Léim ar aghaidh chuig an bpríomhábhar

Dáil Éireann díospóireacht -
Tuesday, 8 Apr 1997

Vol. 477 No. 2

Finance Bill, 1997: Second Stage.

I move: "That the Bill be now read a Second Time."

This is the third Finance Bill I have had the privilege to introduce to the House. It will enable the Government to reward work, safeguard jobs, reduce business tax and stimulate enterprise. The Bill gives effect to the biggest set of personal and corporation tax reductions in the past 20 years or more and its passage will secure a substantial increase in after tax income for the taxpayer.

Like all Finance Bills, this year's Bill also closes off a series of tax loopholes in indirect and direct taxes. It includes a package of measures to further combat illegal tobacco sales thus safeguarding a revenue source for the Exchequer and cutting off a revenue source for many criminal gangs, particularly in Dublin. It is important to eliminate such revenue losses to the State so as to manage tax resources more efficiently, thereby ensuring tax reliefs are properly targeted and that more resources are available for general tax reductions.

The Bill also contains a further series of pre-consolidation provisions which prepare the way for the Taxes Consolidation Bill. This will be a substantial body of legislation containing over 1,100 sections and 29 schedules. To assist the smooth passage of the consolidation Bill in due course, I will publish a draft of the Bill next week. This will include all changes to income tax, corporation tax and capital gains tax since 1967 up to and including this year's Finance Bill.

Sections 1 to 3 provide for the substantial increases in personal allowances and exemption limits provided for in the budget as well as the reduction in the standard rate of income tax and the widening of the standard rate bands. Section 4 meets a commitment in Partnership 2000 by exempting the first three weeks of disability benefit payments from income tax in 1997-98 and the first six weeks from the 1998-99 tax year onwards. The section also renews for a further year up to 6 April, 1998 the special exemption from unemployment benefit taxation introduced in 1994 for all systematic short-time workers.

Section 5 and a number of later sections incorporate into the Bill the existing provisions on income tax, capital gains tax, capital acquisitions tax, probate tax and stamp duty contained in the Family Law Act, 1995, and the Family Law (Divorce) Act, 1996. The provisions are being included here as is the normal practice in order to ensure that all tax provisions are to be found in the Finance Acts for the guidance of taxpayers and practitioners.

Section 6 relates to tax relief for third level fees for undergraduates and confirms that fees paid for qualifying part-time third level courses by non-earning spouses can be set against their earning spouses' taxable income. The section also allows for the retention of tax relief for those progressing from certificates to diplomas to degrees within the same course. It also extends relief to those pursuing approved distance education courses provided by colleges in another EU member state which meet certain codes of standards. This is designed to facilitate Open University courses which many people take.

Sections 7,8,27 and 51 give effect to the package of tax reliefs announced in the budget to encourage the newly established developing companies market. These reliefs cover access to the BES for DCM companies and a special increase in the investment limits on special portfolio investment accounts where DCM investments are concerned. The SPIA increase, which is available for three years, is to help the DCM get off the ground. I regard the package as a generous response to the case put to me for special reliefs. I will want to see the Stock Exchange and the investment community respond by supporting firms to establish on the DCM at a reasonable cost. I will not wish to see these tax reliefs absorbed by excessive fees charged by brokers and others and the Stock Exchange has given me assurances on that point.

Section 9 seeks to curb the growing use of the long-standing tax relief for scholarship income as a means by which companies can provide tax free income to directors, for example, under the guise of scholarship schemes for their children. I have no wish to interfere with genuine schemes or with the tax position of the recipient. For that reason, the section continues the current exemption in respect of the recipients of scholarship income. It provides, however, for the taxation of the income as a benefit-in-kind in the hands of the parent if the scheme under which the scholarship is provided does not disburse at least 75 per cent of the scholarship income to persons not connected to the employer providing the scholarship. The new rules apply to all new schemes from 26 March, 1997 and to existing schemes from 6 April, 1998. I have provided for this breathing space to allow some time for existing schemes to amend their rules if they desire. This is reasonable given that certain ongoing arrangements for children's education may have been made on the basis of the current tax position.

Section 10 is a technical amendment to ensure that when certain severance or redundancy payments in the public service are put on a statutory basis they will not become automatically tax free. They will remain subject to tax under the same rules that apply to the private sector.

Section 11 tightens up the withholding tax deduction system for sub-contractors by closing some loopholes in the forestry area, extending the time limits for prosecutions and ensuring that those not complying with the C2-C45 deduction procedures may be included on the list of tax defaulters published by the Revenue Commissioners.

Section 12 introduces a new relief aimed at assisting certain firms to adapt to a change in their competitive environment. It provides that where a company restructures its operations by agreement with the workforce to secure its survival, income tax relief can be made available on certain lump sums paid by the company to employees both to achieve and compensate for a substantial pay restructuring. The maximum lump sum to be tax relieved is £6,000 plus £200 per year of service up to an overall maximum of £10,000. The pay cut involved will have to be at least 10 per cent of average pay for the previous two years and the reduction will have to remain in force for at least five years. The payment of normal general pay round increases and increments will not affect the availability of the relief. It is important to stress that the union-management agreement providing for the pay restructuring will have to be registered with the Labour Relations Commission. The proposed restructuring will have to be certified by the Minister for Enterprise and Employment, on advice from the Labour Relations Commission, as being both necessary and effective to meet the new situation.

During the five year period of the agreement the company will have to confirm to the commission, on an annual basis, that the terms of the agreement continue to be complied with. If the conditions for granting the relief are breached, any relief granted will be withdrawn. Any tax relieved lump sum will be set off against any tax relieved redundancy payment made to the employee in that employment within five years of the lump sum being paid. The scheme will operate for a period of three years. I have been conscious of the need to target this relief on the essential function of saving jobs and to minimise the tax planning aspects and I am happy that this has been achieved.

Section 13 closes a loophole whereby residents taxed on the basis of money remitted from abroad could avoid tax by using a loan or overdraft and repaying this in due course from foreign income. This loophole, closed in 1971, was inadvertently reopened when the rules on residence were revised in 1994. The section deems income used to satisfy a loan or overdraft taken out on or after 20 February 1997 as income remitted to the State and thus taxable where a person is resident or ordinarily resident in the State.

Section 14 provides for tax relief on certain corporate and personal donations of £1,000 or more to publicly-funded third level institutions. The donations must be in respect of defined projects in the areas of research, the acquisition of capital equipment, infrastructural development in certain specified institutions and the provision of facilities to meet defined skills needs. Projects in these areas must be approved by the Minister for Education, following consultation with the Higher Education Authority, on the basis of guidelines to be agreed with the Minister for Finance. The guidelines will deal with such matters as the approval process, the definition of "skills needs" and the specification of approved infrastructural developments.

The Finance Act, 1982 provides income tax relief on certain expenditure incurred on the repair, maintenance or restoration of approved heritage buildings provided that the property is open to the public for not less than 60 days in a year, at least 40 of which must be in May to September. Section 15 of the Bill provides for this relief to be extended to include aggregate expenditure of up to £5,000 per annum on alarms, public liability insurance and the restoration of approved art contents on condition that the contents are kept on display for a minimum period of two years after restoration. It also provides that any qualifying expenditure which is unrelieved in any one year can be carried forward for up to two subsequent years. In addition, the public access requirement for the purpose of CAT relief is being reduced from 90 days to 60 days which applies in the case of income tax relief. This brings the access requirements for the purposes of the CAT relief into line with the income tax access requirements — sensible and useful simplification.

A number of sections deal with farmer taxation. Stock relief for farmers will continue at 25 per cent for a two year period from 6 April 1997 to 5 April 1999 by virtue of Section 16. Section 17 provides that stock relief at a rate of 100 per cent will be available to farmers under 35 years of age who, between 6 April 1997 and 5 April 1999, either qualify for the scheme of installation aid for young farmers or become chargeable for the first time to income tax in respect of profits or gains from farming and meet specific training requirements. This special relief will be available to qualifying farmers for two years.

Section 18 and the Third Schedule introduce a new 'year one' capital allowance of 50 per cent for expenditure incurred on necessary farm pollution control measures up to an expenditure limit of £20,000. The balance of expenditure will be written off over the following seven years in accordance with the normal wear and tear allowance. The scheme applies for three years from 6 April 1997 to 5 April 2000. The Third Schedule sets out the farm buildings and structures to which the allowances for pollution control will apply.

Section 98 continues the two thirds stamp duty relief for young trained farmers in respect of agricultural land and buildings transferred to them for a further three years up to 31 December 1999.

Sections 19, 20 and 21 relate to the capital allowances regime for motor vehicles, rented accommodation and the application of balancing charges in certain cases. The first two sections give effect to improved reliefs announced in the budget and the third closes a loophole in the application of clawback provisions in the case of capital allowances generally.

Section 22 deals with an abuse of capital allowances for hotels. These allowances, which can be offset against all the income of investors, apply at the rate of 15 per cent of expenditure for the first six years and 10 per cent in year seven, i.e. 100 per cent in total. Under the scheme in question, the investors claim the capital allowances for the seven years and, at the end of the period, are each given ownership of a nominated suite in the "hotel"— in effect, privately owned suites for private use located in what had been until then a hotel building. The section will deny capital allowances to investors in such cases with appropriate transitional arrangements for projects where contracts were signed or applications for planning permission were received by the local authority before 26 March 1997.

Section 23 extends the deadline for tax relief under the general urban renewal scheme from 31 July 1997 to 31 July 1998 subject to certain conditions. The one year extension will also apply to leases which qualify under the scheme for the purpose of obtaining a double rent tax allowance.

The Bill contains several important provisions in relation to the IFSC. Section 24 allows me to extend, by order, the definition of the Custom House Docks Area for the purposes of the IFSC tax regime. I propose to extend the area to include the block bounded by Commons Street, Mayor Street, Guild Street and the North Wall Quay, i.e. a block of land immediately to the east of the original Custom House Docks Area site which houses the IFSC.

Section 28 continues the tax transparent treatment of collective funds managed by certified IFSC-Shannon companies after 2005. Tax transparency involves exemption of income from tax at the level of the fund but investors may be taxed on that income in their home jurisdictions.

Section 32 amends the Finance Act, 1974 which provides that interest paid to a non-resident by an IFSC or Shannon company or collective investment fund in the ordinary course of IFSC and Shannon activities is not subject to withholding tax. The section provides that this treatment will continue in the case of securities issued before 31 December 2005 with a maturity date of not more than 15 years from the date of issue.

Sections 43, 44 and 50 introduce changes to the treatment to be applied in certain circumstances to policies issued by IFSC life assurance companies to policyholders while residing outside the State but who subsequently commence to reside in the State. The provisions are designed to remove difficulties which might otherwise lead to the enforced encashment of such policies by the policyholder on commencing to reside here.

For many years now and particularly since I established the Department of Enterprise and Employment, I have been keenly aware of the need to promote and encourage the creation and development of new businesses. The following measures continue the many steps and initiatives I have taken in this area.

Section 25 provides for relief for pre-trading non-capital expenses which I announced in the budget. Expenses which are wholly and exclusively incurred for the purposes of a trade or profession not more than three years prior to the commencement of trading, and which would have been allowed in calculating trading income if incurred after trading commenced, will now be deductible. This important new relief will be available for new businesses, whether incorporated or not, which commence trading on or after 22 January 1997.

Section 26 amends the relief for investment in films which is known as section 35 relief. It is proposed to increase the existing cap on section 35 investment in any one film from £7.5 million to £15 million where at least 50 per cent of the section 35 investment is made by corporate bodies. The section will also increase the current £6 million annual investment limit for corporate bodies to £8 million in total and the individual limit for corporate investment in any one film from £2 million to £3 million. In addition, it is proposed to allow an additional 10 per cent section 35 finance for films in respect of which post-production is carried out in the State. This would include facilities such as editing, dubbing or mixing in the State. I am confident that these enhanced reliefs will assist film production in Ireland while at the same time ensure that section 35 will remain a cost-effective and targeted relief.

Sections 29 to 31 together with section 46 and 128 deal with strips of interest bearing securities. Section 128 allows the Minister for Finance to nominate Government securities which may be stripped. The other sections provide the general tax regime to be applied to strips of interest bearing securities. Strips are created when interest bearing securities are split into their component parts, i.e. individual yearly interest elements and final principal element, the rights to which can then be separately sold and traded in their own right as zero coupon securities. The introduction of such a facility for Government securities has been recommended by the NTMA as a necessary step in widening and deepening the market in Government securities to match similar market developments in other countries. However, within the present tax code, the creation of strips could open up the possibility for tax deferral and avoidance in certain circumstances especially in the case of individuals, non-trading corporates and life assurance companies. The Bill sets out rules to deal with the creation of, and transactions in, strips to minimise the risk of tax planning. This will involve taxing the growth in the value of these zero coupon securities on an annual basis rather than when the gain or income is realised on redemption.

Section 31 and 46 also address a potential avoidance mechanism involving equity-Government security swaps in the case of certain taxpayers. Section 35 deals with the tax treatment of share buy-backs involving quoted companies. These changes affect the tax rules applying to a buy-back of its own shares by a quoted company, or by a subsidiary of a quoted company. Under the new rules, a buy-back will not be treated as a distribution of profits so that a tax credit will no longer apply to the payments made by the company to the shareholders concerned. Consequently, the sale of shares to the company by the shareholders will be regarded as falling within the capital gains tax provisions. This will protect the position of the Exchequer in such buy-backs. It will also bring the treatment of share buy-backs involving quoted companies into line with that which applies to share buy-backs by unquoted companies in certain circumstances.

Section 36 exempts from tax the employment grants administered by the National Rehabilitation Board under the employment support scheme and by the Rehab Group under the pilot programme for people with disabilities. Similar exemptions have been granted for employment grants in other areas.

Section 37 reduces the standard rate of corporation tax from 38 per cent to 36 per cent, while under section 38 the lower rate for the first £50,000 of taxable income is being reduced from 30 per cent to 28 per cent. The reduced rates apply from 1 April this year. Provision is also being made in section 33 for a reduction in the tax credit on dividend payments to shareholders in line with these rate reductions. Section 38 clears up a technical problem with the formula for the application of the 28 per cent rate of corporation tax which recently came to light and which has already been addressed by Revenue.

Section 39 provides for the removal of the VHI's exemption from corporation tax under section 80 of the Corporation Tax Act, 1976, with effect from 1 March last. This is necessary to ensure a common corporation tax regime for all health insurers operating in the Irish market. In this connection there is a fixed duty of £1 payable in respect of non-life insurance policies. Section 100 removes this duty from policies offered by authorised insurers in respect of health insurance business covered by section 2 of the Health Insurance Act, 1994.

Section 40 deals with the tax treatment of the profits of harbour authorities which have been reconstituted as harbour companies under the Harbours Act, 1996. These companies are now being brought into the corporation tax net in line with the general policy of subjecting commercial State bodies to tax in the same way as private concerns. However, the Government has decided to afford the harbour companies an appropriate transitional period in which to adapt to the new position. Such companies will retain the existing tax exemption until 1 January 1999. They will then be subject to corporation tax with a two-thirds reduction in taxable profits in 1999, a one-third reduction in 2000 and full taxation from 2001. A similar tax regime will be extended to privately owned ports in the transitional period 1997-2000, inclusive. Harbour authorities which are not vested as companies will retain their exemption from tax for the present. The harbour companies which are being brought into the tax net in this way currently handle more than 90 per cent of commercial port traffic.

Sections 41 and 42 extend the tax relief on corporate donations to First Step and to the Enterprise Trust until 31 December 1999 in both cases. This is in recognition of the contribution to enterprise development and employment made by both bodies and the commitment to continued relief in Partnership 2000 in the case of the Enterprise Trust.

Sections 47 to 53 deal with capital gains tax, principally the cut in the CGT reduced rate of 27 per cent to 26 per cent, a reduction to three years in the trading period for qualification for the reduced rate, the closing off of one particular CGT loophole and the treatment of free shares on demutualisation of life companies. The application of CGT in family law cases and to the DCM is also dealt with in these sections.

Sections 54 to 56 deal with a number of vehicle registration tax issues. Section 55 ensures that an unregistered vehicle for VRT purposes includes a vehicle built up from either a chassis or a monocoque which is either new and unused or is derived from another unregistered vehicle. Section 56 will amend the legislation to allow VRT documents which have been electronically imaged or otherwise copied, stored and reproduced to be admitted as evidence in court proceedings. This will extend the principle already included in the Criminal Law (Evidence) Act, 1992, for the acceptance in criminal proceedings of documents produced by computer or other modern technological processes.

Sections 57 to 68 relate to excise matters. They confirm the budget day excise changes in tobacco and road fuels and deal with a number of other technical items. More importantly, sections 60 to 67 provide considerably increased powers to support the increasingly successful fight against illegal tobacco sales. The sections provide for increased penalties, new powers of arrest and detention, new offences aimed at illegal wholesaling as well as retail street vending of illicit tobacco products, improved seizure powers and more streamlined court arrangements in certain cases. These new powers were drawn up by Revenue in consultation with the Garda and are an indication of the Government's determination to do all that is necessary to ensure that this problem is dealt with firmly and in an effective way. This is, of course, a European-wide problem and with my agreement, the Revenue Commissioners have taken up the issue at that level with a view to having all aspects of the matter examined. The EU Commission has agreed with member states to establish a high level group for this purpose.

Sections 69 to 86 include a series of important changes to the VAT codes in property and telecommunications. The purpose of these changes is to combat avoidance and to protect Exchequer resources. The provisions on telecommunications also ensure that there is a level playing field between EU and non-EU suppliers with regard to VAT. As the explanatory memorandum sets out in some detail the reasons for and the precise details of the new VAT regime in both property and telecommunications I will not dwell at length on these aspects now. However, some brief elaboration is required. With regard to VAT on property, the Bill seeks to ensure that the tax cannot be avoided by VAT exempt bodies such as banks and insurers. The amendment will close off loopholes which, over time, could cost significant amounts to the Exchequer. In simple terms, the avoidance schemes usually involve the use of arrangements such as artificially broken leases, assignments and surrender of leases at low or nil value for VAT purposes. These schemes will be countered in two principal ways. First, the assignment or surrender of lease will be treated as an effective sub-lease of the property for the remaining term of the lease and a market value will be established on this basis. Second, a reverse charge mechanism will apply to surrenders and assignments, that is, the person receiving the property will be liable to account for and pay the tax rather than the supplier, which is the norm in VAT law. This ensures that the exempt bodies receiving a surrendered or assigned lease must pay the tax.

Under the EU Sixth VAT Directive, the institution of a reverse charge mechanism requires European Union approval. The Government has applied for this approval and the request is currently before the Union. When granted, the reverse charge will apply from the date of publication of the Finance Bill, that is, 26 March this year.

The telecommunications changes are aimed at eliminating a tax-based distortion of competition arising largely from the fact that non-EU suppliers of telecommunications services are not, at present, liable for VAT on services supplied within the European Union. The Bill provides that, for the purposes of VAT, the place of supply of international telecommunications services will in general be shifted to where the customer is located rather than from where the services are being supplied. A reverse charge mechanism will be introduced for business customers who will be obliged to account for the VAT. Non-EU telecommunications operators who supply non-business customers in the State will be required to register and account for VAT on those supplies. The change, which has European Union approval and is being implemented in all 15 member states, will come into operation in Ireland on 1 July 1997.

The Bill also deals with a number of other VAT issues. First, it confirms the abolition of the special end-year VAT advance payment as announced last November. This measure, which was introduced in 1993, had required certain large firms to pay one month's VAT in advance in December each year. The Bill also addresses certain problems in the operation of the VAT refund retail export scheme. A number of agencies operate schemes whereby non-EU visitors may claim VAT refunds on purchases of goods which they take home with them. Arising from a recent court case on the operation of one such scheme, the Bill will now permit traders and agencies to zero-rate goods sold to tourists only when certain conditions are fulfilled. These conditions concern, for example, the time limit for export of the goods, the exchange rate to be used when a repayment is being made and the information to be given to the visitor about fees or commissions being charged.

Section 83 provides for an effective exemption from VAT for commercial child-minding. This will be achieved in two ways. First, by applying the exemption to childcare facilities covered by recent regulations made under the Child Care Act, 1991. Second, by clarifying that the exemption for educational services applies to "children's and young persons education" generally to cover childcare facilities which might not be regarded as childcare within the meaning of the Child Care Act. The exemption will be effective from 1 May 1997, the start of the next VAT period. It brings our treatment of childcare into line with many other member states and will comply with EU VAT law as recently clarified for Revenue by the European Union Commission.

Finally, the Bill deals with a number of technical VAT measures to close off certain minor loopholes in the system, to simplify the administration of the system and to comply with EU rulings in the Court of Justice.

Sections 87 to 94 enact the new stamp duty regime given effect to in the budget whereby three new rates of stamp duty have been introduced in respect of residential property valued above £150,000. The budget measures provided for a transitional exemption from the new rates for contracts signed on or before budget day and executed before 1 April 1997. This period is now being extended to 1 May 1997 in response to representations.

Section 112 of the Finance Act, 1990 provides that stamp duty is payable on new houses of over 125 square metres on the greater of the site value or 25 per cent of the aggregate consideration for the site plus construction cost. A number of appeals have been lodged with Revenue seeking to extend the application of section 112 to second-hand houses. While the Revenue Commissioners are satisfied that the section does not apply to such houses, and this view was recently upheld by the Appeals Commissioners, it has been decided to put the matter beyond any dispute by means of an amendment contained in section 96 of this Bill.

American depositary receipts, ADRs, are a means of facilitating companies raising capital in the United States. Section 97 extends the exemption from stamp duty which ADRs enjoy to shares quoted on a recognised Canadian stock exchange. Furthermore, this section removes a barrier to offshore funds relocating to Ireland by exempting certain financial instruments from stamp duty.

Section 101 abolishes RPT with effect from 5 April 1997. The existing tax clearance arrangements in the case of sales of houses above a specified value threshold are, however, being maintained in order to assist in the collection of RPT arrears. Under the legislation, the specified value threshold for clearance purposes is the actual RPT value threshold, that is, £101,000 in 1996. This threshold will continue to be adjusted annually by the increase in the Department of the Environment new house price index. The new threshold, which applies to house sale contracts executed on or after 5 April 1997, is £115,000.

Section 107 increases the rate of business relief for capital acquisitions tax purposes from 75 per cent to 90 per cent for all qualifying business assets, provided these assets are retained in the business for a period of ten years or more after the transfer. In line with this increase, the relief in respect of agricultural land, buildings, livestock and machinery transferred by gift or inheritance is also being increased to 90 per cent in section 104. Business relief is also being extended to situations involving the termination of a life interest in land, building, machinery or plant used for the purpose of a business but which have been held outside the business.

The CAT code currently exempts Government and other public sector securities from CAT in the hands of foreign beneficiaries subject, in certain cases, to a minimum holding period of three years prior to the gift or inheritance. The exemption is designed to encourage foreign investment in such securities. Section 105 closes off the unintended use of this exemption in certain cases to avoid CAT where property is transferred out of a trust after the death of a disponer or on the change of domicile, or ordinary residence, of the disponer.

Section 112 to 124 contain extensive pre-consolidation provisions which are intended to rewrite, simplify and codify existing tax measures in certain areas in a comprehensible way prior to consolidation in the forthcoming Taxes Consolidation Bill. I wish to make clear that no substantive change is involved but, as the House will appreciate, it would not be unusual for some parts of the taxes legislation to need a good "spring clean" before they can be incorporated in a consolidation Bill. Thus, in the case of mortgage interest relief and Temple Bar reliefs, the existing legislation has become complex and convoluted as changes were made over the years. In the case of mortgage interest relief, for example, the transitional provisions for standard rating the relief are not needed in a consolidation Bill since full standard rating now applies.

The Finance Bill also includes numerous pre-consolidation provisions to amend incorrect or out of date references, update the wording of particular reliefs, for example, for gender-proofing reasons, and to repeal redundant or spend provisions.

I realise that the consolidation of the income tax, corporation tax and capital gains tax law is a major undertaking for which the Revenue Commissioners and their staff are to be commended. I have pursued the policy of publishing as much of the consolidation measures as is possible. This year and last year details of pre-consolidation provisions were published prior to the publication of the Finance Bill. On 18 February this year, the Revenue Commissioners held a major and successful seminar for practitioners outlining the state of play on consolidation. Prior to that, Revenue officials briefed Members of the Oireachtas. In keeping with this approach, I will publish next week the draft text of the Taxes Consolidation Bill incorporating this year's Finance Bill, as published, to assist in the ultimate and speedy passage of this major consolidating legislation, the first for 30 years.

Sections 125, 126 and 127 deal with several tax administration measures. Section 125 clears up a minor difficulty in the wording of the law to facilitate the local collection of tax.

Section 126 relates to the publication of the names of tax defaulters. At present, the list of tax defaulters is published on an annual basis in the Revenue Commissioners' Annual Report. The list includes all those upon whom a fine or other penalty was imposed by a court and all those in whose case the Revenue Commissioners accepted a settlement in excess of £10,000. Settlements are not published where the amount is less than £10,000 or where the taxpayer has, in advance of any Revenue investigation, voluntarily furnished complete information relating to undisclosed tax liabilities. Section 126 proposes to drop this requirement to publish in the Commissioners' Annual Report. Instead, the Commissioners will publish the lists on a quarterly basis. Quarterly publication will ensure more speedy and up to date information.

Section 127 provides for a new procedure for the issue of ID cards to Revenue field officers. These will, in future, be evidence of authorisation to use certain powers and not, as at present, the authorisation itself. The new arrangements are designed to improve the control procedures and ease the administrative task in relation to ID cards.

The remaining sections of the Bill are the standard provisions which appear in each year's Bill on the care and management of taxation, the capital services redemption account and the necessary citation clauses.

I know the House will accept that this Bill delivers substantial personal and corporate tax reductions while also protecting the position of the Exchequer from tax loopholes and tax planning schemes. At the same time there are important new reliefs to save jobs, stimulate enterprise, encourage new businesses and investment in education — an investment which has been shown to be a keystone in the economic success we are now experiencing. I am confident that the House will support these measures and the programme of the Government in putting them forward.

The 1997 motto of this Government must be "Let us lie down in front of all pressure groups". Demands from any and every quarter must be acceded to, and to hell with any long-term damage to the economy.

Like the officials in the Department of Finance, I see no special reason for Government complacency or self-satisfaction in the recent Exchequer returns with their various one-off factors. If income has increased by 15 per cent in the first quarter of 1997 over the same period last year, it is because the Government is giving back so little of the revenue buoyancy. The real story about the public finances is to be found in the revised Book of Estimates, published last week, which shows net spending up once again by 6.5 per cent in 1997, over three times the rate of inflation, with no guarantee that this will not be further exceeded as the year progresses. For the three year period January 1995 to end December 1997, this Government will have increased current spending by more than 20 per cent as against a cumulative inflation figure of less than 6 per cent. There is no justifiable reason or rationale behind such a policy and it will end in tears.

There has been a complete failure of budgetary control by a totally incapable Government that happens to have fallen over a bit of luck, the foundations of which were well laid by their predecessors. The taxpayer has been left to pick up the crumbs under the table and is supposed to be delighted. No shelter has been provided for the economy should the cold economic winds start blowing again. This Government, far from being congratulated on its economic good fortune, should be indicted for its reckless improvidence and for passing up a magnificent opportunity to make Ireland an enterprise-based economy that will become one of the soundest and most competitive in the world.

The Culliton report was presented to the Minister for Finance, Deputy Ruairí Quinn, in 1992. The Minister subsequently went on to commission a further report on how the Culliton Report could be implemented. This was followed by another report. The Minister is not slow to demonstrate one of the great fortes of this Administration — classic fudge and indecisiveness coupled with a complete lack of focus, direction and result. It is clear the Government did not like the initial report, the central theme of which is fewer taxes, less Government involvement and, consequently, less interference in people's lives. Last year Forfás presented to the government a major strategic report on the economy. A central theme was again fewer taxes, less Government and less interference. What has happened to this report? Are we soon to witness a report on this report?

The Culliton and Forfás reports both argue the point that servicing the national debt is absorbing too much of our tax resources. Last year more than half the taxes raised were spent in this manner. As a solution, Forfás and Culliton put forward the proposition of reducing the national debt, thereby freeing up tax revenues to allow tax rates to be lowered. If only the Government had heeded their advice. It is obvious money is flowing into the Government's purse, but whose money is it? It is taxpayers' money, my money, the money of people across the length and breadth of the country. This money has been entrusted to the Government to utilise in a prudent manner. Why then has the Government not controlled public spending and lowered taxes? We all know why. The Government just cannot stop spending. It has deluded itself and has become a spending junkie. It is practising what it alone believes, that it can spend its way back into Government. Why, when every major world economy is reducing spending and reducing taxes, do we in Ireland persevere in going in the opposite direction?

We had to work extremely hard to get to where we are today. Events did not just fall fortuitously into place. Fianna Fáil had the vision to take necessary and painful steps to turn this country away from the brink of bankruptcy and set it on the road to economic and social survival and recovery. Current growth is no accident. It did not just happen. Nor is it due to the spending excesses of this Administration. The viable seed was sown long ago by prudent and wise Fianna Fáil Administrations.

People outside this House are not fooled by the spin of the stories from across the floor of this House. Those on the Government benches have long engaged in seeking to rewrite history. Certainly we are in a golden age. The economy is enjoying tremendous prosperity, but what if the Government had kept a tighter grip on the spending wheel? What if it had curtailed its frenzied spending excess to a real level of 2 per cent as it promised? What would have been the results of such a prudent policy? More taxpayers would be paying tax at the lower rate of 26 per cent; the top rate of tax could have been reduced; incentives could have been put in place so that businesses could expand and much needed jobs be created; and pensioners and others who find themselves excluded from the benefits of the growth in the economy could have had their quality of life improved markedly.

CORI put it rather nicely when they said:

Sufficient resources were available to Government as it planned Budget 1997 to ensure that everybody received at least the 'minimally adequate' level of income recommended by the Commission on Social Welfare 11 years ago...the Government has again taken decisions which result in the better off getting more, while the poverty gap widens. A couple will be £515 a year better off if long-term unemployed, £1,920 better off if earning £20,000 and £3,252 better off if earning £40,000 a year.

Whatever happened to the policy of the Minister for Finance of a 2 per cent growth in expenditure levels? No doubt many in the Department of Finance tried to keep spending in check, to no avail. However, our public servants have to contend with the likes of Deputies Spring, Rabbitte, Howlin and De Rossa. Little chance did these public servants stand of being listened to when the reports of both Culliton and Forfás, to name but two, went unheeded. I have a few questions for the Minister for Finance. Can the number of tough decisions he had to take in his two and a half years as Minister be counted on one hand or does he need to use both? Who is accountable to the public for the gross overrun in expenditure since he became Minister? Who is running the Department of Finance? How do the provisions of this Finance Bill address the downside of economic growth, the widening gap between rich and poor? Which provisions will plug the loopholes exposed in the recent Gilligan litigation, or will the drug barons have the last laugh? Who proposed the abolition of water charges? Did the Minister have the report on the system concluding that it was unenforceable and about to collapse under the weight of legal challenges and the high level of non-payment? What will the Minister do with all the extra spare time he will have after the general election?

I will deal with each of these questions in turn. The Minister took one tough decision, not to resign when the Tánaiste and Labour Party Leader publicly pulled the rug from under him when he sought to give the pretence of a negotiating stance in the public interest during the Programme 2000 negotiations. That was certainly a tough decision. I am sure the Minister is aware that his decision not to resign makes him singularly ill-suited to continue as Minister for Finance when the special pay claims start piling up on his desk. No stance he takes will be taken seriously. Who will take the stance in the public interest? It certainly cannot be the Minister and it certainly will not be his leader.

All Finance Acts mark an acceptance of the existing tax code or a radical overhaul of it, and this Bill is the former. There are no signs of tax reform and there is no grand strategy. Fianna Fáil and Labour set out together in 1993 to "broaden the standard tax band so that, as in other countries, only relatively high earners paid a higher rate of tax". Was it a tough decision for the Minister to abandon that goal or to "ensure equity between those on PAYE, the self-employed and those with substantial investment income"? There is no sign of movement on that front.

I will offer the Labour Party a new coalition pact with Fianna Fáil on exactly the same terms as those agreed in late 1992. Have Labour's policies changed since then? The voters will question that party closely on what I would call its loose political morals, hopping out of one coalition bed and into another without as much as a backward glance. Can anybody on that side honestly say that it was a question of policy difference? For the voters, the problem will be to discern measures in a Bill such as this which contain an echo of radicalism. It has gone, as has the capacity of the Government to take tough decisions.

I am not sure if supporters of the Labour Party will applaud section 20 which provides a new capital allowance for apartment and house landlords in respect of furniture and fittings installed for tenants. Which of Labour's newly acquired well-heeled friends pressed for that provision? Who is accountable to the public for the Government's failure to curb growth in public expenditure? The facts speak for themselves — there is complete abandonment of any attempt to keep to a pre-agreed limit of 2 per cent real increase each year.

There are two aspects to this irresponsibility. First, there is the clear loss of credibility to the Government preaching about value for money. Taxpayers do not buy that and on election day the voters will not either. Second, there was a unique opportunity to reduce personal tax and PRSI to low levels not dreamt of even by the Progressive Democrats Party. We are not talking about 1p off the standard rate, we are talking perhaps about 3p or 4p if only public expenditure had been capped at 1994 levels plus inflation. The Government will find it difficult to explain why it has not reduced income tax in this way. The voters will not be swayed by illustrations of the extra expenditure the Government undertook with taxpayers' money, as with the Foreign Affairs figure rising from £40 million to £60 million or the Arts, Culture and the Gaeltacht figure rising from £48 million to £128 million. The Fine Gael Departments did not do quite so well.

The real problem with these levels of public expenditure is that they are the base level for next year's figures. No Government, certainly not this one, appears to be able to cut back on expenditure. The only option in times of recession if we are to survive without reliance on the current deficit is to increase taxation. Nothing in the Finance Bill prepares the ground for fiscal flexibility, which economists say we will need as participants in Euro after 1999.

The matter of broadening the tax base is under active consideration in the Department of Finance — that is in the Department's statement of strategy published last month, but perhaps the Minister did not know that. Broadening the tax base is one of the Department's indicators of success, a yardstick by which we are to be judged in the future. Will the Minister confirm that this document was not approved by him and is an insubordination of the role of Government in policy formulation? If not, will he advise us of the new forms of taxation he is preparing to torture the taxpayer? Will he further advise why this Bill contains no such changes and why he is unlikely to be specific about them until after the general election?

I am in favour of the Strategic Management Initiative where each Department puts forward its own statements and objectives. As someone who was on public record long before I became spokesperson on Finance as an admirer of the Department of Finance and the way civil servants conduct their business — I said this when I was often critical of other Government Departments — I find the wording in the statement of strategy released last month by the Department amazing. I recommend that this document be read because, apart from the matter I referred to as an indicator of success, there is much merit in it. I suggest with great humbleness to civil servants in the Department that they may have slightly overstepped the mark, the dividing line between what are legitimate political objectives for politicians and political parties and what should be the objectives of a Department of State.

Perhaps times have changed since I was in Government, but when the SMI process, which led to the recent publication of the Public Service Management Bill, began under the direction of the former Taoiseach, Deputy Reynolds, I do not think it was intended that a statement of strategy by a Department should coincide exactly with the views of the current Government. There are matters in this document that are legitimate as put forward by politicians and political parties and there are matters with which it is legitimate for civil servants to deal. I am sure it was not the intention of the Minister or his civil servants that the document should be so overtly political and that is why it is easy for politicians to criticise it. It is presented in an excellent manner and should be used as an example by other Departments when publishing documents. However, such documents should not contain an overlap between political and administrative matters.

Under the heading "Taxation", the document outlines a number of indicators of success in expenditure policy, such as the reduction of the tax burden on employment, the reduction in the number of taxpayers on the higher income tax rate and broadening the tax base. That would be an acceptable statement for the Minister, Deputy Quinn, or for Fianna Fáil or the Progressive Democrats to make, but it should not form part of a strategy paper published by the Department of Finance. It is legitimate, however, for the Department of Finance to maintain a cost effective relationship between public service pay costs and total public service expenditure and to include that in its mission statement. Under the heading "Expenditure and Co-ordination", it is also legitimate for the Department to ensure that arrangements are made for a comprehensive programme of expenditure, with reviews to be carried out by individual Departments. That should be contained in a strategy paper published by the Department of Finance. However, the statement "to ensure that Government policy in relation to control of numbers employed in the public service is implemented on a sector by sector basis by the responsible Departments" should not be included in its document. Those matters should be covered in a general statement stating that it is the job of the Department of Finance to carry out the Government's objectives.

Under the heading "Economic and Fiscal Policy" the document states that one of the Department's objectives is "to deliver a budget deficit close to balance to ensure that the burden of Government debt continues to fall at a satisfactory rate". While I agree with that policy and have called for the publication of such a fiscal document since 1977, that is a political point and the Department of Finance should not publish such a statement as one of its objectives.

It is important not to overstep the line between policy formulation, the job of the politicians, and administrative matters. Irrespective of whether Civil Servants agree, we must represent those who elect us and they will have an opportunity to throw some of us out, if they wish, in the near future. In preparing this strategy document the officials may have inadvertently believed the document should contain a statement on Government objectives. That should not be the case. If I were the incumbent of that office I would not like the civil servants to feel obliged to publish word for word in a policy document the objectives of the new Administration. I admire civil servants for being able to draw the line between political and administrative matters, but I want to ensure the line is not crossed.

Is anybody on the Government side aware of the widening gap between the rich and the poor? Apart from section 4, the Bill does not refer to a fresh look at the taxation of some social welfare payments or tax relief on créche costs or carers whose services are paid for by the families of the elderly. There are no tax incentives in the Bill that would encourage the elderly to move to sheltered purpose built accommodation which would, in turn, increase the supply of housing on the market and calm the extraordinary house price inflation we recently witnessed. There is no new tax deductibility for charitable donations. In a previous budget the Minister introduced tax relief for charities specifically engaged in overseas aid. I am sure he has been inundated with representations from various charities and their umbrella organisation, the Irish charities tax reform group, to introduce changes in the Finance Bill, 1997. As I believe in equity, I will table amendments to this effect on Committee Stage. The cost to the Exchequer would be minimal. As the Minister established the principle in a previous budget, home based charities should benefit from such relief.

A scheme has not been introduced for tax allowances towards the cost of personal computers, which grabbed the headlines the day Fianna Fáil launched its drug policy document. Would it not be more equitable to provide relief for gifts of PC systems to primary and secondary school?

This economic boom, for which the Government wrongly claims credit, has caused a significant widening of the gap between the rich and the poor. Ostentatious consumption is evident all around us, particularly in Dublin. It is when we make our way down country lanes and into local authority housing estates in our towns and villages that we appreciate the true meaning of the concept of a two speed economy.

Last year I tabled an amendment to the Finance Bill to the effect that there should be a threshold liability to income tax before higher earners seek the benefits of the BES, section 23 and other tax avoidance schemes. That amendment was ruled out of order on the basis that it would involve a charge on the Exchequer. That was not true. I will table a similar amendment this year which I trust the Ceann Comhairle will not rule out of order without inviting me to his office to discuss the matter. It is obvious the level of cynicism about tax equity is very high. We cannot be seen to disregard the public's disaffection with these matters.

My fourth question arises from the recent successful challenge by Mrs. Gilligan to the revenue provisions of the proceeds of crime legislation. The Minister must tell the House where he, the Attorney General and the Parliamentary Draftsman got it wrong. He cannot blame Members on this side. The Government continues to shove complex legislation through its various stages without giving us an opportunity to get good advice on it. Even when we get good advice, as in the case of the legislation on the compellability of witnesses, it is rejected.

Last month the Minister sent us an advance copy of the miscellaneous preconsolidation measures of the Finance Bill so that our experts could examine them. Now, however, we find the Bill contains twice as many specific sections in the Seventh Schedule and we are left with literally a few days to have the extra provisions checked out. This disregard for the Oireachtas has caused the ridiculous farce of the Gilligan case. Provisions were rushed through by the Government in a reluctant response to the murder of Veronica Guerin. The Government's primary concern was to accept the principles of Fianna Fáil's proposals and to enact them speedily to quieten further effective criticism on this side of the House. More haste, much less speed.

Since the Minister is now proposing to use tax revenue as a substitute for local authority water charges, he should identify who first proposed this idea. I lay odds that it was not the Minister for Finance. The water charge system was somewhat inequitable, not merely because it varied from one authority area to another but, even more crucially, because some people paid and others refused to do so. The system was about to collapse due to the level of arrears and because of legal challenges.

Where Fianna Fáil might disagree with the Progressive Democrats on this matter is that we recognise the structure of the water charges system has in a few short years become riddled with doubts, hard cases, evasion and patchy returns. We even had to have tax relief to encourage payment. Let us fact it, if a system is that far gone it cannot last. We must get back to the drawing board on the question of the allocation of general tax revenue to individual authorities to cover the reasonable cost of providing water to householders.

The last question I put to the Minister concerned his holiday plans. I suggest he should make provision for a second one this year; his normal sojourn to Connemara in August can be supplemented by an additional holiday next October or November because I predict that he will not have to worry about the second budget for 1997.

I congratulate the Minister, his officials and those of the Revenue Commissioners, and the outside experts that were brought in, for the way they prepared the Consolidation Bill. As a practitioner of the art of accountancy for a number of years——

Does the Deputy concede it is an art and not a science?

That is right.

Some accountant friends of mine were often tempted to claim exemptions under a section in the Finance Act, 1969, for artists on the basis of creative work. Since the Income Tax Act was consolidated in 1967 a great deal of taxation legislation has been introduced. For many years at budget time I put down questions to various Ministers and during speeches on Second Stage asked when the Acts would be consolidated. The excuse always given was that it was too expensive and would involve a mammoth amount of work and expertise. I can appreciate that.

The Minister may be remembered politically for many things, both good and bad, but his initiative in driving forward the Consolidation Bill is certainly worthwhile and will be remembered for a long time after he has left the Department of Finance. In his speech, the Minister said he would publish the text of the Consolidation Bill next week.

Next Wednesday.

The Minister said recently, either in his budget speech or in reply to question of mine, that he would publish a White Paper in May. Has there been a change of plan? Will he now publish the Bill without first having a White Paper? A White Paper on a tax Act would be something unusual. It would be the first time in the history of the State that such was proposed. I am not too certain what will be in it.

The White Paper is the text of the legislation but not in a green or yellow format. Because the Revenue personnel made faster progress than had been anticipated by them, it will be available in April, not May as had been the original intention. The White Paper is the draft text. It is next week's document.

We can call it what we like.

I have no objection to it. There are some interesting sections of this Finance Bill to which we should pay more attention on Second Stage. I will be more well read into it by the time Committee Stage comes around in a fortnight when we will spend 12 hours a day over three days in Kildare House going through the various sections. Even though that debate is televised and open to the public, we will be the only people who will listen to it. It is a pity it is not more widely reported. The Committee Stage of the Finance Bill works well but it is not well reported. When people come to write about the work politicians do the Finance Bill is never mentioned, although it is a compliment to the Minister, his officials and all the Deputies who contributed to it.

Section 12 is quite unusual and I suggest it has been slipped in. I suspect there is a great political reason for so doing. There are provisions under tax legislation to exempt part of the golden boot or golden handshake; that is a lump sum given to people when, for one reason or another, they leave a firm. Special complicated tax provisions are used to compute the liability although the provisions are not as complicated now as they used to be.

When it has all been done there is something called top slicing relief whereby going back over a number of years one can further reduce a person's tax liability. In the past 20 years this has been often used by accountants as a tax provision for people concerned through redundancy, voluntary severance packages and other matters. It is in order for the State to get some claw back on very large sums given to people as severance terms.

Section 12, however, is in addition to this aspect of the tax legislation, which has been there for some time. It is designed to give further tax exemption to people who, according to the section, will get a lump sum from their employers——

They will get less.

——in order to reduce their pay by upwards of 10 per cent. There is a very complicated certification procedure which concerns going to the Labour Relations Commission. This is somewhat ideological.

If it is ideological it is coming from the Deputy's side of the House.

The only reason I can think of for its introduction is so that people in certain semi-State companies can have some of their overtime bought out. Such suggestions have been made on foot of reports. Interestingly enough, the definition of average pay includes overtime. Section 12 is clearly designed to facilitate the restructuring of a number of inefficient semi-States by allowing lump sums to be given to workers as tax free amounts. The wording is a delightful con job. It has been dressed up as granting compensation for loss of basic pay but I notice that the definition of basic pay includes overtime. I cannot think where the demand for such a change came from unless it was from the organisations to which I referred. There is no other reason because existing tax regulations relating to severance payments are adequate. They could be improved but I will return to this on Committee Stage.

The Minister promised me recently that he would announce the Government's position regarding its strategy regarding corporation tax for 2005 and 2010. There is considerable pressure on companies concerned about this as they have to make decisions now. What will the position be on the 10 per cent corporation tax rate for companies in the IFSC and other companies on the lower corporation tax rate? Multinational companies are making decisions and the Minister should announce Government strategy on this in the near future.

I am in favour of standard rating reliefs, a policy which has existed for years. We have standard rated nearly all reliefs on a gradual basis over the years. I have no objection to this principle but I have always had doubts about standard rating VHI relief. I put forward the notion in another forum that this might be shortsighted in that health costs would be transferred from individuals to the public sector. It is the one area where the decision made years ago could be reversed. I referred earlier to BES relief and the restrictions in that area. I suggest to the Minister that it is a matter of reversing the decision on medical insurance relief — there are groups other than the VHI in the marketplace now — and allowing relief at the top rate of tax. I want the matter considered further.

The Minister has also been inundated with representations over a period of years on the question of cross border workers taxation. This is a genuine grievance as the Minister will have learned during his visits to Donegal during the by-election. Small changes were made regarding levies last year but this was not satisfactory and the issue should be clarified. Border Deputies on both sides of the House have lobbied the Minister, none more so than my colleague, Deputy Cecilia Keaveney, who is probably more conscious of this debate than any other Member of the House. Having been the successful candidate in the by-election her ear is more in tune with the concerns of the people in her area of Donegal North-East. I will put down a reasonable amendment on Committee Stage which would alleviate the situation for a large number of affected people.

The Minister has made some changes regarding capital allowances on hire purchase transactions. A furore developed in recent months regarding this issue. The Revenue Commissioners have attended to the various problems and everything has been sorted out. I compliment officials in the Department of Finance and the Revenue Commissioners for their enlightened approach to the problem.

There is no change in the Bill to benefit-in-kind for cars. Changes were made years ago and many amendments have been made to them, but they still have not satisfied a number of people. I suspect the reason legislative change was made originally was that a civil servant standing at a bus stop was splashed by a car and decided he would get revenge by changing the benefit-in-kind legislation. However, it creates problems for commercial travellers or salespeople and further changes should be made to alleviate the problems.

In recent years the Minister made significant welcome changes to inheritance tax particularly in regard to transfers of businesses. One aspect of inheritance tax, which is an anomaly in the current legislation, has been brought to my attention recently. Single brothers and sisters who live in the same house as the disponer are discriminated against. The way out of it would be to allow a higher exemption threshold. There have been cases where people found themselves in very difficult financial circumstances. Will the Minister consider changes in this regard before Committee Stage?

Having a high rate of capital gains tax does not necessarily produce as big a yield as a lower rate. Anyone involved in an accountancy or legal practice will know that the amount of time and effort that goes into devising schemes of tax avoidance in the area of capital gains tax would be more worthwhile if it was spent in another more fruitful area of activity. I suggest there would not be a net loss to the Exchequer if the rates of capital gains tax were lowered. Deputy McDowell agrees with this. When Deputy Dukes was Minister for Finance, Deputy McGahon and I got into difficulty for suggesting that the reduction of off-course betting tax from 20 per cent to 10 per cent would benefit the Exchequer. Former Deputy Tomás Mac Giolla pilloried us inside and outside the House but when Deputy Dukes took the courage to drop the rate, we were right about its effect.

While the question of capital gains tax is different, I am certain from my extensive professional experience that the total yield to the Exchequer would be far greater if it were reduced to a lower level. I suspect the Minister may be hamstrung by members of his party who would have great difficulty taking this route. It is one of the unfortunate leftovers from the more doctrinaire socialist days of Labour and Democratic Left that even contemplating the reduction of capital gains tax might lead them to think they had given up all semblance of socialist doctrine. However, it is one they could easily give up because it would be far more beneficial to everybody. Also, it would create a better business climate and increase economic activity. Whatever about my discourse on capital gains tax, the Oireachtas Joint Committee on Small Business and Services has proposed that a lower effective rate of capital gains tax should apply to the disposal of shares in small trading companies. That notion harks back to the system of tapering relief which operated when the late George Colley was Minister for Finance and the current Minister should bear it in mind.

I will raise other matters on Committee Stage. In the past the Minister has been more open to accept amendments than any other Minister in my 20 years in the House. When he acceded to the request on education fees a Departmental official, with whom I have since become good friends, almost fainted. I look forward to the same openness on this Bill.

I agree with Deputy McCreevy about capital gains tax. I have lunch every week with a friend who left Ireland rather than pay this tax and came back some years later having avoided it. If the rate of the tax had been 20 per cent he would not have gone through that operation, in which the Exchequer was the big loser. As the Deputy said, a huge amount of time and effort is put into avoiding capital gains tax and the amount of such tax lost to the Exchequer through loan notes, overseas transactions and complex corporate deals is huge also. If we had a simple system which differentiated between income and genuine capital gains on a commonsense basis, we could reduce it to 20 per cent and life would be much easier. I realise that is difficult.

The Deputy has put his finger on the problem.

It is hard to say a person disposing of a business should not pay a large amount of tax but 20 per cent is quite high. Close to where I live, a family owns a house let out in flats. They thought of selling it but realised they would have to pay 40 per cent capital gains tax and the purchaser would have to pay 9 per cent stamp duty. Almost half the proceeds would go to the Minister's coffers. The family decided to hold on to it and do something else. Although their inclination was to sell, the tax consequences were such that the only person who would benefit was the Minister for Finance.

I obviously will not get their votes either.

I do not know. If one considers the constraints which capital gains tax places on the quick transferability of property, the Minister would make more from stamp duty if the rate of CGT was lower. At present people think they cannot sell unless they want to make the Minister a 49 per cent shareholder in their property through tax payments.

The problem is abuse, as the Deputy knows.

I fully accept that but it is not beyond the wit of human beings to devise a system which imposes a rational levy on realised capital gains. Forty per cent is too high and people will not pay it. They will emigrate or issue loan notes on Cypriot companies to avoid it. They will not give 40 per cent of their property to the State just because they want to change the asset to something else. Unfortunately, that is the reality.

This year is important because it is almost 25 years since Labour and Fine Gael went into coalition in 1973 and in that period Labour has been in office for 15 years, which is a not inconsiderable political achievement. While it has been in power there has been a dramatic transformation in the Irish taxation system. In 1973, 98 per cent of taxpayers paid the standard rate and only 2 per cent paid the higher rate. In 1977 some 14 per cent paid the higher rate and the then leader of Fine Gael remarked that to index tax bands and allowances would be the end of all social progress. I mention this to underline that the tax system is in its current state not through a calamity or a geophysical movement of the earth but largely because politicians have made it so, for one reason or another.

Our tax system is still manifestly unjust and anti-employment. The most recent figures show that seasonally adjusted underlying unemployment is increasing, in the middle of the Celtic Tiger's rampage. What is happening? How is a country translating record growth into rising unemployment?

On the streets of our constituency, the Minister and I see restaurants, shops and businesses looking for staff. Those notices remain there for a long time. Why are employers finding it impossible to fill jobs in small businesses? Deputy McCreevy made an interesting point when mentioning the Department of Finance's Strategic Management Initiative but the fundamental error — which is a Departmental error and not the legacy of Dr. FitzGerald or anyone else — is a viciously anti-employment taxation outlook. Employment, other than public service employment, is not regarded as good. How can one think the Department of Finance favours employment when a person earning less than the average industrial wage pays 55 pence per pound in tax? It must be the case that Department officials do not value employment. We value stallions and exempt the horse breeding industry from tax but are we interested in employment? How is it that, while the Celtic Tiger is a roaring success, the underlying rate of unemployment is rising in this poor benighted country? On one level this is difficult to comprehend but on another it is easy to explain. We have hammered employment.

Anyone who subscribes to The Economist receives a weekly dose of sometimes cynical, sometimes stimulating reality from the outside. Irish postal rates are so high that it is cheaper for the magazine to arrange hand delivery to one's door. That suggests something about an economy which is anti-employment and anti-labour intensive and the structure of our semi State sector.

There is a very good series of articles in this week's Economist on the theme that Europe is not working. The gist of the articles is that high welfare and high taxation have destroyed jobs across Europe. It is interesting that the wheels are falling off the European model as a model for other parts of the world to follow. The social market model used in Europe is not working. The reason is that the combination of high tax on work and high welfare is a lethal anti employment cocktail.

Employment is the cornerstone of social justice. There is no greater poverty fighter than a job. Anybody who believes that transfer payments from those who apparently have to those who have not, from those who do to those who cannot do, is a secure foundation for social justice is deluding themselves.

The SMI for the Department of Finance was revealing. However, I am slightly more apprehensive about the SMI mission statement for the Department for Social Welfare. Those two Departments are not pro employment; their ethos is anti-employment.

In the next five years the marginal rates of tax must come down. If I thought reducing the rates was just flashy politics I would be one of the first to concede that, but I believe marginal rates of tax must be low. The average industrial worker should not pay more than 20 per cent of his or her earnings in tax.

An interesting aspect of this year's budget was that it conceded the first change in PRSI in recent times of a reduction of 1 per cent. When I asked the Minister for Finance whether that 1 per cent reduction was calculated in the £900 million tax deduction, he had to concede it was. For the first time it has been admitted that PRSI is not merely a tax but a tax whose reduction can constitute a pro employment measure. The logic of that is to hack away employee PRSI completely. The logic of being pro employment is to convert employer PRSI, which is necessary from a budgetary point of view because so many companies are now at the 10 per cent rate, into a single digit levy on all payrolls. We should aim for a tax regime with rates of 20 and 40 per cent. There is no reason to hold out for a higher basic rate of tax than there will be in the United Kingdom. There is no reason for us to have a higher top rate either.

We should take on board what is in the Partnership 2000 document in relation to the examination of tax credits. Cold water has been thrown on that idea for a long time by the Department of Finance. I remember raising it informally on many occasions with people who have walked the corridors of Merrion Street. They all seem to think there is nothing right about tax credits. From a social justice point of view, if one is making very significant reductions in the top rate of tax, one of the compensating measures one can take in that context is to make the tax exemption system, in the form of allowances, worth as much in cash terms to a low paid worker as it is to a high paid worker. In that context, we should look over the next five years at converting all the basic personal allowances into tax credits which are worth as much to low paid workers as to high paid ones.

I tabled a parliamentary question recently, which Deputy McCreevy might not have seen, to which the answer was that the benefit to the Exchequer of standard rating all allowances, including personal allowances, would be in the order of £600 million. If the 48 per cent rate was significantly reduced to 40 per cent there would be an almost unanswerable case for standard rating all personal basic allowances on a progressive basis, to give the benefit of the fairness quotient in our tax system to those at the bottom of the scale, and not simply to those who benefited from reductions in the top rate.

There is also an unanswerable intellectual case for saying that if a sum of money is made exempt for a low paid worker it does not have to be doubled for a married worker or someone whose tax rate is twice as large. I do not see any injustice in standard rating the mortgage interest allowance. If it is just to do it in that context, I cannot see how it is any less just to do it in the context of a personal allowance.

Our present tax system is cruelly unjust to widows and widowers. Although they get temporary relief in the year of bereavement and an increased tax allowance, it is cruelly unjust to say that a family which has lost one of its mainstays should suddenly suffer a tax imposition. How does one get around that? One starts by saying the decision made in the aftermath of the married people's tax judgment to simply double allowances and bands was not justifiable. It is not justifiable to say that two people can live at the same standard of living at 1.6 times the single person's salary.

The second injustice is that if one wants to do something for single workers, unless one uses the device of a PAYE or PRSI allowance, one must double it for a group of people whom one does not want to benefit from the tax relief. If the aim is to get people, particularly single people, off the dole and into jobs it does not make sense that every tax concession made to people in that category must be doubled or quadrupled for married people, particularly those paying tax at the 48 per cent rate.

The doubling up arrangement was not a necessary response to that decision of the Supreme Court. It was administratively far more convenient for the Revenue Commissioners as it allowed aggregation of income. It was more beneficial in that respect and was capable of being dressed up as a pro family tax arrangement. However, it has not, in essence, turned out to be much of a pro family arrangement or one which was pro spouses working in the home.

At a time when many spouses, particularly wives, are anxious to have easy access into the labour market, the doubling up of tax allowances and bands for married women is a very crude approach to pro employment tax reform. It is a curious irony that John Major is now proposing to go somewhat towards the Irish system as part of his election manifesto. However, doubling both bands and allowances is a misguided approach to structuring the respective tax affairs of single and married people. We should take a different road and begin to consider a variable family allowance that can be shared by the spouses in a family where both want to, or one does not want to work. It could also be varied in size by reference to the number of children.

Given that child benefit is receivable by all, it is suggested that the present system effectively compensates people for the abolition of children's allowances for income tax. However, if we want to provide people with an incentive to work it may be better to provide family instead of marriage allowances, which would vary, at least to some extent, with the number of children. This would allow us to be fairer to widows and widowers: as head of the family they would be entitled to the family allowance. If such changes were to be introduced to the tax system over a period we could end up with a more just and less rigid system than the simple two to one model which prevails at present.

Significant recognition should be given to the cost incurred by those returning to work who must arrange for substitute child care. In 95 per cent of cases women encounter this difficulty because they are usually the home makers. In that context, steps should be taken to simplify the tax system. A concession should be made to those who want to return to work but who must retain others to substitute for them in the home, partly or wholly during working hours. If this matter was approached in a constructive and open minded way, many payments which are now effectively made in the black economy could be brought into the tax system on the basis of a reduced tax liability. This may be fairer to women, especially if the tax inhibitions to their re-entry to the labour market were removed.

In the context of the recent controversy regarding the abolition of water rates, there has been much jeering and finger pointing, especially at the Progressive Democrats, including myself, regarding the abolition of the residential property tax. The two are unrelated, indeed many people in parts of my constituency paid both.

However, the abolition of the RPT has proved to be just because many of those who are now paying the increased rate of stamp duty have the wherewithal to do so — those buying houses valued at £300,000 or £400,000 are aware of the amount of stamp duty involved. The RPT was unfair because it applied to families with modest combined incomes, say three incomes totalling £50,000, who bought their houses 20 years ago in "desirable" areas and were exposed to tax liabilities because of spiralling house prices.

The stamp duty rate of 9 per cent means that a considerable portion of increased property prices is now being taxed at a rate which is less like a stamp duty and more like a VAT rate. While it is a heavy level of transaction taxation to apply to upmarket homes, it could not be argued that it is unjust because anybody buying a home which falls significantly into this category is aware of the situation. In any event, many capital gains are being made tax free on the disposal of homes because of increased property values. Those who argue that the abolition of the RPT amounted to a significant contraction of the property tax base should bear in mind that a low rate of VAT has been effectively imposed on the homes to which the RPT used to apply. In those circumstances, the tax base has not been significantly narrowed.

Little public attention is paid to the issue of tax harmonisation in the EU. It is not in Ireland's interest to go down this road. Nor is it in Ireland's interest to concede that income tax, corporation tax or any other form of taxation, apart from VAT, should be the subject of tax harmonisation. My view of the EU is not of an ever closer union in which fiscal powers are attracted to the centre and fiscal equality becomes a matter for determination by the rich and powerful member states.

If we give up the "independence" of our currency — I am not sure to what extent it is an asset — we should never give up, in any significant measure, our own discretion regarding the taxes we wish to raise, other than VAT, which relates to the movement of goods. It may be argued there is little point in having uniformity regarding the movement of goods when corporation, personal and capital taxation also affects movement of capital. However, it is good for the EU that downward pressure on taxation rates is caused by competitive impulses to attract enterprise among the member states. If the central, core powers of the EU — Germany, France and the Benelux countries — were to determine tax rates for the other member states, our interests would come last.

In view of this, our policy on European economic integration should be that while we are enthusiasts for European Monetary Union it is against our interests to proceed with tax harmonisation and we are not interested in uniform corporation, income, and employment tax rates. We should hold on to our tax autonomy as far as we can. We have given up enough on VAT and will be giving up enough with regard to European Monetary Union. Thereafter, we should draw a firm line against fiscal harmonisation. It is not wanted by the people.

Does it concern the Deputy that Fianna Fáil takes the opposite view?

That does not worry me.

The Deputy has no views on that matter.

For exponents of the art of being political blotting paper, to the extent they soak up views from the ink pot beside which they are situated, the Deputies should be careful about other Members who speak from a policy driven perspective.

Does the Deputy's party make it up on morning radio shows?

Regarding water charges, there is no such thing as free water. Gathering, purifying and distributing water costs money. It cannot be free and the only issue is how the cost should be met. There is no possibility in the long-term of unlimited quantities of water being freely available for an unlimited period to domestic consumers. That is not on in European, environmental or economic terms. It is impossible to deliver. However, the impression is being created that, in the two years before European directives are implemented, we can have a break from paying water charges. However, people understand there cannot be free water.

As the Acting Chairman is aware, low water pressure in our part of the city is already having a significant effect. People in our area must pay up to £400 for a pump — the installation of which is illegal — to bring water to the top of their houses.

What about the position on Howth Hill?

Water pressure throughout Dublin is falling. The western suburbs do not feature the tall houses of Rathmines and Ranelagh but water pressure there is also falling. The valves are throtted and many housing estates have no water pressure during certain hours of the day. In January 1996 the Department of the Environment commissioned a report from joint French and Irish consultants to advise it on the future water crisis in Dublin. It appears a capital investment of £0.6 billion is required to improve the water supply in Dublin. This sum relates only to water and not to sewerage services. Metering must be introduced in Dublin to conserve water.

Where will the £200 million to install all the meters be found?

I am glad the Deputy raised that point because it will cost £200 million for the entire country. My estimate is that it would cost up to £90 million in the Dublin area, which is an investment of approximately £14 million a year for five years. It would involve finance packages for the installation of meters but it could probably be spread over 12 to 15 years. However, it would involve an annual cash flow payment of approximately £10 million.

Deputy Molloy mentioned a figure of £23 million.

The introduction of metering is inevitable and it will be the law in three to five years. It does not matter who is in Government because the European directive states that we must charge for water. This will happen regardless of who is in office.

There is no directive yet.

It is coming and the Deputy will not be in a position to stop it.

An Leas-Cheann Comhairle

Deputy McDowell without interruption.

It makes no sense that I can turn on a tap at home and leave it on until I return in the evening without penalty.

A person who did that would be a bad citizen.

Good or bad citizenship has nothing to do with it.

The Deputy said a moment ago that there was no water.

An Leas-Cheann Comhairle

Deputy McDowell without interruption.

It is interesting how active the Government becomes when people realise it is wrong.

Not at all. Deputy McDowell did not collect water rates in Dublin because they could not be collected.

How many votes is the Government losing on this subject?

An Leas-Cheann Comhairle

I ask the Minister to refrain from interrupting Deputy McDowell.

It is interesting to note how perturbed the Government has become about the mistake it made. It does not make sense to waste water.

Everybody agrees with that.

Does everybody agree that we face a water crisis? Does everybody agree there will not be enough water if current policies continue? It makes as much sense to turn on a tap and leave for work hoping the taxpayer will not mind as it does to turn on an electric heater and leave. I hope it is good citizenship to comply with that duty. Everybody knows the game is up regarding auction politics.

Deputy Molloy mentioned the figure of £23 million.

An Leas-Cheann Comhairle

Deputy McDowell without interruption. This level of interruption is unacceptable.

It is embarrassing for many Fine Gael Deputies whose director of elections for the Dublin West by-election, Deputy Mitchell, told the electorate water charges were necessary. He issued letters explaining why the abolition of water charges was wrong. The current Taoiseach also said it was wrong. However, what was wrong has suddenly become right——

What about Deputy Molloy's statement?

An Leas-Cheann Comhairle

Deputy Connor should not disregard the Chair.

——not because of what members of Fine Gael believe but because their partners in Government decide everything in the last analysis. The Labour Party is afraid it will lose six seats. The Minister for the Environment, Deputy Howlin, quantified the cost of his package over ten years at £600 million. This is a gross underestimate by any standard. The figure is between £700 and £800 million but, depending on the grant uptake, it is probably closer to £1 billion. However, what will the Minister's figure of £600 million over ten years produce? The answer is nothing——

Will Deputy Molloy accept that?

——except six more Labour Party Deputies in the House at a cost of £100 million each. That is bad value. Even if it was nothing, it would be bad value——

(Carlow-Kilkenny): The Deputy is not the economist in the family.

——but £100 million a head is very bad value. It is absurd to claim that water charges are being replaced by motor taxation.

That is not the case.

One might as well say they are being replaced by VAT on ice cream or the current television or dog licence fees. It is nonsense because that is not happening.

It is nonsense.

I am glad the Deputy agrees.

The Deputy's point is nonsense.

An Leas-Cheann Comhairle

I ask Deputy Connor to take note of the Chair. Members cannot speak from a seated position.

It is astonishing that intelligent people could come forward at this stage of Ireland's political development with such facile, ignorant and childlike proposals. In the last analysis they will be rejected. As the public begins to focus its attention on what is happening, it is becoming increasingly disillusioned by those trying to peddle this stupidity. Deputy Harney has been proved correct. The volume of good wishes and congratulatory messages she has received is phenomenal. The Deputies making so much noise now should reflect on the fact that the people are wise to the Government's nonsense in this area. The House will probably be dissolved in a few months.

In a few weeks.

I do not know when the whistle will be blown. However, the next Government must deal with radical tax reform and matters such as the financing of the water system. Real politics will reassert itself. Regardless of who is in Government or Opposition, reality will reassert itself in the foreseeable future in relation to public spending commitments and public sector pay. This country needs a Government committed to a radical, pro-employment tax reform and to the proposition that, if an expenditure target of 2 per cent is fixed upon taking office, 6 per cent is unacceptable. That Government should fix targets and tell the electorate what it will deliver. When it is before the electorate five years after that, it can show what it achieved in taxation reform. Each Finance Bill should achieve this goal incrementally. When this Government was formed, firm targets were not set for taxation reform. As a result, nothing was achieved. Nothing can be achieved without targets, as the experience of the Fianna Fáil-Progressive Democrats coalition proved. It is embarrassing if targets are not achieved.

That Government's spending was an embarrassment.

The Minister of State is right; there was a slippage in spending. If we had fixed targets we might have been better off. This Government has fixed targets and blown them every time.

(Carlow-Kilkenny): Did the Deputy look at his own targets?

If the Government had stuck to the targets given in writing to the people in December 1994, we would now have £600 million per annum more to relieve taxpayers. The tragedy is that Deputy Quinn, who threatened to resign on the issue of public service pay, had no control over that issue. What happened from 1982 to 1987 happened again on this occasion; the Tánaiste's withering hand was on the levers of power. The Tánaiste always tears up every effort at controlling public spending. It is the Labour Party, led by Deputy Spring, that has driven public spending so high. To be fair to Fine Gael, they would have stood by the spending commitments they made in 1994.

Is the Deputy coming back to us?

Unfortunately that party is led by people intent on keeping office, like Dr. FitzGerald from 1982 to 1987 and the present Taoiseach. Their one imperative is to keep office no matter what the consequences are for public spending. The people have had that twice and will not have it a third time. The next Finance Bill, which may be introduced in the autumn, will be the first step on the road to national recovery and fair taxation. It will be the first occasion on which a Minister for Finance will say: "One thing I will achieve before leaving office is that ordinary workers will never again pay 55p in the pound as they did under Fine Gael and Labour. The most they will pay is 40p in the pound and most will only pay 20p in the pound."

We will be there to do that.

It will make employment in Ireland worthwhile. Instead of being a so-called "Celtic Tiger", with an extraordinary growth rate and an underlying growth in unemployment, Ireland will be a country where work is available to the ordinary person and the ordinary family can overcome social injustice by access to the workplace. That will happen in the next five years and I am delighted that Deputies on the Government side are here to witness it being set out.

(Carlow-Kilkenny): Is cúis áthais dom go bhfuil deis agam a bheith anseo i mbliana chun labhairt ar an mBille Airgeadais. Cé go bhfuil toghchán ag teacht uair éigin i rith na bliana, tá súil agam go mbeidh mé ar ais agus go mbeidh deis agam éisteacht leis an Teachta Michael McDowell nuair a bheidh sé san áit chéanna sa Dáil.

Tá áthas orm freisin go bhfuil feabhas ag teacht ar an tír agus go bhfuil saol na ndaoine ag dul i bhfeabhas agus go mór mór, in ainneoin blip beag inné, go bhfuil feabhas ag teacht ar na figiúirí fostaíocha. Bhí an-chuid raiméise ag an Teachta McDowell maidir leis na táillí uisce ach tá sé imithe anois agus leanfaidh mé ar aghaidh.

Le fada an lá bhí an gearán ann go raibh ús aníseal againn sa tír seo, go raibh gach rud i gceart ach nach raibh fás ag teacht ar an fhostaíocht. Tá áthas orm go bhfuil sin athraithe anois agus go bhfuil saol na ndaoine ag dul i bhfeabhas agus go bhfuil 53 faoin gcéad de na daoine sásta leis an Rialtas seo. Is figiúr íontach é sin agus is cuma cén gearán atá ar siúl ag an bhFreasúra, sin an figiúr is tábhachtaí ar fad. Níor thárla sé riamh cheana roimh toghchán go raibh an oiread sin sásta le rialtas.

I am sorry Deputy McDowell left the Chamber. He went to great lengths to say Ireland should not agree to tax harmonisation in Europe. That is a marvellous statement given his argument that we would have to accept water charges if they came from Europe and that they were almost here already. How can he insist on one hand we will have to accept the ruling from Europe on water and at the same time that we should not accept the ruling on taxation? If he is talking about harmonisation, those two matters should negate any ambitions his party had for getting a gold medal at Dublin Feis Ceoil in the mixed choir section.

The Deputy went to great lengths about the difficulties in pumping water to Dublin 4. It is a pity they did not pay water charges over the years. Dublin Corporation might then be able to provide a proper water supply to the city. Dublin Deputies talk about equity while those in the countryside pay water charges. I was interviewed on radio last weekend by a reporter who was very keen on the idea of paying water charges and who felt that it was only fair to pay those charges. I asked him how much he had paid over the years in water charges and, foolishly, he admitted he had paid nothing. I said that was a great argument for a Carlow person like me to hear: that we should pay water charges while Dublin people paid none. There is a lot of silly comment about water charges.

If Dublin people paid water charges I would back the idea of everyone paying for water. However, country people who pay their taxes should not subsidise Dublin. Deputy McDowell said his area's water supply was poor. That is a reflection of the lack of money for that supply. Deputies should have insisted that Dublin people paid water charges like those down the country. If we cannot have cothrom na Féinne do gach éinne, we should not have water charges at all.

It takes hard neck for Deputy Molloy to offer £23 million on this issue, when it is three times the required rate.

Debate adjourned.