In regard to the Minister's innovation in the disabled driver's scheme I would ask him to re-examine the relevant section of this Bill to ensure that people who are disabled, in the commonly accepted sense of the word, qualify. There is a distinction to be drawn between a person who is disabled and another who is totally incapacitated. The allowance would appear to be directed more at the latter and should include the former. Because of his record in this area I know the Minister will be prepared to take a sympathetic look at that allowance.
When one combines the substantial increases granted in the income tax exemption limits with the improvements announced by the Minister for Social Welfare in the family income supplement, it becomes clear that the Government are aware of the problems pertaining to what is commonly called the poverty trap and are making genuine, determined efforts to tackle that problem
I want to put one technical point to the Minister in relation to marginal relief. Would it be possible to grant marginal relief automatically to taxpayers who will be entitled to it? I have come across many cases of people who would clearly be entitled to marginal relief — even bearing in mind the statutory increase in their social welfare entitlement — not granted such marginal relief but simply granted their tax-free allowances. When they approach their local politician or whoever, their tax free allowances are adjusted, from which date marginal relief is applicable. It is my fear that, through lack of knowledge about how the marginal relief system is operated — and it is a complicated system for somebody who knows nothing about income tax — people may be losing out. I can understand the Minister's difficulties in this regard because, granting marginal relief in advance requires the Minister to foretell what will be a person's income for the ensuing income tax year.
We had a similar debate in relation to the family income supplement on the Social Welfare Bill when the Labour Party pressed hard for the automatic granting of the family income supplement to certain workers when the same difficulty pertained. It is virtually impossible to grant this allowance since one cannot foretell what will be a person's income for the coming year. It must be remembered that it is a person's net income, after payment of certain overheads and expenditure, that renders them eligible for the family income supplement. In the course of that debate Deputy Stagg suggested he could write a computer programme for the Department of Social Welfare which would enable them to automatically grant the family income supplement. Perhaps he would apply his skills to writing a computer programme for the Department of Finance to enable them grant marginal relief in advance. I do not know what type of computer programme that would be, but, if Deputy Stagg can write a computer programme which would foretell the future, then he has the potential of becoming a very rich man indeed, though being a socialist, perhaps he is not interested.
There are some politicians going around this country like medieval town criers criticising the Minister for Finance on the slow pace of tax reform, by which they mean, of course, income tax reduction. Some of those people are Members of this House and some are former Members who were not able to retain their seats, which is testimony to their political ability. Those people are voicing their views in the media and at public meetings about 40 per cent and 25 per cent rates of income tax as though those two rates were some sort of holy grail which, once achieved, would mean all our problems would disappear into the mist whereas nothing could be further from the truth. That argument is an illusion and is dishonest.
With the benefit of figures supplied by the Department of Finance and a biro I could produce, on the back of an envelope, a 40 per cent and 25 per cent tax regime for the Minister for Finance yielding the same revenue from income taxation as obtains at present. One could do it by fiddling around with the bands and allowances. There is nothing magic about those two rates of tax. What is important is that the Minister has been determined to maintain fiscal rectitude and/or budgetary discipline. The confidence which had to be renurtured from 1987 onwards, since maintained by stringent fiscal measures on the part of the Government, is the cornerstone to the recovery of our economy. We must preserve that confidence by maintaining that fiscal rectitude, budgetary discipline, call it what you will.
The fact of the matter is the Government have made substantial progress toward reducing the crucial ratio between debt and gross national product. That process must continue particularly in the light of the worsening international economic scene. Nobody wants to revert to the bleak summer and winter of 1986 when despondency and despair were the order of the day, when there was not a penny being put into our economy, when virtually everything had ground to a standstill. Substantial progress has been made, recognised by all independent commentators with no Fianna Fáil or Government connections, who have no axe to grind. I might cite a recent report of O Riada Stockbrokers, of a Mr. McLoughlin of that firm — I think reported in yesterday's newspapers — which backed Government strategy to the hilt.
I wonder whether those people who criticise the Minister for Finance, including those outside this House, would direct their minds to the consequences for this country if that carefully nurtured confidence, acquired so painfully over the past four years, suddenly evaporated, as it would assuredly, if the national debt slipped out of control again because of premature reductions in taxation. What would be the consequences for the levels of taxation, interest rates and jobs? What would be the consequences for the unemployed and the underprivileged? I can assure those people that the consequences would be immediate and horrendous. We hear much talk about people preserving their identity. I am all in favour of people preserving their identity; I am a nationalist, I believe in the identity of nations; I am anti-racist, I believe in the identity of every human individual and, by extension, I believe in the identity of political parties. By all means preserve identity but do not seek to do it at the expense of the national interest or the people outside this House who have elected a Government to govern and who expect that Government to do the right thing for the economy and serve the national interest.
In relation to capital gains tax I welcome the extension of the self assessment system to that tax. It will improve the flow of revenue to the Exchequer and will get around a pretty undesirable situation which operates under the present system of assessment of capital gains tax. When somebody sells property for a gain, in many cases only a national gain, he receives a communication from the Revenue Commissioners, three, four or five years down the road informing him to submit a return for capital gains tax purposes. In my experience this has caused a great deal of anxiety and anguish, not to mention expense, to taxpayers who often have no capital gains tax to pay.
Under the new system of self assessment the onus is on the taxpayer to submit his capital gains tax return. He must pay his preliminary tax on 1 November in the year following the year of assessment in which the gain is made and the balance of the capital gains tax three months later. This is eminently more acceptable than the present system. It will increase the flow of revenue to the Exchequer from the capital gains tax system and avoid a great deal of anguish, anxiety and expense for taxpayers.
I welcome also the relief which the Minister is introducing from capital gains tax on the disposal of business assets outside the family. Representations have been made to the Minister by myself and, I am sure by others, about the problems which this provision has caused and the fact that it has not been increased. Not only has the Minister responded generously to our representations, he has increased the allowance fourfold to £200,000 and I thank him for it. He has introduced also a provision which will get around a particular problem — where there are very few votes — which causes severe hardship. In order to qualify under this section of the capital gains tax provisions a person need no longer be a full-time working director for ten years, he need only be a full-time working director for five years of the ten years running up to the time in which the asset is disposed of. That five year period need not be the period ending on the date of disposal of the asset. That provision has caused hardship in individual cases. I am aware of instances where working directors in a company became ill, they stayed on as directors but were interpreted by Revenue as not being working directors because they were not actively participating in the management of the business. They wanted to see whether they would recover their health sufficiently to go back into the business but in many cases that did not happen. Eventually, when they sold their business they were held not to have been a full-time working director for ten years immediately preceding the date of sale of the asset. The Revenue interpreted that provision in a nasty and inhumanitarian way. I am delighted we are bringing in a provision to remedy that
I welcome the reforms in the Bill in relation to capital acquisitions tax. The top rate of capital acquisitions tax is reduced to 40 per cent. When Deputy Dukes introduced the accumulation system of capital acquisitions tax in 1986 I argued at that time, from the Opposition benches, that that would prove confiscatory in many cases and that has proved to be the case. The Minister has taken a dramatic step to take the confiscatory element out by reducing the top rate to 40 per cent. He has increased the agricultural relief to 55 per cent but, because the price of farm land has not increased for many years, the cap of £200,000 remains. That is only right and logical.
I am not happy with the provision to increase the test of what is a farmer from 75 per cent to 80 per cent. It is not unreasonable to assume that if at least 75 per cent of somebody's assets consist of farming assets such as stock, machinery, and land they are almost invariably a full-time farmer. I do not see the point in increasing the provision to 80 per cent. However, I do see a danger in it. There are many cases where people who acquire property have no income bearing assets. If the value of property is artificially depressed, and if the value of those non-income bearing assets is momentarily artificially high, it may take the donee in that case out of the ambit of agricultural relief. That could cause hardship in individual cases. I ask the Minister to look again at that provision.
The provisions of the capital acquisitions tax legislation whereby a person can avail of an insurance policy in relation to inter vivos dispositions is being introduced. That is only right, fair, logical and in harmony with the remainder of the capital acquisitions tax system. Heretofore, that facility was afforded only to people who took an inheritance rather than a gift. It is entirely logical that it should be extended to gifts. In fact, it was illogical that it did not apply to gifts because the rate of gift tax is 25 per cent — only 75 per cent of what the rate of inheritance tax would be. The supposed motivation of that differential was to encourage people to transfer property by way of gift rather than by way of inheritance. The extension of the insurance policy facility to gifts is entirely logical and in harmony with the differential in the rate of tax between gifts and inheritances.
There has been much Opposition criticism of the changes in the business expansion scheme. Certainly, the Minister made an announcement in relation to his intentions concerning the business expansion scheme in the budget. The provisions in the Finance Bill are somewhat different. He has retreated somewhat — not very far — from his declared intentions at the time of the budget. Budgets are not written on stone. It would be a poor Minister for Finance who would come to the House in January, announce certain tax proposals and then say to the Department of Finance: "go away and draft those proposals exactly as I announced them, we are not going to listen to or entertain any arguments, submissions or suggestions regardless of how reasonable or logical they may be." A Minister for Finance who would act in that manner certainly would not have any respect and he would not deserve it.
The budget announced by the Minister is not a bargaining counter but people are entitled to make reasonable and logical submissions on what will be in the Finance Bill when that has been signalled, as it is every year, in the budget speech. The difficulties we have had, and the slight embarrassment suffered in relation to the business expansion scheme, exposes a fundamental flaw in our income tax system. Governments introduce tax allowances, and particular incentive schemes, in Finance Bills not just to be popular or for some altruistic motive but to direct investment to certain areas of the economy. We have found, as has been found in Britain and continental countries, that sometimes people abuse those incentive schemes and use them for purposes for which they were never intended. They use them to minimise their own taxation.
Part of that problem would be solved if we were to debate the Finance Bill properly in Committee. I understand that in the United Kingdom a technical Finance Bill is introduced which is debated at length in committee. If that were done here — I know of no constitutional or legal reason why it could not be done — many of the problems would be met and solved in advance. I met people on the day after the business expansion scheme was put into law who pointed out to me ways of getting around it and ways in which it could be used which would have horrified the Minister and his officials.
There is another way, in the present state of tax law in this country, of solving the problems of people using incentive schemes for purposes for which they were not intended and for which they should not be used. There is a substantial anti-avoidance provision in the Finance Act, 1990, which has not yet been used, according to the information available to me. Under that provision the Revenue Commissioners can send to a person a directive in relation to any scheme which they feel has no substantial benefit other than to avoid tax, and the onus will be on the taxpayer to prove that his attention is other than primarily tax avoidance. If he cannot establish that to the satisfaction of the Revenue Commissioners or ultimately the appeal commissioners, the scheme becomes null and void and there are penalties and disincentives built into it. If the Minister were to direct the Revenue Commissioners to use that power more widely there would be much less abuse and we could freely bring in incentive schemes which would not have to have 12 or 13 pages of technical legislation to prevent people from abusing them.
The business expansion scheme has been, by and large, successful. The Minister referred at some length in his contribution to a survey carried out on the effects of the business expansion scheme, but of course it is impossible to calculate exactly how many jobs flow from any tax scheme. That depends on other factors such as the climate of confidence in the economy, the state of the national finances and so on. Deputy Rabbitte was very harsh in his criticism of the Minister for reviving the business expansion scheme albeit in a much watered-down state. Deputy Rabbitte said that his concern is for PAYE workers. Who does he think gives jobs to those PAYE workers? This is largely a private enterprise economy. If the experience of the Soviet Union and other economies in Eastern Europe since the Second World War has taught us anything it must be — although the message does not yet seem to have penetrated through to The Workers' Party — that the command economy structure does not work. Economies work when people are given incentives to take risks, invest and create real jobs.
The situation has arisen whereby The Workers' Party and people of the Left tend to focus on certain constituencies or certain sectors within the economy. There is no perception of the broad picture and no attempt to perceive or present it. The broad picture is that many people who to my knowledge have availed of the provisions of the business expansion scheme are people who took risks and borrowed money. Many of those people had to sign personal guarantees for banks and other financial institutions. If the schemes in which they are involved go wrong many of the people stand to lose their homes. Nobody, least of all myself, is going to pretend that those people are taking risks for patriotic or altruistic motives. Any economy that wants to grow and develop and create jobs depends on such people and such people must be encouraged to some extent at least to take risks.
The business expansion scheme has been watered down considerably. The total amount a company can raise is being reduced by 80 per cent, from £2.5 million to £500,000. Certain asset-backed operations are being excluded from the scheme and this is only right and logical The original objective of the business expansion scheme was to direct investment into smaller riskier companies. The exclusion of asset-backed businesses will achieve precisely this because it will improve 100 fold the chances of small riskier companies raising business expansion finance now that the larger asset-backed safer operations can no longer avail of it.
In conclusion, the Finance Bill represents a continuation of the Government's policy of careful and responsible economic management. There are a few technical points that I want to bring to the Minister's attention on Committee Stage, but subject to that I have no hesitation in commending the Bill to the House.
