not include a scheme or arrangement as respects which the Revenue Commissioners or, on appeal, the Appeal Commissioners, having regard to such information as may be produced to them, are of the opinion that—
(a) the manner in which persons share in the said income or gains, and
(b) the number of persons who so share,
are in accordance with a practice which commonly prevailed in the State during the period of 5 years ending immediately before the 30th day of January, 1991, for the sharing of such income or gains by persons resident in the State and such that the persons so sharing qualified for relief under—
(i) the proviso to subsection (1) of section 296 of the Income Tax Act, 1967, or
(ii) subsection (6) of section 14 of the Corporation Tax Act, 1976;
"specified interest" means an interest in or deriving from a building or structure held by a person pursuant to a property investment scheme.
(2) Where a person holds a specified interest then, as respects expenditure incurred or deemed to be incurred on or after the 30th day of January, 1991, the proviso to subsection (1) of section 296 of the Income Tax Act, 1967, and subsection (6) of section 14 of the Corporation Tax Act, 1976, shall not have effect as respects an allowance under section 254 (as amended by section 74 of the Finance Act, 1990) or section 264 (as amended by section 50 of the Finance Act, 1988) of the said Act of 1967, which falls to be made to the person by reason of the holding by him of the specified interest.
(3) The Appeal Commissioners shall hear and determine an appeal made to them under this section as if it were an appeal against an assessment to income tax and all the provisions of the Income Tax Act, 1967, relating to the rehearing of an appeal and the statement of a case for the opinion of the High Court on a point of law shall apply accordingly with any necessary modifications.
A Cheann Comhairle, if you understand that you are a much better man than I. There are many well paid tax lawyers in this town who are paid to navigate the reefs and the rocks and the intricacies of that type of section. The expectation was that unitisation, which in fact would confer major additional tax shelters for a limited number of people in this country, was not going to be granted in this Bill. The Minister's commentary on the Second Stage debate is to the effect that such unitisation has not, in fact, been conceded. But I fear, and I have been so advised by some of the tax lawyers to whom I have referred earlier that this is a deliberately ambiguous and complexly written section which is genuinely and premeditatively designed to enable an appeal properly couched and carefully launched to make an exception out of the intended rule of people who know how to go about their business. That is a serious charge and I hope I am wrong. In effect what I am saying is that I have been given to understand that what is here will not have the effect of what is written at all, that what you read, in the classic Lewis Carroll speak of Alice in Wonderland, is not what you are intended to read and what you are intended to read is not written down but can be so interpreted if your appeal is successful. I am not a tax lawyer nor am I an economist but I know the net point at issue in this section. The Minister and his advisers know what question I am asking. I am asking them to clarify the section on Second Stage, if that is possible, or else we will spend a great deal of time on the same section on Committee Stage. I think I have well and truly made the point.
I now want to deal with the capital gains and inheritance tax. In advance of the commencement of our debate my attention was drawn to the retrospective nature of section 107 — inheritances taken by parents. I gather from Deputy Noonan's comments and the Minister's response to them yesterday that this relates to people who through tragic circumstances were probably going to suffer double taxation on the same property. The questions which I had in my notes have been answered but perhaps the Minister would clarify further the extent to which this has been dealt with and perhaps give the House, as I was not a party to this debate last year, an indication of the number of cases that would be affected. Obviously the legislation relates to all known cases as the Minister specifically gives 2 June 1982 as the date from which the legislation will have effect.
On the general area of capital acquisition and death duties may I draw the attention of the House and the Minister to an emerging anomaly as marital breakdown and second unions occur increasingly in our society? I have already put down questions in the usual manner which were spectacularly unsuccessful in eliciting a significant or substantial reply from the Department of Finance. I now put the Minister and his advisers on notice that I intend to introduce amendments to this at the appropriate time. We have an anomaly whereby the Department of Social Welfare for the purposes of administering social welfare and tax allowances will regard two adults cohabiting together as if they were a married couple and will treat them accordingly. As a consequence they have signalled — and there has been correspondence in the newspapers about this — that cohabiting couples irrespective of their legal marital status will be treated for all intents and purposes the same as a legally married couple and will be deemed to be entitled to allowances accordingly.
A constituent of mine brought to my attention the following situation. If a person is marrying in a Catholic Church — a marriage which is recognised by the State — proceeds to get a Church annulment and then remarries in the rites of that Church, and proceeds to live a formal married life in social terms, if this couple buy property in joint names, on the untimely death of one or other partner, the surviving member would not in fact be entitled to any tax relief whatsoever on the value of the inheritance. In the hypothetical case of an average household where the value of the property is £65,000 and savings and insurance bring the total of the estate to £80,000, there would be an imputed gift transferred from one partner to the other who, as the legal phrase puts it, is a stranger in blood, and the beneficiary of the £40,000 would be entitled to no tax relief whatsoever. In order to meet the tax liability on the £40,000, which for argument's sake would amount to £20,000 approximately, the partner would be obliged in this instance — I can supply the Minister with a set of figures to illustrate this — to dispose of what was in fact the only real asset the couple had, the family home, with all the dislocation and pain involved on top of the bereavement following the death of their partner. If the State is capable, for the purposes of administering tax and social welfare entitlements, of assuming that an adult couple, cohabiting, should be treated the same as a married couple then equally the same State should be capable of treating a cohabiting couple — living together and owning property jointly — as a married couple for the purposes of entitlements vis-à-vis capital acquisitions.
I should place on record my personal interest in this matter. I would be affected in such circumstances, as I suspect would a number of other Members of the Houses of the Oireachtas. Attention to my personal circumstances was highlighted on receipt of a letter from a constituent which, on reading made me realise there were reverberations that would have an impact on myself. Realistically we are talking about increasing numbers of people. I attempted to elicit a reply from the Minister, and the Department of Finance. In fact I raised the matter at a personal meeting with the Revenue Commissioners convened to familiarise myself with my brief. I ascertained that, in most cases, the system of self-certification would apply, that a person can say simply that they are, or regard themselves, as being married to the person with whom they are living when the Revenue Commissioners will not necessarily root behind the relevant documentation. That is a sort of Irish solution to an Irish problem.
I am putting the Minister, and the Department of Finance, on notice that I will be tabling an amendment on Committee Stage, hopefully suitably drafted and legally competent. I signal my intention to so do in order to enable the Department to provide alternative draftings. Once the precedent has been established with regard to the operations of the social welfare code then I do not think the State can be seen to apply one set of criteria or standards in one area and not be seen to apply them in another.
Yesterday I spoke at some length about the privatisation and sale of State assets to which I will revert in a moment. In his vigorous noddings in the course of my posing questions yesterday about the use to which the proceeds of the sale of such State assets will be put, the Minister seemed to indicate that the relevant moneys would not be used to bridge current account deficits in respect of the gap between the figures put forward in the January budget and those emerging increasingly as an ever widening gap. I would have to contend that the Minister, Government and, indeed, the Department of Finance — comprised of a very wide range of highly skilled and motivated people — have been obsessed with the agenda of the eighties that dominated the political thinking of everybody in this House, concerned with regaining control of the finances of this State for a variety of reasons for which we all shared some responsibility. This country from 1977 through the mid eighties lost the run of itself in more ways than one. Very painfully we had to regain control of our affairs, re-establish our sovereignty in a manner that was not easy.
When we were in Government, frequently we were told by Members on the Opposition benches there was no difficulty whatsoever in endeavouring to turn the ship around and bring it back into line. That intellectual argument was a long, slow, painful process but it is over; it has been won. Whether it be the Irish Congress of Trade Unions, the back-benchers of Fianna Fáil or those of my party, nobody now disputes that there is no longer a free lunch out there, that simply by singing an Irish song or because we are nice people we are entitled to a free ride. We all recognise that we must earn our way in this world. We all recognise we cannot spend more than we earn. We all recognise that we have accumulated debts that must be repaid, that we have an economy that must be managed by ourselves as adult citizens. That was the fiscal debate about monetary and budgetary control of the eighties. It was about injecting a new realism into the relationship between citizens on the one hand and the providers of Government services on the other.
I am not contending that the debate about the distribution of resources is over, that I am happy about the distribution of the domestic cake; I am not; I am most unhappy about it. The Labour Party have clearly indicated their unhappiness at the way in which the cake is being distributed internally. But we recognise, as do the trade union movement, and many other commentators, that there are absolute limits to the size of the cake which were seriously circumscribed by the constraints imposed on this country in the eighties resulting from the manner in which politics evolved.
My real economic criticism of this administration is that they are still locked into that debate, still fighting that battle, that they are obsessed with money and fiscal matters — such as reducing the national debt — that this policy, in so far as one can discern one, about the disposal of State assets is ludicrous in terms of the real problem confronting this economy, and in terms of structural unemployment. We owe £25,000 million; that is a large mortgage. Were we to take, say, £60 million off that debt through the proceeds of the sale of the Irish Sugar Company or deduct another £250 million — were we to deduct all of the perceived proceeds from the sale of Irish Life — it would not significantly dent that national debt figure. Were we to sell all our State companies, raising something of the order of £1,000 million and reduce the national debt by that amount we would still have an enormous annual debt repayment. Not to use that money to alleviate the major problem of unemployment confronting our economy, as perceived by the NESC and the ESRI, as we approach 1992 and economic and monetary union is reprehensible.
It is my considered view that there is no economic or political leadership on the part of the present Coalition Government. They are fighting yesterday's battle. One need only refer to yesterday's MRBI poll to ascertain that the level of perception across the entire political spectrum, among the supporters of all our parties of what is the meaning of European political union and monetary union, is 80 per cent, that is that 80 per cent of our citizens simply do not know what will be the impact of either on this society. Despite repeated requests the Government have failed miserably to lead this nation, to explain to our citizens the potential benefits of economic and monetary union, indeed the potential pitfalls of European monetary union. There is a conspiracy of ignorance on the part of Fianna Fáil and the Progressive Democrats in relation to informing the public — I really mean this — that is not unlike a similar conspiracy related to a kind of elitism that can still stalk the corridors of our Civil Service.
I was a member of an Administration that negotiated the Single European Act. In retrospect we made the great mistake based on our collective arrogance of not taking the public with us because there was a view that regrettably prevails in a part of our political establishment that we know best, that we collectively — permanent civil servants and Ministers currently in office and us, cognoscenti, who have read the documentation — know how to lead the people and we should not confuse them with facts, we should not open the debate because all sorts of people with all sorts of crazy ideas will get involved and it is much nicer and much easier to just do the business. It was precisely that kind of attitude that got the State into the Supreme Court over the Christmas period of 1986-87 arguing the constitutionality of the Single European Act and which resulted in a referendum being held because the political establishment of the day, of which I was a member, did not do their job fully. I am saying to this House and to the Minister of State with responsibility for Foreign Affairs, the prime Department in relation to the Single European Act, that we should learn from the experience of our mistakes.
In relation to European political union and economic and monetary union, which are far more fundamental in their potential for an impact on the nature of Irish society than the Single European Act ever was, we should not repeat the mistake we made in the past. There is evidence to suggest that we did make mistakes in the past. If you talk frankly and openly to anybody in the Department of Foreign Affairs or in the Department of the Taoiseach they will concede that that legal case, the challenge from Crotty, the referendum and the way that whole debate took off was based on a plethora of ignorant and ill-informed people — I use the word in the sense of being ill informed — who simply did not know.
In all probability we will have a referendum in 1992 if the timetable for the two IGCs proceeds. It is the responsibility of the Government of the day, with primary access to all the institutions and resources of the State, to lead and inform that debate. That debate is not being informed by the actions of the Government today and it is central to the provisions of this Finance Bill. When you take the 1992 project with it, it underpins the whole question of tax harmonisation and the real control which the Minister for Finance has with respect to interest rates.
We had an exchange here yesterday about the relationship between the Department of Finance and the Minister for Finance on the one hand and the Governor of the Central Bank on the other. If economic and monetary union means anything it means that that debate will shift between Merrion Street and Dame Street to somewhere on the continental mainland of Europe because that is where the Central Bank that will control interest rates will be. Deputy Noonan put his finger on it yesterday when he said it was critical to the capacity of this economy to generate sufficient confidence to invest in order to provide the growth we need.
An array of factors are currently being negotiated in great detail in Basle, Strasbourg, Luxembourg and Brussels that will make many of the provisions of the Finance Bill irrelevant or will transfer the real power of decision-making away from this Chamber to somewhere else. Let me give this House an example. When did we last have a serious debate in this House about agriculture? When did we last have a debate in this House where it was assumed that the Minister responsible sitting on the Government benches was in a position to make decisions about agriculture? I do not think there is anybody in this Chamber at present who was even a Member of the House when we had such a debate, and I am going back as far as 1977 or 1969 in respect of the Minister of State at the Department of Foreign Affairs, Deputy Calleary.
The same will happen in respect of aspects of economic policy. You cannot speak on four or five pages of a one hour contribution about prospects for 1991, as the Minister did in his opening contribution, and not allude to these factors. I am not saying we should have the finite exposition by the Government of their position in relation to these matters but whether it is the Minister for Foreign Affairs, the Minister for Finance or the Minister for Industry and Commerce, we are not getting sufficient information either in this House or in a broader sense in the body public at large.
Three years ago — if my memory serves me right — in July 1988, the Government and the Department of the Taoiseach commenced the Europen campaign with a great flourish in the National Concert Hall. That campaign has ground to a halt. There is now no public perception of the threats, benefits or possibilities that 1992 holds out for the Irish economy. I put it to the Chair, as he goes through the constituency of Dublin Central — indeed, I extend the same invitation to anybody in this House whether from Wicklow, Mayo, west Limerick or Tallaght — to ask anybody who is currently at work in a service industry or in a manufacturing industry of a typical Irish enterprise, which would have ten to 25 employees, what business he is in. Having got that information, then ask him the following sets of questions. First, what directives will affect your business after 1992, have they been passed, have the Irish Government sought a derogation, a change or a modification, what new ground rules will affect you in less than 18 months' time? Second, what new possible markets can your factory and your business get into? How can you take a market of 3.5 million people and maximise it to a market of 323 million people? What plans are you and your employers making to maximise that possibility? Third, from where will the new competition come after 1992? Who will be your likely competitors after 1992? Will they compete with you in a manner they cannot do at present because of economic restrictions?
These are not fanciful questions. You only have to go into a supermarket to see on the shelves the array of products from European countries which you would not think it was worth their while to sell and you would be amazed that they could possibly mean a profit for the primary producer after they arrived on our supermarket shelves. I will give an example: rock cakes and confectionery are sold in filling stations on Strand Road in Dublin 4. The Cathaoirleach has an understanding of business, he knows the number of transactions that have to take place and he will recognise the percentages that are taken along the line. Yet this confectionery is still under-selling domestic produce that could be made 500 yards away. If that can happen in the confectionery area, what will happen in relation to insurance, banking, legal services and all the other protected traded areas of our economy which are not subject to the same kind of competition as the areas to which I have just referred? No Finance Bill should be debated and no Minister for Finance should come into this House at any stage between now and 1992 without bringing us up to date on the current thinking of the Department of Finance and the Government on the impact of 1992 and economic and monetary union.
I think it is true to say — I am open to correction — that if it was not for persistent questioning by myself— indeed I put down a Dáil question to the Minister for Finance in February — we would not have obtained from the Minister for Finance a copy of the submissions of the Department of Finance on behalf of the Government, made on 12 January to the Intergovernmental Conference in relation to Ireland's assessment of the impact of EMU on the Irish economy. That information was begrudgingly given. It was available virtually on the street corners of Brussels for anybody who wanted it. It is easier for Mr. Barry Desmond, my colleague in the European Parliament, to casually get confidential information from officials in Brussels or Strasbourg about the position of the Irish Government than it is for me, an elected Member of the Oireachtas, to get information from the Minister for Finance who is accountable to this House.
There is a ludicrous level of suspicion and exchange of information prevailing in this House which is totally contradicted by the level of access to information in the European Parliament or the European Commission. That makes a nonsense of our parliamentary activities here. There is in existence a kind of reverse democratic deficit. We have frequently argued that there is a democratic deficit in respect of decisions made in Europe for which no accountability exists vis-à-vis the citizens of this country, but in some paradoxical respects there is greater access to decision makers by the public representatives elected to the European Parliament than there is here.
I am not suggesting for one moment that the culture of the Irish Civil Service should be turned on its head and that civil servants should be talking to everybody. That is not the way we do our business. What I am asking is that the Minister for Finance recognise that this is a real debate. He should read the editorial in The Irish Times of today and should recognise that in Merrion Street and in one or two other areas, that is the sole repository of information in respect of these matters. That needs to be publicised now because we are in arrears of time in relation to it.
I said I would conclude on that general observation and I will. It underpins the relevance and the effect of a lot of the measures that we will debate on Committee Stage such as the harmonisation and administration of VAT and the harmonisation of income tax rates. As Deputy Noonan said, because we share a common labour market with the UK in particular, personal taxation rates for skilled workers are as much a factor for dislocation in this country as was the position five or six years ago when people travelled across the Border to buy goods in Belfast or Newry. You only have to talk to people in the personnel area to realise how aware they are of the labour market in other countries and the impact of direct taxation on net salaries.
I have indicated to the Minister that I would like to have an array of questions answered, and I will very quickly summarise them again: the GNP rate assumption; the average estimate of unemployment for the whole year and the consequential impact that will have on buoyancy and tax revenue; following from that the clarification particularly of section 22 and the whole Temple Bar area on which there should be a lot of elaboration — in my view it should be the subject of a totally separate debate. The Department of Finance are not very good at property development. They made a mess of selling their own property in Upper Merrion Street. I do not mean this in a disparaging way but that is not the task of these people and it is not what they were employed for. They have unique skills and they should be allowed to get on with their work and let people with other skills do the work they were employed to do.
I move amendment No. 1:
To delete all words after "That" and substitute the following:
"Dáil Éireann believing
(a) that it fails to make any significant progress towards fundamental tax reform, broadening the tax base or a shift in the tax burden away from the PAYE sector,
(b) that the provisions in regard to reform of BES abuses represent a significant retreat from the measures announced in the budget as a result of extensive lobbying from vested interests, and are particularly unacceptable in the light of the findings of the Comptroller and Auditor General,
(c) that it fails to take any steps to promote job creation, despite the fact that the March unemployment figures were, in real terms, the worst on record,
declines to give a Second Reading to the Bill."
It is now evident that the Finance Bill in recent years has been reduced to the status of a mere bargaining document between the Minister for Finance and his advisers on the one hand and various powerful lobby groups on the other. Already, from budget day, we have seen the extraordinary backtracking on the limited measures to restrict abuse of the BES and section 84-based lending. The Minister for Finance has been ignominiously forced to eat his fine words on budget day and swallow his own trenchant criticisms of the business expansion scheme. Referring to that scheme the Minister told the Dáil on budget day: "It is estimated to have cost about £40 million in tax foregone by the Exchequer in the 1989-90 tax year and it will cost a similar amount in the present tax year if action is not taken". He concluded that the BES is creating an unacceptable tax shelter.
Immediately on budget night, starting with his own backbencher, Deputy McCreevy the Minister came under pressure on behalf of vested interest groups, but he continued to protest: "Read my lips, there will be no changes in the amendments that I have announced". Within weeks the Minister capitulated and the measures designed to "curb abuses" were quickly relaxed. In the face of pressure from commercial banks and, not unnaturally, from the IDA, the Minister has played a similarly supine role in respect of the use of section 84 lending to rip off the taxpayer.
The Finance Bill is no longer designed to reflect Government measures announced in the budget. It is merely a bargaining counter used by those who can afford professional tax advice to pressurise the Minister into continuing gross inequities in the tax code and cheating the average tax-complaint citizen. Can we be assured that the Finance Bill, finally published last Thursday, thus restricting unreasonably the opportunity for studying its measures by those of us who do not have civil servants available to us and who refuse to take the shilling of the professional lobbyists, is the end of the back-sliding and capitulation to vested interests?
I challenge the Minister for Finance to commit himself to making no further concessions to those who own or control wealth or make hefty financial contributions to party coffers between now and the enactment of this Bill. Of course he will give no such undertaking, nor should he because when inevitably further capitulations occur the Minister will be seen to have no credibility left. If the Minister for Finance finds it palatable — or is compelled — to negotiate on the terms of the Finance Bill with the business sector, the financial institutions and other asset rich interest groups, why will he not similarly negotiate changes to introduce real tax reform with the trade union movement or specific measures to alleviate poverty with the various groups representing the poor? Why must all the changes conceded in an exceptionally unimaginative budget benefit those with power, wealth or assets and not those who work for a wage or who struggle to make ends meet on social welfare incomes? Those who can afford to play the Stock Exchange and contribute not a whit to job or wealth creation are given almost unlimited incentives while those working for a wage in the real economy are penalised by a burden of taxation entirely disproportionate to their incomes.
It is a reflection on those of us in this House who represent the PAYE sector — and on the trade union movement — that we allow the media to promote, largely unchallenged, the Progressive Democrats as the party of tax reform. The Progressive Democrats, striving to maintain their identity in this temporary little arrangement, seem obsessed with reducing the basic tax rate to 25 per cent and introducing a single top rate. These twin objectives will be welcomed by the Progressive Democrats' well heeled constituency but they do not represent real tax reform. Those of us who were on the streets for real tax reform, before the Progressive Democrats were even in gestation, know the difference between tax relief and tax reform. We can only get real tax reform when the tax base is expanded and some of the burden is shifted off the backs of the PAYE sector on to the corporate and wealth-owning sectors and the professionals who pay for advice to minimise their true tax liability.
The Minister for Finance has no intention of doing this, since it would involve taxing his friends, and the Progressive Democrats do not want it. The Progressive Democrats' tax policy would result in the highly paid having a lower tax liability and in a loss in the total tax revenue accruing to the Exchequer. This can only be paid for in more public expenditure cuts or in selling more of our national assets to finance day-to-day spending. The Workers' Party or the trade union movement do not want such a solution. As Deputy Noonan, Limerick East, said in the initial opposing speech, the total tax burden in this economy, by comparison with our EC partners, is not by any means excessive. The problem about the total existing tax burden is that it is not shared in accordance with ability to pay. Indeed, it is one of the most pertinent criticisms of the newly agreed Programme for Economic and Social Progress that it absolutely refrains from tackling tax reform and restricts itself to recording the tax savings secured during the course of the Programme for National Recovery.
It is a matter of concern that no matter how one studies the Programme for Economic and Social Progress starting on page 15, section 3, whereas a lot of time is spent in cleverly writing up the savings accrued during the period of the Programme for National Recovery, there are virtually no commitments any way meaningful which would constitute real tax reform. As far as the PAYE sector are concerned — and as far as introducing equity to the tax code and shifting the burden to those who can afford to pay is concerned — it is virtually worthless. Again, it goes for the yardstick of tax savings and I would have thought that the experience the trade union movement had of the Programme for National Recovery would have caused them to abandon that as a yardstick of tax reform. It suits the Government well. During the course of the Programme for National Recovery when we had unprecedented industrial peace, when profits were spiralling and industrial output was greatly increased, inevitably the Government could afford even more tax savings than were promised in the Programme for National Recovery but to go down that road a second time was folly.
Ireland's status as a tax haven is in no way restricted in this Finance Bill. Not only does it not curb the multiplicity of tax avoidance schemes, it extends further tax relief opportunities to the owners of property, such as the extraordinarily lavish incentives to the business sector in the Temple Bar area. The extent of the generosity of the package of incentives offered to developers to move into the Temple Bar area is such that it is likely to utterly change the character of the area.
Deputy Quinn raised a number of pertinent questions about the specific proposals for the Temple Bar area. He put on record what every commentator knows, that in terms of tax-led construction in the Dublin area, there is now an excess of supply over demand. Indeed, areas of the inner city which most badly need to be renewed and reconstructed do not seem — for whatever reason — to be availing of the present incentives. He raised very fundamental questions of accountability in terms of the structure which it is proposed to put in place to supervise the implementation of this extraordinarily generous package of incentives. It is a cause for concern that there is no formal procedure for accountability in the package as we know it. Indeed, Deputy Quinn raised important questions about the scope of the scheme and about the beneficiaries. I should like to ask a couple of questions because I, too, like anybody, should like to see the Temple Bar area restored as it has significant economic and tourist potential. However, I wonder whether the effect will be to utterly transform the character of that area; the expressions about it becoming similar to the Left Bank area in Paris conjure up pictures which will not accord with reality.
In this regard I should like to refer to an article in the Sunday Independent on 21 April, not normally the journal from which I take my economic commentary. I should like to quote from a piece by Senator Shane Ross. He said:
On Thursday last even some of the hardest heads among the financial correspondents staggered down the steps of the Department of the Taoiseach. The tax incentives offered to developers in the Temple Bar area had left them speechless following a briefing on the measures.
Senator Ross as you will know, a Cheann Comhairle, clambered aboard the listing Fine Gael ship and whatever one might say about the wisdom of that decision I do not think that anybody in this House would call Senator Ross a socialist. Yet, that is his view of this extraordinary package designed by the Taoiseach who clearly sees himself in the role of some modern day de Medici prince, no expense spared to restore this area in his own image and likeness. Senator Ross continued:
In Ireland when we grant tax incentives we go overboard. This most radical provision announced in the Finance Bill was the surprise announcement that with effect from April 6th, 1991, refurbishment and conversion expenditure in the Temple Bar area can be offset against all rental income. In the past it was normal that such expenditure could only be offset against income from the refurbished or converted property.
The litany of Temple Bar reliefs is long. It extends from existing to new buildings. It includes "Section 23 Relief", double rent allowances, 100 per cent allowances in respect of Capital Expenditure, all of which will continue until 1996. It includes owner occupiers, lessors, traders in leased premises and car park developers.
The Temple Bar area will buzz. Prices of property there are set to rocket.
Is it worth it? From a government's point of view one of the great advantages of tax incentives is that it is difficult, if not impossible, to estimate the amount of revenue lost to the Exchequer. The parallels with the BES are close. The new measures granting a reprieve to many BES projects were announced in the same Finance Bill.
I intend to deal with that later, but in what is an incisive commentary Senator Ross concludes that many businessmen have become very rich at the taxpayers' expense.
He goes on to raise questions of accountability in terms of the new company set up, Temple Bar Renewal Limited, and concludes that Dublin is now over endowed with urban renewal incentives. He says:
The trouble with these schemes is that they are abused and exploited, however tightly the legislation is drafted. Discretion about who qualifies for relief has to be given to somebody. In the case of the Temple Bar area it will rest in the hands of the Taoiseach's Department. No one would question Mr. Haughey's financial probity, but he may put himself and future Taoisigh in an awkward position if his Department are the arbiters of standards to qualify for tax relief.
He recommends that the Revenue Commissioners or some other independent body should be assigned the job of monitoring the scheme's progress; that they should have the obligation to report on the progress of the scheme, the criteria used by the Department of the Taoiseach when approving developers and development, and the loss of revenue to the State.
It is inadequate that we cannot have a more full debate on this major measure in the Bill. A number of Members are interested in this. The remarks made so far by the Minister for Finance are not adequate to allay the fears of people who are in no way opposed to urban renewal or, specifically, to the reconstruction of the Temple Bar area.
I want now to refer to the Minister's volte face on the business expansion scheme, which is truly breath-taking. On budget day the Minister was forced to give some credence to the crescendo of criticism of the operation of that scheme when he told the House:
The cost of the business expansion scheme relief is high. It has been high in recent years, despite the action taken in successive Finance Acts to curb abuses. It is estimated to have cost around £40 million in tax foregone by the Exchequer in the 1989-90 tax year and it will cost a similar amount in the present tax year if action is not taken.
They are the Minister's own words. That was his view of the cost in the tax year just finished. He referred to £40 million in tax foregone, serious abuses and the need for him to address them.
I would like to ask the Minister if he will confirm to the House that the total cost in tax foregone under this scheme is in fact of the order of £100 million. That was a figure we secured from either the Secretary of the Department of Finance or the Chairman of the Revenue Commissioners at a recent meeting of the Committee of Public Accounts. The Minister went on:
The changes I have made in the BES over the past few years have sought to curb abuses and focus the scheme more clearly on what it is supposed to be doing. It was never the intention that it should provide income tax relief for investment in secure asset-backed ventures involving little risk, but the reality is that this is frequently how it is operating and in the process, it is creating an unacceptable tax-shelter.
Then the Minister went on to announce what he would do about it. He said:
In order to reduce the cost in tax foregone and to focus the scheme more effectively, I am introducing some changes: the scheme will no longer apply to shipping, hotels, guesthouses and self-catering accommodation. It will, of course, continue to apply to manufacturing and international services, special trading houses and advance factories, and to tourist facilities other than those I have mentioned; the total amount a company can raise under the scheme will in future be limited to £0.5 million; and the amount any taxpayer can claim relief on will have a "lifetimecap" on it of £50,000. Where a company or individual has already passed the new limits, there will be no claw-back but amounts raised or invested up to yesterday will, of course, count towards these limits. These restrictions will apply to all shares issued on and from today. There will be no exceptions, not even where subscriptions have already been sought prior to the introduction of these restrictions.
That was the Minister's tough talking on budget night. He assured the House that there would be no changes. Indeed on that same night, moving Financial Resolution No. 5 the Taoiseach underlined the criticisms of the abuses of the scheme by his Minister for Finance and quite properly pointed out to Deputy Peter Barry and Deputy Charlie McCreevy that they were engaging in special pleading when they agreed, to quote Deputy Barry, as I do:
There is no loss to the Exchequer because the investment would not have been made unless the scheme was in place. To pretend that the scheme has cost the Exchequer X amount of money, in this case £40 million, is not correct...
The Taoiseach quite correctly replied:
This is real tax foregone. This is real income which people have and because of this scheme they do not have to pay tax on it that they would otherwise pay to the Exchequer. Therefore, there is a real loss to the Exchequer of tax foregone.
That was the message the Taoiseach hammered home. Some Fine Gael Deputies, and his own colleague, Deputy McCreevy tried to suggest otherwise. They tried to suggest that it was to be compared, for example, to the question of the tax regime applying here for manufacturing industry and that it was directly analagous in so much as if those companies did not come here in the first place one could argue that there was no loss to the Exchequer. The Taoiseach dealt with that point too when he replied:
If an industry comes in here and gets the 10 per cent tax benefit it would be true to say that there would be no real loss to the Exchequer by the 10 per cent concession because the industry would not have been here otherwise, but that is not the case here. This is a real tax foregone. This is real income which people have and becuase of this scheme they do not have to pay tax on it that they would otherwise have to pay to the Exchequer. Therefore, there is a real loss to the Exchequer of tax foregone.
The Taoiseach was quite correct, as we all know, in putting that on the record of the House. He made it quiet clear that these people would have had to pay tax if it were not for the existence of the scheme. However, Deputy McCreevy held a different view. He started his contribution on that night by calling himself an "ordinary man". I remember pointing out on that occasion that if the Trade Descriptions Act were to apply in the House Deputy McCreevy would be arrested before he left the House because whatever he is he is no ordinary man and clearly knows more about the actual pragmatic operation of these schemes and how to operate the tax shelter than the rest of us. He went on to say, "It is better to have people investing money in something concrete rather than having it lying in a bank account". That is an intriguing remark because, as the Taoiseach made clear, if money is lying in a bank account, it is liable to taxation. Obviously Deputy McCreevy, knowing something the rest of us do not know, believes it would not be liable to taxation. Therefore, there is no argument.
I have adduced in my criticism of the scheme none other than the Taoiseach and the Minister for Finance, both of whom had available to them the very valuable but rare audit report from the Comptroller and Auditor General on the business expansion scheme. I commend that report to anyone seriously interested in the attempt to create a fiscal environment through the use of tax reliefs which will encourage taxpayers to invest venture capital in certain sectors with a view to expansion of output and the creation or maintenance of jobs in the companies concerned. The remarks of the Comptroller and Auditor General are well worth putting on the record of the House because unfortunately current legislation and financial restrictions do not permit the Comptroller and Auditor General to conduct this kind of audit report except very rarely. He prefaced his remarks in the document with a number of graphs which are very illuminating and show that during the first three years of its operation, when indeed there was an element of risk for investors, the scheme never got off the ground; the amount of money invested was negligible. When the tax experts managed to figure out ways of exploiting the loopholes and creating schemes whereby they were virtually riskfree the scheme absolutely rocketed, attracting £78 million in 1989-90. At the top tax marginal rate, that means that approximately half of that amount was tax foregone to the Exchequer. The Comptroller and Auditor General stated in his report:
Using tax expenditures to provide incentives for the attainment of public policy objectives may be seen as an attractive alternative to the voting of moneys annually by Dáil Eireann for this purpose. A decision as to which method of financing should be chosen in any particular case is entirely a matter of budgetary policy and therefore the prerogative of the Government to propose; but an essential difference in so far as public accountability for the cost is concerned, is that there is a transparency about the cost of schemes financed by direct expenditure, whereas the cost of schemes financed by tax expenditures is not systematically recorded and is not reported to Dáil Éireann. Neither is the cost to the Exchequer subject to annual approval by Dáil Éireann and, once the scheme is put in place, its cost becomes open-ended and the total amount of revenue foregone depends on how taxpayers respond.
A very serious lesson can be learned from the comments made by that independent public servant on the operation of the scheme.
In the section of his report dealing with findings he said that in the light of the scale and pattern of investments identified during the examination and the lack of reliable substantive information on the performance of the undertakings invested in, it appeared that the most critical value for money consideration associated with the BES tax expenditure programme was that large amounts of tax may have been foregone with little net gain in terms of job creation or maintenance. We all know some notorious cases which bear out that contention, the most notorious probably being that involving the Shannon Industrial Leasing Company where for a project in Shannon involving between £24 million and £27 million, there was a net job creation of seven jobs. That was the most notorious exploitation of the scheme for purposes for which it was never intended by the Government who introduced it.
The main weaknesses identified by the Comptroller and Auditor General were, first, that while the general objectives of the scheme were clearly defined, no related financial cost or employment economic targets were set; second, there were no operational procedures in place to obtain feedback on the extent to which the scheme was meeting its objectives in terms of job creation or maintenance. He went on to elaborate on that point in some detail. Third, he pointed out that no procedures were in place to compile relevant information with a view to evaluating the extent to which the scheme was successful in terms of attracting equity capital into companies for high risk undertakings or in terms of increasing output. He said, furthermore, that an essential ingredient of the scheme that there should be an element of risk in the investment, was rendered largely meaningless by the devising of schemes incorporating a "put option" which guaranteed no loss to investors on their original investment after the minimum five year period. Fourth, he found that no procedures were in place to establish the number of jobs maintained or created and, therefore, the cost per job in terms of the amount of tax relief granted was not known.
The report in full amounts to a damning indictment of the operation of the scheme. This scheme which was well intentioned, well motivated and designed primarily to attract equity capital into small manufacturing companies which would enable them to grow and expand and create jobs, employment and wealth has effectively been hijacked by an army of professional consultants who, as soon as one loophole was shut off, opened up another. The result of this, as the Taoiseach agreed, has been that enormous amounts of money have been lost to the State and we have no yardstick of job creation and no adequate measures of supervision or monitoring of that scheme.
I have been very careful in my choice of critics of the business expansion scheme. I have selected the Taoiseach, the Minister for Finance and the Comptroller and Auditor General. If such eminent and powerful persons so severely criticise a Government measure, surely the man in the street is entitled to expect that something will be done about it. There is an array of so called independent commentators to buttress that criticism.
I could refer again, for example, to recent very incisive commentary on this matter by Senator Shane Ross, who will find that he will have to trim his sails if he is going to speak with such clarity, authority and truthful analysis on such schemes, should he emerge as a Dáil candidate for Fine Gael, because on budget night they loudly started the lobbying process for the Minister to continue the disgraceful manner in which the BES is being exploited at the moment. In the Sunday Independent of 3 February 1991 Senator Ross urged the Minister to resist the lobbying of the promoters of the BES and declared:
The BES has been an embarrassment to the image of business and the spirit of private enterprise. During the last two years the BES has provided a tax avoiders paradise. No one expected a further extension in its present form last week. The only real surprise was that the Minister failed to kill the BES stone dead.
Senator Ross was writing from the point of view of the business community. To support his view he instanced the case of John McGilligan of the Business and Trading House Investment Company, who applauded the budget changes and whose previous funds were mostly invested in manufacturing industries which will continue to qualify. Senator Ross concluded by saying:
If there are further abuses, if the 1991 Finance Act is not proved water-tight, if manufacturing industry and employment do not benefit this time, the BES will have rightly had its final reprieve.
That is not some left wing or socialist commentator on the operation of the business expansion scheme. It is a scandal, an embarrassment to business and it was incumbent on the Minister for Finance to ensure that the Bill brought before this House would indeed be water-tight and would, at a minimum, stand by the changes he argued for in his budget speech and on which he promised there would not be back tracking. That is the least we could have expected.
Instead, we are now asked to believe that an Irish Government who have been so critical of this scandal and who have played their part in highlighting the deficiencies and abuses of the scheme, are now bringing forward legislation that will ensure the continuation of many of these abuses. It is almost unbelievable that a measure so criticised by the Taoiseach, the Minister for Finance and the Comptroller and Auditor General should continue to be used as a tax shelter by the professional advisers in the setting up of these schemes who make enormous profits and charge enormous fees to cause these schemes to become operable. As a result of the statement of the Minister for Finance on 12 March that is precisely what this House is being asked to do. The man who told us, George Bush style "read my lips, there will be no turning back" has now under pressure agreed to climb down on the amendments he suggested on budget night.
I agree with all the criticisms of the Taoiseach, the Minister, the Comptroller and Auditor General and with Senator Shane Ross's commentary and I would add a few criticisms of my own. It is clear that a scheme designed to encourage the provision of equity capital for high risk companies which offer the prospect of substantial benefit to the economy in terms of output and jobs has effectively been hijacked by a clique of fund managers who would not know a good manufacturing project if it hit them. Their energies are entirely invested in marketing the BES as another tax avoidance measure. There were 20 such explicit advertisements in a recent edition of the Sunday Business Post. These people have an enormous vested interest in the continuation of the BES. The commercial banks use the BES as a replacement for normal bank type finance. Together with the fund managers they and not the Government are effectively determining policy on what areas may be expanded and on what areas will not be expanded.
Why has the Minister argued that hotels should benefit from the BES mechanism? Why should they qualify for BES finance? Why should one hotel qualify and not another? Are hotels that benefit not going to lead to the closure of other hotels? The Minister shakes his head. I would like to know, for example, what the proprietors of Cruise's Hotel in Limerick think about the BES.
The Deputy should not refer to individual hotels. The Deputy is experienced enough to make his point without referring to individual hotels.
I take the Chair's censure but I am trying to make the point that this does nothing other than benefit the hotels in a position to avail of it and displace other hotels.
If the Government are of the opinion, as I am, that State intervention in the tourism industry at various levels and in various ways is both desirable and necessary, I would ask them if giving hotels this relief is the way to do it. Would we not be better engaged in seeking to reduce the cost of access transport to this country, even if that meant Exchequer funded grants? A sum of £100 million is a lot of money to play around with as the Taoiseach made clear on budget night when moving the Financial Resolutions. One can do a lot with £100 million and we could do a great deal more for the tourism industry than we are doing in this way with the BES.
The Minister for Finance reneged on his own undertakings, and no doubt the well financed lobbyists that brought about his climb down have noted it as yet another precedent. What the Minister can be persuaded to do once, they will assume he can be persuaded to do again.
The hotels lobby could always rely on the Minister for Tourism and Transport Deputy Séamus Brennan to deliver. The Minister for Finance had already put the final touches to his budget speech when the Minister for Tourism and Transport was being widely photographed in the newspapers with various hoteliers and promoters of schemes arguing publicly the merits of the continuation of the scheme. This was happening at the time the Minister for Finance was signalling to all and sundry that he would have to tackle the abuses that were going on. I am aware that a good number of the hoteliers concerned would be very familiar with the Minister for Tourism and Transport from their days in the cumainn when he was general secretary and they made a few bob available to the party coffers at election time and helped in a constructive way no doubt, to formulate national policy.
That is not worthy of the Deputy.
A great many of them, as the Minister well knows, have connections with the Minister's party, but at the end of the day the Minister for Finance is the Minister for Finance——
Some even with yours.
Acting Chairman:
Address the Chair, please.
I doubt it somehow. The Minister for Finance has to answer the question whether the Minister for Tourism and Transport was calling the shots. The Minister's capitulation to the wealthy and super wealthy is to be contrasted with his miserly approach to those caught in the poverty trap and his failure once again to tackle the question of fundamental structural tax reform.
The other Opposition spokespersons have indicated that the measures included in this Finance Bill in no way constitute real tax reform. Indeed, the French Declaration on Human Rights of 1789 states "taxes are a common levy shared equally between citizens on the basis of their capacities". That is certainly not true 200 years on in Albert Reynolds's Ireland. We now have a complex web of allowances, reliefs and exemptions which enable the wealthy to avoid and evade paying their common levy. Meanwhile, because of the failure to index tax bands and allowances against inflation, an enormous proportion of taxpayers have to pay out above the standard rate.
It is remarkable that in 1973 only 1 per cent of taxpayers paid tax at the higher rates but by 1986 that figure had risen to 45 per cent. The head of taxation at Allied Irish Banks recently set out in a paper how someone earning £60,000 per annum could protect 45 per cent of his income from any tax liability by the clever use of exemptions. Those taxpayers who must spend their total income on the necessities of life do not have surplus income to invest in tax avoidance schemes. In a recent edition of the Sunday Business Post the columnist, Eugene Murray, said:
The Irish tax and social welfare system is structured so that a person earning between £6,000 and £10,000 per annum earns less after tax for every extra £1 earned.
That statistic is almost unbelievable and if that is not a disincentive to economic growth I do not know what is. In the same article the writer highlighted the fact that it was decided in the United States and in the United Kingdom in the mid-eighties to radically reduce personal and corporate tax rates coupled with the abolition of most tax incentives for investment. He said that this example had been followed in most OECD countries and went on to say:
Rate cuts have been accompanied by taxing new sources of income and removing loopholes. The measures are revenue neutral. While the reduction in the higher rates reduces the redistributional impact of the tax system the elimination of exemptions and the heavier taxation of capital gains and wealth compensate for the loss of progressivity. It is accepted that the fairness of the new system reduces tax evasion and encourages work and the taking of risks.
Certainly that is not the trend in Ireland. It is now generally accepted that high marginal rates and the structure of our income tax code are disincentives to work.
The Finance Bill, once again, reflects the unwillingness of the Government to take this trend on board. Exemptions are not being removed; on the contrary they are being broadened and extended and the tax base is not being widened. Virtually all tax reliefs for special interest groups have been maintained and some new ones introduced. Juggling around with the tax bands, as we have pointed out year after year, does not constitute tax reform. Any temporary benefit to some families will be eroded by the failure to adjust allowances or bands in line with inflation. Taking the combined effect of the budgetary changes and the increases provided for under the Programme for Economic and Social Progress, those on average incomes will have to endure an increase in their deductions of tax and PRSI. A single person on the average industrial wage of £11,754 will face an increase in tax and PRSI deductions of £125 per annum while a married couple, with one spouse working, on the same income will see their deductions go up by about £80 per year.
The report of the Revenue Commissioners for 1989, published last September, illustrated graphically how little progress had been made in tackling the disproportionate tax burden carried by the PAYE sector. The report showed that not only had the PAYE tax take increased by some £56.8 million between 1988 and 1989 but the overall proportion of income tax paid in PAYE increased in the same period from 74 per cent to 82 per cent. This further increase in tax paid by the PAYE sector has to be seen against the background of the decrease of more than £31 million in the total paid in corporation tax and the drop of more than £7 million in capital gains tax in the same two year period. Indeed, there has been a decrease in the returns from virtually all tax categories, other than PAYE. What is clear from the report is that, despite all the promises of tax reform and the minor juggling with tax rates and bands, the PAYE sector is being bled dry while other sectors continue to escape with little more than a token contribution to the Exchequer. In addition, it shows quite clearly that many of those in the business and commercial sectors — the pillars of society listed in the report who were convicted of tax offences or from whom the Revenue Commissioners extracted overdue tax — take a cavalier attitude to their tax obligations.
There has also been a misapprehension that the 1988 tax amnesty disposed of the matter of uncollected taxes, but that is very far from the case. The Minister for Finance revealed in a reply to a Dáil question put down by me last Thursday that phenomenal amounts of tax remain outstanding and that the Revenue Commissioners expect to collect only a small proportion of this money. The Minister disclosed that out of a total of £352 million in established underpayments of PAYE and VAT up to 1988-89, the Revenue Commissioners expect to collect only £116 million or less than one-third. He also disclosed that of a further £2,111 million estimated to be due under various tax headings the Revenue Commissioners expect to collect a mere £242 million or just over 10 per cent.
I accept that it may eventually be found that a proportion of the estimated amounts may not be actually due but there is no doubt about the validity of the underpayments established, and the picture disclosed in the Minister's reply is unacceptable. I find it particularly unacceptable that the Revenue Commissioners should be effectively preparing to write off more than two thirds of the established underpayments of PAYE and VAT. A large amount of the outstanding PAYE tax is likely to be money already deducted from workers' wage packets and pocketed by unscrupulous bosses rather than passed on to the Revenue Commissioners.
In regard to the tax amnesty and the mistaken perception that it has dealt with the problem of uncollected taxes, at a recent meeting of the Committee of Public Accounts the Chairman of the Revenue Commissioners went to great pains to convince and explain to the members of the committee that only £50 million of the £600 million collected by way of the tax amnesty was new tax. The success of the tax amnesty, which was beyond the wildest dreams of everybody concerned including the Minister, was in bringing in tax from people who were already in the system. That is a very sobering thought. A scheme that was predicted by the Minister for Finance of the day to bring in something in the region of £50 million or maybe £80 million brought in eventually just short of £600 million and the largest protion of that came from people already in the system.
I am trying, unsuccessfully, to find specific comments on this area of tax enforcement from the recent conferences of the tax officials' union where in no uncertain terms they voiced their ongoing concern about the inadequacies of the collection mechanisms to deal with the amount of tax still outstanding. In the self-assessment area, I recollect the general secretary of the union making the point that somebody complying with the self-assessment mechanism could expect to be audited every 260 years as the system is at the moment. Obviously, in order to have a reasonable random sample selected for audit there is a staffing implication, but, at the same time, if the extent of concern among the people engaged in the business of tax collecting and enforcing the tax guidelines impelled them to make the kind of statements they made at their recent conference, then I suggest it is a matter for concern to all of us.
Every £1 in tax evaded by business or employers takes another £1 from the wage packet of the PAYE worker who has no opportunity to avoid paying tax and who sees his wage levels eaten away each week by tax deductions. Despite the 1988 tax amnesty which brought in £600 million, the Minister's reply shows that evasion and avoidance continue on a massive scale. It is particularly disappointing that the Bill before the House contains no new significant measure to deal with this problem.
One area that needs immediate attention is the staffing levels in the Revenue Commissioners themselves. The trade union to which I referred just now suggested recently that the State may be losing as much as £400 million annually because of the failure to audit fully the sample ratio suggested by the union which seems a very reasonable ratio to take. I suggest there also must be a review of the penalties available for this social crime. Printing names in the paper is clearly no deterrent to those who stand to gain so much from this evasion. These people are robbing the State and should be treated by the courts in the same manner as others who steal. The poverty trap is the down side of the wealth trap provided by the exemptions available to those on very high incomes.
What is the position of this Government on the integration of the tax and social welfare systems? I would like to ask the Minister for Finance if he agrees that real tax reform would require this step after the widening of the tax base.
Referring to Deputy Noonan's contribution, it is important that we make clear again that tinkering around with the tax rates, reducing them a penny here or a penny there, refusing to index tax bands, refusing to broaden the tax base to those who can afford to pay and have a range of exemptions and facilities open to them to avoid doing so, are of no avail. Until we tackle these questions to call what is being done "tax reform" is a misnomer. It is extraordinary that the junior partner in Government seems to have captured this area of tax reform in the minds of the public. This obsession with reducing the standard rate to 25 per cent and introducing a single top rate does not constitute real tax reform. What the man or woman in the street is concerned about is how quickly he or she becomes liable for tax. It really does not matter much whether it is 25p or 27p; they are concerned about how quickly they become liable for that and, secondly, how quickly they go into the next band, how soon they become liable to pay the marginal rate. They are the questions that constitute real tax reform, not the cosmetics the Progressive Democrats are into. The Progressive Democrats are interested in the optics of tax reform which when they were founded won them, unexpectedly, 14 seats. Ask anybody out on the street if he or she would like to pay 25p tax in the £1 and the answer is, "Of course we would". We would all like to be paying 25p tax in the £1 but the tax code is very sophisticated and complex. Under the provisions of this Finance Bill a single person becomes liable for tax on a weekly income of £66. It makes nonsense of the social welfare system and of the incentive to work. We are being treated to an array of figures to show that in certain circumstances this is a positive disincentive to work. Tax reform must be focussed on a person who comes into the tax band at that level and then becomes liable for the next rate of tax very quickly. Contrary to what the Progressive Democrats say, we cannot leave it at that. If the Exchequer loses revenue, as inevitably it will if some of the burden is shifted from the PAYE sector, that revenue must be made up elsewhere. I cannot argue for more cuts in public spending, cutbacks in health and education, which would be the inevitable impact of the taxation policy of the Progressive Democrats. We must raise the revenue that would be lost to the State by bringing in new taxation measures, broadening the tax base and making the wealth-owning sectors liable to pay a fair rate of tax, which they have not been doing.
I spent a lot of time dealing with abuses of the business expansion scheme. It is only one of the mechanisms which can be exploited by business. Most adroit at exploiting such measures are the commercial banks, yet the tax take from them is virtually negligible. There are so many write-offs and reliefs available to them that their contribution to the Exchequer is negligible, yet they continue whingeing about the minimal bank levy. That is one area which must be addressed.
The question of corporation tax must also be addressed. The theoretical 40 per cent rate on the corporate sector is virtually meaningless. Deputy McCreevy's profession would think one was sick in the head if one was running a business and paying 40 per cent tax. There are so many mechanisms available to dwindle it that 40 per cent is no more than a notional figure. I have argued here before for a 20 per cent effective tax rate on the business sector. That would be far more meaningful than pretending that we have a corporate tax rate of 40 per cent. We cannot continue with this scandal that produced 750,000 people on the streets in 1979 and 1980. That kind of popular protest had not been seen since the time of Daniel O'Connell, yet we managed to divert that popular protest and that manifestation of the will of the people which has brought down governments in Eastern Europe. Here all it led to was the setting up of a commission so that we could side track the issue and lead the people into a culde-sac. The Commission on Taxation eventually reported and their major recommendations, not all of which I would agree with, are effectively untackled. The report lies on the shelves of the Department of Finance. The comprehensive approach to tax reform which it argued has been ignored while we engage in the optics and cosmetics of tax reliefs.
No doubt the commitment to a standard rate of 25 per cent will be great stuff at the hustings — or so the Progressive Democrats think — at the next election. People have learned what the Progressive Democrats stand for and they know that this is illusory and does not constitute real tax reform. Working people know that they are still bearing the major share of responsibility for running public services. Unfortunately, under the Bill they can anticipate no real relief.
Business can be happy that its tax havens and shelters are still in place. During the first three years of the business expansion scheme when there was an element of risk, it attracted negligible investment. This raises serious questions about the nature of our native entrepreneurial class. Where are these entrepreneurs who, the Progressive Democrats tell us, we should release into the business world? Until we worked out mechanisms to allow them to invest their money at no risk they were nowhere to be found. I have grave doubts about the minimal restrictions the Minister is introducing in an effort to assert some control. He argues that section 15 counters the use of multiple company structures and company splitting devices designed to circumvent the limit he imposes. I very much doubt whether these counter-evasion mechanisms can be effective. Even now the tax lawyers are coming up with mechanisms which will ensure that they are not put at risk. A similar point with regard to unitisation was made by Deputy Quinn on section 22. I wonder whether this has deliberately been left woolly and vague so that it can be exploited.
We started this debate by comparing the economic climate now with the picture given by the Minister for Finance in his budget speech and considering whether the targets set in that speech are likely to be achieved. Most important is the question of economic growth, which he predicted would be 2¼ per cent. He is alone now in standing by that prediction. Deputy Noonan made the point that if economic growth should fall below 2¼ per cent it is most unlikely that additional net employment will be created. There is a growth figure below which we cannot fall, having regard to the structure of a modern economy, if employment is to result. The Minister is alone in standing by the prediction of a 2¼ per cent growth.
I came across by accident part of a contribution to the debate last year. It is extraordinary how the economic climate has changed in such a short period. That speaker was referring to a report published by the Economic and Social Research Institute and I quote:
The recent medium term review published by the Economic and Social Research Institute heralded the possibility that within a few short years we will be making capital repayments on our debt rather than simply servicing the interest. According to the Economic and Social Research Institute our economy could grow on average by 5 per cent a year for each of the next five years. By 1991, on the basis of present revenue and spending policies, we would be taking in more in taxation than we have spent for the first time since the early seventies. This is a rosy picture. Some would say it is much too optimistic, but even if we allow for a degree of optimism the likelihood is that our economy will grow. The question that poses is, who will benefit from that growth?
That is an extract from the debate of only last year when the ERSI were making rosy predictions for the economy. Now we find ourselves in a position where the Government target on budget day is already at risk; the Exchequer borrowing requirement will be exceeded, in the opinion of every independent economic commentator, and, of course, we know the situation with regard to unemployment. On budget day the Minister predicted an out-turn on the live register of 228,000 unemployed people. Already, comparing like with like, the figure is in excess of 246,000 — a frightening deterioration at a time of the year when there should be a pick-up in employment. Yet that is the margin by which the Minister has already missed his target. Therefore it makes it all the more regrettable that there is nothing really in this Finance Bill which is likely to stimulate new job creation. The only reference in the debate so far has been to the question of privatisation. The question has been posed again: is the Minister going to make up the expected gap in the Exchequer borrowing requirement at the end of the year from the proceeds of the sale of some of our national assets? We look forward to a clear reply to that question from the Minister.
I argue that what is needed is the commercialisation and not the privatisation of public enterprise. I would refer the Minister to a book, The Politics of Public Enterprise and Privatisation by Paul Sweeney. I appreciate the Minister is a busy man and if he does not have time to read it, perhaps his advisers could read the only book that has been published on this question in Ireland. A number of books has been published on the privatisation experience in the United Kingdom but to my knowledge this is the only book written on it in Ireland and is written by a trade union economist, Paul Sweeney. Let me refer the Minister's advisers specifically to page 143 where the author identifies the four main reasons put forward for privatisation by the likes of the Progressive Democrats and which Fianna Fáil would not have countenanced before the shotgun marriage which they are now enjoying. The promoters of privatisation give the following four reasons in its favour, that it:
(i) encourages competition,
(ii) spreads popular capitalism through wider share ownership,
(iii) is a source of revenue for government, and
(iv) curbs the power of the public sector trade unions.
The author examines each of those arguments in turn and he deals with the question of whether this encourages greater competition at some length. He refers to a number of reviews, surveys and reports prepared in Britain from the benefit of the privatisation programme that has taken place there. He quotes from a book Does Privatisation Work by Bishop and Kay where they concluded, and I quote: “There is nothing to support any claim per se of the superiority of private over public” enterprise.
The book is written from a business perspective and is concerned with the introduction of competition. It concludes that
while many UK industries showed improvements in performance, they "do not appear to bear any obvious relationship to privatisation. Privatisation is, we have shown, neither necessary nor sufficient for enterprise change."
The OECD (1986) argued that "it is often the case that the government's practices, not its ownership per se which explains a significant part of a public enterprises' inefficiency and that elimination of such policies alone would achieve results similar to privatisation.”
They go on to support that at length. In fact it is Government practice rather than the fact that the Government own the shares of any company that contributes to the inefficiencies we have seen in public sector companies. I have no doubt that that is the case. The major Government party which is promoting this programme of privatisation is to the fore in those Government practices that have led to inefficiency. They canvassed to give jobs in public sector and commercial State companies where no jobs existed. That has been part of the political culture of this country, but to claim that inefficiency arises because the ownership of the company is vested in the State is in my view, and in the view of this author, wrong.
Without going into the matter here in detail, the author deals with each of the other propositions, for example, that it spreads popular capitalism through wider share ownership or as Mrs. Thatcher used to say, it creates a people's share-owning democracy. He looks at the pattern in the UK, and while it is true that initially when the big public utilities were being privatised a great many ordinary persons subscribed for shares, it is also true that in practice a great many of them subscribed for shares because in the preparation for privatisation the Tory Government put the shares on the market at very low prices indeed. Within a very short period the shares were again aggregated by the financial institutions as the new smaller shareholders sold them off at a considerable premium as quickly as they could divest themselves of them — so much for the share-owning democracy of Mrs. Thatcher's dream, which not even the present Tory Party in Britain continues to believe in any more.
On the question of whether privatisation curbs the power of the public sector unions the conclusion was that it was not the privatisation of these companies that contributed to the curbing of power of the trade unions but rather the dose of anti-union legislation which the Thatcher/Tebbitt Government introduced from the beginning of the eighties. There is one brief paragraph in this book — entitled The Politics of Public Enterprise and Privatisation by Paul Sweeney — concerning who are the winners and losers of privatisation which reads as follows:
The winners from privatisation were those who bought the shares well below market prices, the managers of the newly privatised companies, professional advisers and the government. The losers are less visible, being the general taxpayer and those who worked in the companies before privatisation.
I think that will turn out to be the case in Ireland as well because in Britain the policy of privatisation, which appears to be successful, on analysis, has been a failure economically for the Conservatives. I might quote again from page 168 of this book where it is said:
The privatisation of state assets in Britain resulted in a transfer of wealth from the general public to those few who bought shares in the privatised companies, many of whom quickly sold on.
Already we have seen the beginning of a similar response in Ireland, a very inadequate one, to the depth of our unemployment crisis and which must, as is pointed out in this book, be taken in the context of the fact, and I quote:
The top 30-40 Irish-owned companies have expanded abroad by foreign acquisitions in the eighties with few jobs created in Ireland in spite of the barrage of State assistance and the general awareness of the necessity for export-led industrialisation. Therefore, restructured public enterprise must be retained as an additional instrument of job creation.
No doubt the House will recall the days when prominent figures in Fianna Fáil, most recently Deputy Brian Lenihan, used to claim that the real socialist party in this country was Fianna Fáil. That was before they met their Progressive Democrats partners. The Seán Lemass generation would agree with this remark of Herbert Morrison, the architect of the United Kingdom's post-war nationalisation programme when he said:
...the public corporation must not be a capitalist business... it must have a different atmosphere at its board table from that of a shareholders' meeting; the board and its officers must regard themselves as the high custodians of the public interest.
I believe that that view of rational, State intervention in the marketplace is a socialist perspective but one that was subsequently sanctioned by Keynes and, as I said, Fianna Fáil at least in their public rhetoric would have agreed with it, indeed right until the 1977 general election when they gave an undertaking to that effect to the general secretary of the Irish Congress of Trade Unions. Now, when the tide of Thatcherism is ebbing in Britain what happens in Ireland? Once more we ape the British and are beginning to sell off such of our publicly-owned companies as are considered suitable, eligible, prepared and ready; companies that have been slimmed down, like the Irish Sugar Company, companies that have been inordinately successful, like Irish Life, are being prepared for privatisation. I believe the losers will be the taxpayers, the public generally, the workers in these companies. Ultimately I believe that control will pass out of Irish hands, when we will face an even worse employment crisis than we do at present.
The question of interest rates has been dealt with fairly extensively in this debate so far. I should like to refer to one aspect only which is the inordinate haemorrhage of moneys flowing out of this economy. It is now estimated that £3.2 billion will be exported in profits, dividends and royalties this year. That is tantamount to a haemorrhage out of this economy. Of course, it has a major bearing on our very high interest rates in comparison with those prevailing in any of our European partner countries, specifically in comparison with our relationship to the German mark within the EMS system. As far as I can ascertain the Government have no plans at all to tackle these interest rates. They boast of the removal of exchange controls, a very large part of which is comprised of the repatriation of profits from the foreign industrial sector located here.
It seems to me that it is not reasonable to expect the man in the street to conclude that there is not the ingenuity within the Department of Finance and elsewhere available to this Government to devise some tax mechanism that will induce these companies to reinvest some proportion of that wealth made here in Ireland. I am not so naive as to suggest that we can stop that haemorrhage in its entirety. I understand that, on the terms on which those companies were brought in here, always there will be repatriation to country of origin of some element of their profits made here.
The facts are that it is now some four or five years since we discovered this black hole, as it was called then. This repatriation of profits is bleeding this economy dry — £3.2 billion in outflows this year. It appears to me that it is incumbent on the Government to ascertain what tax mechanisms are available to them to encourage some of these companies to reinvest in Ireland profits made on their behalf by Irish workers.
It is evident that, 11 weeks after introducing his budget, the Minister for Finance is already seen to have no clothes. Nobody any longer believes his growth forecast. His unemployment forecast of 228,000, on his own calculations, has already become 246,000, the real figure being much worse. The tightening up on the more evident abuses of the business expansion scheme, promised by him on budget day, has already gone out the window. Interest rates are so high the Minister is reduced to making feeble public protests to the Governor of the Central Bank. Despite this, the outflows of money are bleeding our company dry. The Minister's response is to extend further tax incentives to the wealthy and superwealthy.
We are still firm advocates of the economic school of "climatology", that argues that all we have to do is get the climate right and the jobs will follow. Well, the jobs have not followed. We could not have any more convincing evidence of that than the performance under the Programme for National Recovery. In 1987 no businessman, in his wildest expectations, would have expected to have procured a climate so favourable so quickly that becomes available under the Programme for National Recovery. Yet, the net addition to employment was minimal in an economy which, over that period, lost at least 100,000 people to emigration.
Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.