First, I should like to question fundamentally the usefulness of the annual budget circus with its obsessive secrecy and the subsequent Finance Bill ritual. This ritual is a pale imitation which we have inherited from 19th century British-style administration and it is time to ditch it. The attempts by Ministers to plan by incrementalism is pathetic. It shows a grave contempt of the people's intelligence with all its hype which in reality makes little difference to most people's lives.
In modern society where even children have spreadsheets, the whole apparatus of the State, the highly competent civil servants and academic economists should be able to plan out multi-annual rolling income and expenditure programmes. I ask the Minister for Finance to reply to this point and to promise to get advice from the universities — as distinct from the supposed independent economists who, in effect, are stockbroker economists — from his own officials, and begin to construct a strategic plan for the economy which must include tax reforms. Even small fish firms have strategic plans. They plan out sales and investment over five-year periods. Surely it is time the largest enterprise in the country, that is, the State, with its budget which is approaching a staggering £10 billion, began to use 20th century methods of accounting, planning and business expertise. We should end the circus of secrecy, the artificial hype and the infighting in Cabinet for increases in favoured Ministers' Departments.
The Government have correctly insisted that companies produce proper accounts. It is time that the Government did the same. The main financial indicator, the budget deficit, which mixes current and capital spending, should be reformed. A company would write off capital investments over a number of years. Surely the Government should do the same.
I am also highly critical of the very definitions of "capital" and "current". For example, is teachers' pay not capital spending, as it is investment in human capital? Education pushes up future incomes and thus tax revenue. Perhaps it is because too many educated Irish people are forced to emigrate that it is not appropriate to treat this as capital investment in Ireland. Many countries, including Ireland, have cut their capital investment in the past decade. Therefore, the network of the public sector has fallen in recent years. New investment has not been sufficient to maintain the value of our capital stocks. While this fall-off in Exchequer-funded investment has been mitigated, the drive to cut spending has regrettably led to the largest cuts in investment. This is a major contributor to our high level of unemployment.
Another area which the Government should face up to, if they decide to introduce 20th century methods into Government financing, is the inclusion of the capitalised value of future State pensions and social welfare benefits. These rise as the population ages, and Ireland's population is suddenly no longer as young as it was a few years ago. Furthermore, with our uniquely high mass emigration we are losing many of our young people. In a normal economy these people would work, pay tax and contribute to these payments. It is more important in our case to bring into effect good budgetary practice. Therefore, our budget should be replaced with five year rolling plans. Proper account should be taken of real investment such as education. There should be depreciation of investment over a period of years rather than in the first year and proper account should be taken of the real cost of privatisation through the loss of the future profit streams and loss of future capital gains. Proper account should be taken of the real cost of future pension and welfare costs, particularly with the loss of so many of our young people through emigration due to the failed economic policies of successive Governments since independence.
The size of this year's Finance Bill, amounting to 232 sections and seven Schedules, spread over 246 pages, highlights the dreadfully inadequate way in which the House is asked to deal with vital legislation such as this and is eloquent testimony of the need for fundamental Dáil reform. The Finance Bill ought to be one of the most important Bills to be processed by the Dáil each year. Certainly, it is the one which has the most direct impact on the money in the pockets and purses of the electorate. Even for a normal sized Finance Bill the time usually allocated is inadequate — normally three days for Second Stage, two or three days or parts of days for Committee Stage and one day for Report Stage. The result is that every year without fail many sections, sometimes whole chapters of the Finance Bill, are never discussed because of the use of the parliamentary guillotine. The Minister for Finance frequently introduces substantial amendments, often new sections, on Committee Stage which are never given consideration by the Dáil.
The Dáil is failing to fulfil its constitutional obligations to consider legislation. What results is in effect legislation by ministerial decree. As a result of the amendments made in the Appropriation Bill before Christmas, which did not receive adequate consideration, the timetable for completion of the Finance Bill was tightened even further. Second Stage must now be passed within five days of the resumption of the Dáil after the Easter recess. The whole legislative process has to be completed in the Dáil and Seanad to allow the Bill to be signed by the President within four calendar months of the budget. If the time allocated in previous years is repeated this year even less of this Bill will receive proper consideration due to its exceptional length.
By lunch time on the second day of the Second Stage debate, the second Opposition speaker was still in possession. Therefore, it is clear that even fewer Deputies will have an opportunity to contribute to the Finance Bill than was the case in previous years. The whole position is being reduced to the level of a not very funny farce. If the Dáil is not to be reduced to even greater irrelevancy we must review the manner in which we conduct our business, especially in regard to the Finance Bill. We accept that the Finance Bill is complex, but one must ask — I would like the Minister to deal with this — why it takes so long for the Department of Finance to draft the Bill. I understand that in Westminster the Finance Bill is published simultaneously with the budget. If we cannot achieve simultaneous publication why can we not move towards the objective of at least reducing the time lag between the budget and the publication of the Bill? This would ensure that there is proper time for full consideration of an important Bill.
The period between budget day and publication of the Finance Bill has become a password for negotiations between the Minister for Finance of the day and powerful vested interests in the economy. There has been an accelerating trend in recent years which has seen the budget reduce to a mere bargaining counter between the Minister and his advisers on the one hand and powerful lobbyists and their expensive specialist advisers on the other.
Whatever we may think of the Finance Bill, 1992, it is only fair to record that on this occasion the provisions of the Bill more or less faithfully reflect budget day announcements. However, there are some exceptions and I will deal with them later. On the substantive changes the Minister has appeared to resist the high paid lobbyists, and I unequivocally welcome that. Unlike other Opposition speakers I welcome the apparent arresting of the trend because significant concessions by successive Ministers for Finance to powerful lobby groups are fundamentally anti-democratic and are to be deplored for a number of reasons. These concessions were invariably to the powerful and the wealthy who could command political or commercial clout and could afford the best professional advice. Concessions were never given to the weak, the marginalised and those in the poverty trap. Whatever they were promised on budget day was what they got. For the weak and poor in society writ on budget day was immutable, but for those who had the money to retain expensive advice in the past they used the hiatus between budget day and publication of the Finance Bill to negotiate substantial concessions from the Minister of the day.
The effect of the concessions has almost always been to perpetrate some inequity in fiscal policy, which meant the unfair sharing of the tax burden. It is an abdication of responsibility by Government to effectively hand over the framing of fiscal policy to powerful vested interests who have no obligation to the public good but who may have made hefty financial contributions to party political coffers at election time.
Last year's Finance Bill was a very good example of this. On budget day the then Minister for Finance criticised the extent of abuse of certain tax reliefs. Most trenchantly, he criticised the operation of the business expansion scheme, but by budget day he was forced to back off and substantially water down his announced intentions. In this debate so far the same old arguments have been revised about the curtailment of the operation of the business expansion scheme. It is instructive to examine again the criticism of the operation of the scheme by the then Minister for Finance, Deputy Albert Reynolds, when he said on budget day, 30 January 1991 in referring to the business expansion scheme: "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". The then Minister for Finance quite correctly concluded that the BES as it was then operating was creating an unacceptable tax shelter.
Those of us who are members of the Committee of Public Accounts are aware, from examining the relevant accounting officers on the special audit of the BES carried out by the office of the Comptroller and Auditor General, that it was admitted that it was difficult to precisely measure the loss to the Exchequer in terms of tax foregone but that the figure was likely to be not less than £100 million. It is wrong and misleading for Deputies to go on pretending that there is no real loss to the Exchequer because the investment would never have taken place were it not for the business expansion scheme.
The fact remains that real tax is foregone in this instance — this is income on which, because of the business expansion scheme, they do not pay tax which they would otherwise be required to pay, and there is a real loss to the Exchequer. It is disingenuous for some Opposition Deputies to come here and argue that if the BES were not there, the investment would not have taken place and the Exchequer would not be losing out. That is not a proper understanding of the business expansion scheme.
Those of us who believe in real tax reform realise that that means broadening the tax base and we cannot come in here and oppose new measures which are designed — however inadequately — to achieve that effect. Many of these reliefs and tax shelters blatantly benefit the rich, the powerful, the better off, and penalise those who work for a wage. They often act as incentives not to promote economic activity or generate wealth but to facilitate easy profits for the kind of sedentary activities deplored by Deputy Noonan last night.
While I have some major criticisms of this Finance Bill and the economic policy complacency it reflects, I cannot agree with other Opposition spokespersons who have engaged with varying emphasis in special pleading in opposing the provisions designed to abolish or restrict tax reliefs and incentives. Those of us who have consistently rejected the Progressive Democrats' policy for tax reductions and who have argued for tax reform since before the Progressive Democrats were a twinkle in the Minister for Industry and Commerce, Mr. O'Malley's eye, ought to welcome progress towards genuine tax reform when it happens. I am not saying that the burden of taxation has been shifted off the shoulders of the PAYE sector in this Finance Bill, because that has not happened to any appreciable extent, but there are measures in this Bill designed to broaden the tax base. One cannot have genuine tax reform without broadening the tax base. It is wrong, therefore, to indulge in special pleadings for various interest groups who must invariably be impacted upon if the reform measures are genuine.
Since budget day we have been treated to the customary high profile denuciations of some of the measures proposed. The louder some of these interest groups squeal, the more hopeful I am that at last we are making some real progress towards tax equity. Even the most partisan financial commentators, not to mention business itself, acknowledge that over the years a plethora of so-called incentives, tax reliefs and tax avoidance schemes have grown up to enable profits to be sheltered from the taxman. As long ago as the report of the Commission on Taxation, it was recommended that the broadening of the tax base be brought about through the treatment of all forms of wealth, capital gains and income as equally taxable. The commitment to real tax reform of those who would now oppose the modest steps taken in this Bill must be suspect.
The steps taken in the Bill to reform tax are essentially modest, but I welcome them nonetheless. Anybody who purports to have argued in the past for the cause of the PAYE sector and the disproportionate burden of tax they bear or who have argued the cause of the trade union movement should now welcome these modest steps forward as the genuine beginning of tax reforms. Real tax reforms is a question of distribution. Ideally you must broaden the tax base and reduce the burden on those tax compliant citizens who are predominantly but not exclusively in the PAYE sector who have borne such an unequal burden for so long.
Those on PAYE have received only minimal relief in this Bill and then such relief as is being given is going disproportionately to higher earners. For instance, the income tax changes will mean an extra £2,600 per annum for a married couple, with two children, earning £75,000 — and you, a Leas Cheann Comhairle and I know a small number of privileged people earning that amount and more who would seek to use methods outside this House to improve their annual earnings — but a married couple with two children, earning £10,000 per annum will receive a net gain of £100 per annum. That is unequal and unfair.
My colleague Deputy Byrne has pointed out that this Bill represents another instalment in the Government's assault on the insurance based social welfare system. The recent Social Welfare Bill reduced the value of many benefits and restricted access for many claimants and now, with this Finance Bill, both unemployment and disability benefits will be subject to taxation. Some people will ask why not? While unemployment and disability benefits are threatened with a tax net, the same Bill provides for the opening up for the first time of special savings accounts. These special savings accounts are designed for the filthy rich to facilitate the return of hot money from abroad and will be subject only to 10 per cent tax on interest earned and sheltered from scrutiny thereafter. In effect this is another amnesty for the tax cheats. However, if the genuine small saver has a few bob in a bank or building society, the interest earned remains liable for deposit interest retention tax at the rate of the taxpayer's final liability for income tax on interest earned. In other words, the couple who can afford to exploit fully the innovation in these so-called special saving accounts and can utilise it to the full by investing £100,000 will have a tax liability of 10 per cent on the interest earned. No questions will be asked concerning the origins of the money and whether it attracted the normal rate of tax at the stage it was being accumulated, but one's life savings, on which full income tax was paid at the time the money was earned, in a bank or building society will remain liable for DIRT at 27 per cent. This is, I submit, a disgraceful inequity.
On the question of income tax and tax reform I agree with the approach set out by the Minister for Finance in his introductory speech:
It was never expected and never intended by the advocates of tax reform that widening the tax base and reducing tax rates would produce a lower tax bill for everyone. On the contrary: it was always inherent in this strategy that there would be trade-offs between, on the one hand, improvements in the mainstream income tax regime and, on the other, curtailment of reliefs which benefit limited groups or sectors. This was common ground among the proponents of tax reform, and was explicitly stated by, for example, the Commission on Taxation. As the Commission said in its first report: "tax reform is a collection of measures, each of which affects some individuals adversely and others favourably. Those who will not benefit are those who are over favourably treated under the existing system".
If that is a genuine statement of the policy approach which the Minister for Finance intends to pursue, and I hope at a more accelerated rate in the next budget, it sums up the attitude of my party to tax reform.
The Minister is correct not only in quoting the Commission on Taxation, but he could quote the Irish Congress of Trade Unions. The thrust of the campaign which brought 750,000 people onto the streets for tax reform was not to diminish everybody's tax liability but to bring equity into the system, to broaden the tax base, to get those who had wealth and capacity to pay their fair share; it was not to run down the public services or to limit the money available for spending on education and health. That is something I have not heard articulated by an Opposition spokesperson so far in this debate.
Unfortunately I am not convinced that the Minister has embarked on the first step of a coherent and consistent plan of reform. The special arrangement to which I have referred for hot money and big time savers betrays the old vulnerability to powerful vested interests.
The Minister portrays a schizophrenic approach in seeking to marry the irreconcilables of genuine tax reform and the Progressive Democrats petulant demands for tax reductions for a privileged constituency. The Progressive Democrats neurosis for twin tax rates of 25 per cent and 40 per cent have either infected the Minister or he feels compelled to nod in their direction. The Minister should relax in the conviction that the public are no longer fooled by the simple equation that lower tax rates necessarily mean lower taxes. People whose incomes mean that in equity, they should not be in the tax net or people who have been paying a grossly disproportionate share of their income in tax, are not so much interested in the tax rates as in the amount of tax they pay, how early they enter the tax net, how much of their income is subject to the standard rate of tax and at what point in their earnings do they become liable to the marginal rate? It is absurd that a single adult becomes liable to income tax after earning just over £70 per week.
There is no evidence I can find either inside or outside the country to support the Progressive Democrats notion that, if we implement the two-tier tax structure at either 25 per cent and 44 per cent or 25 per cent and 40 per cent, jobs would automatically follow. Where is the evidence that job prospects will be enhanced? It did not happen in Thatcher's Britain, it is not happening in John Major's Britain and following a pattern of regular tax rates reductions in Ireland over the past three years, it has not happened here. In fact, the situation has got progressively worse.
The Minister for Finance, Deputy B. Ahern, has made a start in beginning to treat all income the same for tax purposes. If he can be seen in the next budget to continue in that direction, it will be a significant boost to morale of the PAYE sector and other tax compliant citizens. Most PAYE workers recognise the necessity for good quality public services and they are prepared to pay for these services with their taxes provided they can be assured the burden is being shared in accordance with capacity to pay. The Progressive Democrats formula will mean substantial savings for higher earners and the continued rundown of our public services. I reject the jobs argument advanced by the Progressive Democrats as spurious and I argue that our economic well being will, instead, be determined by the competitive strength of the traded sector of the economy.
Clearly the manufacturing sector is the most important focus in the traded sector. We should not be misled by growth figures and industrial output which derive largely from the enclave of foreign owned companies. In Single Market conditions our competitive capacity will be tested and found wanting in many areas: one such critical factor, for example, remains the quality of our training for those in employment. The attitude of many industrialists towards training, and the extent of investment in training, are inadequate. An environment conditioned by the current focus of FÁS and dependent on grants and handouts will not enable us to meet Single Market conditions or create a genuinely competitive economy.'
I do not think the debate on the Finance Bill should be permitted to glance over the significance of the Minister's commitment to introduce another Finance Bill in autumn or later in the year. It may seem that this is required only for reasons preparatory to the Single Market conditions; however, the deathly depressing unemployment figures which appear inexorably to be heading for 300,000 by the end of this year suggest that a mini budget may well be necessary.
In addition I would draw the attention of the House to the Minister's casual remark where he assured Deputies that he is equally committed to maintaining discipline this year and will not be found wanting should the need arise. This is a reference to what the Minister called the corrective action that he so decisively took last year. I am afraid, and especially in post-Maastricht conditions, that that has an ominous ring to it. It would be folly for anybody to believe that a mini budget holds out anything but the prospect of further cuts for those least able to bear them, the weakest in our society.
Having criticised earlier those who came in here and indulged in special pleading, and having praised the Minister beyond the wildest expectations of the Minister of State, Deputy Kitt, I should like to engage in some special pleading in a few limited areas. However, it is not special pleading on behalf of the rich, powerful and vested interest groups in our society but I should like to refer to one of the changes the Minister made in respect of benefit-in-kind for people who have the use of company cars.
Where a car has become the tool of the trade for so many people, a necessary tool for presenting themselves at work not to mention commercial travellers and sales person who have to rely on the car, the concessions the Minister advanced are sufficient. The tapering off relief concept which he has adopted does not have due regard to the imposition that this will be on a commercial traveller who is making his or her living using the car. The Minister should have made some effort to draw a distinction between the company car as a perk and the company car as a tool of the trade. For the highly paid executive who drives into Mount Merrion and parks the car in a specially provided car park, and then drives home in the evening, the Minister's measures are fair enough but for somebody who chalks up inordinate mileage at considerable risk to themselves and who depends on the car to make a living, the tapering relief is inadequate. I should like the Minister to consider examining that issue on Committee Stage.
It is my intention, if it is feasible, to draft an amendment that would take account of people who depend on the car for their livelihood. The Minister of State, Deputy O'Dea apparently thinks that is not possible. I should have thought he had sufficient to occupy him in his own Department to leave the Finance area to those of us who are dealing with it. Let him concentrate on the referendum and we will see if we can come up with something on company cars.
