Dáil Éireann díospóireacht -
Tuesday, 14 Oct 1997

Vol. 481 No. 4

Taxes Consolidation Bill, 1997: Second Stage.

Minister of State at the Department of Finance (Mr. Cullen)

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

I am delighted to introduce the Taxes Consolidation Bill. The Bill consolidates the law relating to income tax, corporation tax and capital gains tax. Thirty years on, this Bill represents the first consolidation of the relevant tax law that has taken place since 1967. Therefore, it is something of a watershed in tax administration. I do not intend to go through the Bill in minute detail but would like to deal with the background to the project and the general layout and construction of the Bill. I know Deputies opposite will agree as we were involved in the previous Select Committee on Finance and General Affairs while dealing with this Bill. I will be happy to deal with any matter raised. The proposed way forward is as I have outlined.

Before turning to the background to this Bill, I would like to bring the House up-to-date on economic and fiscal developments in the current year and the prospects for the period immediately ahead since it is perhaps the truest reflection of whether taxation and general budgetary policies are working.

An efficient and effective tax system plays a crucial role in the overall economy and in the progress we have been making. The Irish economy has performed exceptionally well in recent years, with average growth exceeding both the EU and OECD averages. At the same time, employment growth has been record breaking, averaging 4 per cent per annum, and unemployment has plummeted to below the European average. Despite the record levels of growth and falling unemployment, price stability has been maintained with moderate inflation and a modest surplus on the balance of payments current account. This year is forecast to be another good year, with GNP increasing by around 7 per cent. Further employment growth of over 50,000 is expected and price stability should be maintained. Irish inflation is the lowest in the Europe Union as measured on a harmonised basis.

At the time of the January budget, tax revenue was expected to increase by 6 per cent and the general Government deficit target was for under 1.5 per cent. At this stage, a small surplus on the GGD is expected with tax revenue increasing by over 10 per cent. However, the Government has warned against unrealistic expectations which could be generated by the economy's success. The Government intends to use this opportunity to achieve a balanced budget over the economic cycle by running budget surpluses when possible.

It is well recognised that overseas investment has made an enormous contribution to Ireland's employment growth and economic prosperity. Successive Governments have facilitated this by providing companies with a secure corporate tax structure over a long-term investment horizon. Equally of late, there has been growing recognition of the important role played by the indigenous services sectors in generating employment and there is widespread acceptance of the need to reduce the standard rate of corporation tax for these sectors. Considerable progress has been made on this over the past ten years. The standard rate has been gradually reduced from 50 per cent to 36 per cent and a lower rate of 28 per cent has been introduced for the first £50,000 of annual profits with the aim of assisting SMEs in particular.

However, more needs to be done and, if Ireland is to remain competitive in a changing environment, we must adapt our corporate tax system to reflect new and emerging market conditions. Much of our employment growth is being generated by the services sector and there is a general consensus that we must dispense with the increasingly outmoded difference in the treatment between manufacturing and services in so far as corporation tax is concerned.

I take this opportunity to confirm that it is the intention of the Government to introduce a single low rate of corporation tax for trading profits with a higher rate of tax for non-trading profits. This will be phased in over the coming years to eventually replace the current regime. The details of the new corporate tax regime will be decided on by the Government in due course.

The last consolidation of tax law was the Income Tax Act, 1967. That Act, which relates solely to income tax, is the only consolidation of tax law to have taken place since the foundation of the State. The original Income Tax Act, 1967, contained 561 sections and 19 Schedules. Since its enactment, the income tax code has been amended annually and, on occasion, sometimes twice or three times a year, in various Finance Acts and other fiscal legislation. Since 1967 we have also seen the introduction of the Capital Gains Tax Act, 1975, and the Corporation Tax Act, 1976. On enactment, these Acts contained 51 sections and 4 Schedules and 188 sections and 5 Schedules respectively.

Finance Act changes since 1976 have also seen numerous changes to the capital gains tax and corporation tax codes. There are 40 separate Acts containing income tax, corporation tax and capital gains tax law. In addition, much of the legislation in recent years has been of a complex nature. Sometimes complexity is inevitable in order to focus a tax measure and to prevent avoidance attempts. However, the cumulative effect of this is both a very heavy volume and a disjointed approach in the legislation governing our direct tax code.

The need for a consolidation of income tax, corporation tax and capital gains tax law has been recognised for many years. Various Parliamentary Questions on the subject, from both sides of the House, have been put to successive Ministers for Finance. As far back as 1985, the Commission on Taxation observed that tax legislation is unique in its frequency. No other areas of law require the same degree of annual change and the commission recommended that consolidation of tax legislation should take place at regular intervals.

Other bodies, such as the Institute of Taxation and the Consultative Committee of Accountancy Bodies, have sought the consolidation of tax law, both informally in meetings with staff of the Revenue Commissioners, and formally in pre-budget submissions. In addition, the Tax Administration Liaison Committee which comprises representatives from the Revenue Commissioners, the Institute of Taxation, the Consultative Committee of Accountancy Bodies and the Incorporated Law Society, is on record as wholly endorsing the consolidation of tax law.

Without doubt, the difficulties of interpretation and administration of the tax code are compounded by the absence of consolidation. This is a serious hindrance to the improvement in tax administration sought by Government and the Revenue Commissioners. While there had been a willingness in principle to proceed with consolidation, a number of considerations arose, specifically as regards timing and the resources required. On timing, it was felt that consolidation should only take place when the basic shape of the tax system was in a relatively settled state. With the introduction of self assessment from 1988 onwards it was felt that this condition was met. The second constraint, staffing resources, continued to apply for some time, given the relatively small number of specialist drafting staff available in the Revenue Commissioners and the heavy annual demands from the Finance Bill and other fiscal legislation.

The previous Minister for Finance, Deputy Quinn, announced in his Budget Statement in February 1995:

In pursuit of the simplification and streamlining of tax administration and legislation, I am going to consolidate the existing legislation dealing with income tax, corporation tax and capital gains tax.

Subsequently, he agreed to a proposal by the Revenue Commissioners that, to facilitate the work without interfering with other ongoing activities, a small team comprising staff from the Revenue Commissioners and the private sector should be put together for this purpose. The team would include a private sector consultant with access to the latest technology. This represented a new departure and one fully in keeping with the approach adopted under the strategic management initiative for the modernisation of the public service. The entire process was carefully designed to ensure the Bill would be an accurate consolidation of existing law and the fullest consultation of interested parties would take place.

As part of this process a distinguished panel of expert referees comprising notable tax practitioners from the private sector and Revenue officials was established. A draftsman from the Parliamentary Draftsman's Office was assigned full-time to the preparation of the Bill. On a sad note, I have learned that the draftsman who dealt with the Bill over the last two years had a heart attack recently and is seriously ill. I know Members will join me in wishing him a full and speedy recovery.

Work on the preparation of the Bill began in June 1995. In the first instance, the core project team of expert Revenue officials and a private sector consultant prepared initial drafts of various Parts of the Bill working in blocks at a time. These blocks of draft legislation were then screened by the panel of referees. The refined blocks of text were in turn referred to the Parliamentary Draftsman's Office for consideration by the draftsman.

Where the ongoing work of the team produced proposals for desirable changes in the law, whether to simplify the tax system or to facilitate a more orderly consolidation, these had to be processed separately so as not to detract from the consolidation status of the final Bill, that is, its status as a Bill simply consolidating rather than changing the law. A substantial number of such proposals was processed as pre-consolidation measures. They were enacted into law in the 1996 and 1997 Finance Acts to allow their incorporation into the final product.

At all stages of the project, steps were taken to ensure Members of the House and the various interest groups were kept informed of developments. The Revenue Commissioners briefed the Select Committee on Finance and General Affairs on the work of the project to help prepare the way for discussion of the legislation by the Oireachtas. I was on that committee when in Opposition and I know Members found it extremely beneficial in understanding the process being undertaken. The Commissioners also hosted a major work-in-progress seminar on the project last February at which representatives from various professional bodies and individual accountancy firms were present.

In April of this year a White Paper entitled Government Proposals for a Taxes Consolidation Bill, 1997, to Consolidate Income Tax, Corporation Tax and Capital Gains Tax Law was published by the previous Government. The White Paper contained a full draft of the consolidated legislation up to and including the measures contained in the Finance Bill, 1997, as initiated. Publication of the legislation in draft form was designed to allow as much time as possible for tax practitioners and others to examine and familiarise themselves with the layout and content of the proposed legislation.

Since the publication of the White Paper the draft proposals have been updated to take account of the changes made to the 1997 Finance Bill during its passage through the Oireachtas. Having taken these changes on board the entire Bill was reconsidered by the parliamentary draftsman and the Attorney General duly certified it as a consolidation of existing law.

The completed product of the Taxes Consolidation Bill, 1997, is now before us. Since the last consolidation in 1967 the legislation governing income tax, corporation tax and capital gains tax had grown to more than 2,000 separate sections and some 50 related Schedules. The Taxes Consolidation Bill has succeeded in reducing this volume of legislation to 1,104 sections and 32 Schedules put together in a coherent and logical manner. This is a major achievement in a short time and in the course of the rigorous process I have outlined. I remember the discussions that took place as we wondered how many years the process might take or whether it might ever be completed. Every Member will wish to congratulate those involved in introducing this legislation ahead of schedule and in a welcome format.

I do not propose to go through the Bill section by section. However, I draw the attention of Deputies to the document entitled Outline of Provisions published with the Bill. This very useful outline gives a brief description of each of the sections.

Without getting into the detail of the sections, I will comment in general on the structure of the Bill. This is the largest single Bill to come before the House. Despite its size — and let us not forget that it has succeeded in reducing by one half the quantum of legislation involved — the Bill is set out in a coherent and logical format which is designed to be user friendly. Its structure is based upon the principle that the generally applicable tax provisions should appear at the outset and be followed by more specialist provisions, while the administration and management provisions appear later in the Bill. Finally, the transitional and commencement provisions necessary to ensure a seamless transition from the old to the new law are set out at the end of the Bill.

While the legislation is divided into 1,104 sections comprises 49 Parts dealing with different aspects of the income tax, corporation and capital gains tax codes a number of novel features are introduced to facilitate the reader and to simplify the language and presentation. These features include the concept of superheadings or families of related issues; the practice of including definitions in all cases at the beginning of sections and the elimination of archaic language and of the old-fashioned and complex device of "provisos" to qualify the meaning of a section, sometimes to change the meaning completely. The drafting approach is thus self-contained, coherent and direct.

There are six superheadings in all: first, the Interpretation and Basic Charging Provisions in Parts 1 to 2; second, Income Tax and Corporation Tax The Main Provisions in Parts 3 to 18; third, the Taxation of Chargeable Gains in Parts l9 to 21; fourth, Transactions in Land in Part 22; fifth, Other Special Provisions in Parts 23 to 36; and finally, the Management Provisions in Parts 37 to 47. The Interpretation and Basic Charging Provisions deal with definitions and various construction and interpretation rules. They set out the provisions which give rise to the charges to income tax, corporation tax and capital gains tax.

The Main Provisions contain the principal rules relating to the computation of income tax and corporation tax liabilities. These include such matters as the schedular system of taxation, for example, Schedule D for self-employed taxpayers; the treatment of distributions; exemptions from the charge to tax; the treatment of interest and losses; capital allowances; the urban renewal reliefs; the 10 per cent scheme of corporation tax; personal allowances and the business expansion scheme.

All the provisions relating to the specialist areas of capital gains tax and tax on land dealings are encompassed by the superheadings "Taxation of Chargeable Gains" and "Transactions in Land".

The Other Special Provisions cover matters such as farming and market gardening, mining and petroleum taxation, the taxation of life assurance companies, unit trusts and pension funds and double taxation relief.

The Management Provisions address the various administrative provisions in the tax code including returns, assessment and appeals, self assessment, penalties, Revenue's powers of investigation and Revenue offences.

Finally, Parts 48 and 49 address those matters which do not fit neatly elsewhere into the structure and also deal with commencement, repeals and certain transitional provisions.

The various Parts of the Bill are broken down into chapters and sections. For example, Part 10 which deals with tax reliefs for the regeneration and renewal of certain areas is broken down into six chapters covering the schemes of relief applying in the various areas, namely the Custom House Docks area, chapter 1; the Temple Bar area, chapter 2; designated areas and designated street and enterprise areas, chapter 3; qualifying resort areas, chapter 4; designated islands, chapter 5; and the Dublin Docklands Area, chapter 6. A similar pattern is followed in Part 26 which deals with life assurance companies and is divided into three chapters covering general provisions in chapter 1, special investment policies in chapter 2 and provisions applying to overseas life assurance companies in chapter 3.

To further facilitate the understanding of the new legislation and in particular its relationship with the old, statutory derivations are provided in the margin opposite each section. These derivations make it possible to identify the new provisions with their corresponding legislation in the old codes. This provision will be extremely helpful when working from the new legislation to the old and I am sure it will be welcomed by all.

The separate memorandum published with the Bill sets out in chronological order the various sections of the old legislation and the location of their consolidated counterparts in the Bill. If a provision has not been re-enacted in the Consolidation Bill, an explanation will be found in the remarks column of the memorandum. Generally, the reason will be because the provision is spent or has been repealed in earlier law.

The objective in compiling the structure and the derivations is to enable the reader to "drill down" in a logical and accessible way to find the legislation in which he or she is interested. As the relevant provisions will be complete and locatable in one place, considerable saving should be made on time required for research and confirmation work.

Consolidation of legislation is consistent with the principles of good quality regulation, in particular the need to reduce the quantity and improve the quality of legislation formulated under the Strategic Management Initiative and "Delivering Better Government". One of the main benefits of consolidation will be to reduce the volume of the direct tax legislation by almost one half. There will be many other benefits. All direct tax legislation will be available in a single up-to-date Act, in a coherent, orderly and more simplified format and the legislation will be more accessible and user friendly to the business community, tax practitioners, tax administrators and members of the Oireachtas. This will be particularly advantageous for smaller firms of tax practitioners and smaller businesses. As part of the consolidation process a significant amount of deadwood and obsolete material has been eliminated from the tax code and there has been considerable simplification in content. All future changes to the taxes involved should be capable of being slotted into the Consolidated Act by amendment. Our tax legislation will be more coherent to foreign investors and their advisers and the task of future simplification of the tax system will be facilitated.

There has already been a general welcome for the Consolidation Bill. I have no doubt the Members opposite will endorse that welcome. Based on my experience I know the enactment of the Taxes Consolidation Bill, 1997, will bring many benefits to the business community, tax practitioners and administrators, legislators and, less directly, to the public generally. It will transform the way in which accountants, tax practitioners and the legal profession deal with their client's tax affairs, allowing them to ensure the services they offer are efficient and cost effective. It will also have a significant impact on the young people who are training in these professions, making their research tasks much simpler.

I take this opportunity to acknowledge the debt the consolidation project owes the former Minister for Finance, Deputy Quinn. It was Deputy Quinn, as Minister for Finance, who initiated the project in 1995 and made available the resources necessary for its successful completion. He took a keen interest in all stages of the project and provided the necessary drive to ensure its progress. We were happy to support the project while in Opposition and to continue the drive to complete the work since returning to Government. The former Minister helped us while in Government in providing any information required or enabling us to meet officials. He wanted this project to be completed in time and he was lucky to have a quality team of public service and private sector employees to help complete this project in less than two years, which was an outstanding achievement.

I and the Government appreciate the tremendous work of all involved in the project, the staff of the Revenue Commissioners and the parliamentary draftsman's office and the personnel from the private sector. It is truly remarkable that such a huge task has been completed in such a short time and in a most efficient and professional manner. What is most pleasing is that it was very much a joint venture between the public and private sectors and given the success of the project, perhaps this model can be used when other major projects are being undertaken in the future.

This is a significant moment as it illustrates we can bring the best and the brightest employees of the public sector together with those in the private sector who seem to think at times that they possess all the skills, which is not the case. This Bill proves that a combination of both sides can get remarkably efficient work done in an extraordinary short period. I thank all those involved.

It is my intention to have the Taxes Consolidation Bill made available in CD-ROM format once the Bill is enacted. In addition, the Revenue Commissioners will prepare more detailed notes for guidance on the legislation and will publish these as soon as possible. As for the timetable for passage of the Bill, it is proposed that the Bill be referred to the Standing Joint Committee on Consolidation Bills for consideration on 23 and 24 October. It is my intention that Report and Final Stages of the Bill be taken in this House on 4 November.

A number of motions will be included on the Order Papers of both Houses to comply with the various rules and procedures set out in Standing Orders to achieve the timely passage of the Bill. The motions are required to establish the Standing Joint Committee, to facilitate the taking of Committee, Report and Fifth Stages and to shorten the minimum time periods allowed for in Standing Orders.

The Revenue Commissioners are also committed to enlisting the techniques and technology used in this project, and the team approach, to undertake consolidation of other areas of tax law. They will make proposals shortly. I am anxious that we make progress in consolidating capital taxation legislation and further down the line, the complex area of VAT law. I know the House will support such an initiative. The State has built up a resource and an expertise which should be put to further use.

I am very pleased to commend the Bill to the House and I look forward to the co-operation of the House in its speedy enactment.

Mr. Noonan

I thank the Minister of State for a clear explanation of the purposes and content of the Bill. I join him in thanking those involved in bringing it to this stage, particularly Deputy Quinn who performed a thankless task. There is no great tranche of votes available to a Minister who decides to consolidate legislation. This mammoth task had not been undertaken since Mr. Haughey's time in 1967. The House is notorious for passing large Finance Acts and it had become difficult, even for the most professional of practitioners, to find their way, in the drilling down process which the Minister of State described, to the information they required and to be certain of the result.

Consolidation was necessary and I compliment Deputy Quinn for undertaking the task in the first instance and resourcing those who did the work. I also thank the former Attorney General, Mr. Gleeson. There have always been blockages in the parliamentary draftsman's office which prevented consolidation legislation to a large degree because other legislation took priority. Mr. Gleeson geared up the office to a point where items beyond the day to day workings of Government and the Parliament could be dealt with. I am glad resources were provided for the Bill. I was sad to learn that the draftsman who worked so hard on it is ill. We join in the Minister of State's good wishes to him and hope he has a speedy recovery.

It was novel that outside professional expertise using the best technology available was used and that approach may be a way forward for the future. Combining people from the State sector with outside expertise and providing them with adequate resources can produce good results.

The Bill is a fine piece of work. It has been certified by the Attorney General that it contains no new elements of law which have not been passed by the Oireachtas but is simply a consolidation of existing legislation. I presume the certification also guarantees that everything which the Oireachtas has passed is contained in the Bill. Therefore, it is not just a question of not having any extra elements of legislation unscrutinised by the House but of consolidating the totality of legislation over 30 years. It appears at first glance that it is a competent piece of work which will be of benefit to people in business, legislators and the public. Although its more arcane provisions will still need to be brokered to the public by legislators or practitioners, it is readily accessible to an intelligent reader. The intention to make it available on CD ROM is of benefit and I am pleased with the Minister of State's commitment in that regard.

My remarks will follow the pattern of those of the Minister of State, in that he dealt with the economy in general and elements of corporation tax before discussing the Bill. It would be foolish not to acknowledge the marvellous legacy of the rainbow Government, on which the Minister of State remarked. The economy has had another good year in 1997. GNP has increased by over 7 per cent, there has been further growth in employment of 50,000, price stability has been maintained and inflation is the lowest in Europe when measured on a harmonised basis. At the time of the budget in January it was expected that tax revenue would increase by 6 per cent and that the general Government deficit would be under 1.5 per cent. We know now that tax revenue is increasing by about 10 per cent and the Government will be running a small surplus at the end of the year. What a marvellous Government it was.

Mr. Cullen

The comment about George Best springs to mind —"where did it all go wrong?"

Mr. Noonan

Do the Members opposite blush when they see such returns when they think how they harried those decent professional people who formed the greatest Government since the foundation of the State?

Mr. Cullen

The Deputy should look back to where it started.

Mr. Noonan

I do not expect the Minister of State to apologise but I compliment him for once more outlining, although briefly, the marvellous legacy of the rainbow coalition Government which the people continue to enjoy.

Mr. Cullen

I always give credit where it is due.

Mr. Noonan

The Minister of State would have a great future in the private sector if ever he had an accident in politics because by the time he has taken the Bill through Committee Stage he will be the person with the greatest familiarity with tax law for the last 30 years. He may need it because by the time Committee Stage is complete he will not have time for anything else given the timetable outlined for the next three or four weeks.

With regard to the legacy of the previous Government I would like to raise an issue with the Minister of State. At the time of the budget it was expected that tax revenue would increase by 6 per cent. From the third quarter figures it appears that it may increase by 10 per cent. In round terms, about £700 million will accrue to the Exchequer in excess of what was budgeted for last January. That is a large amount of money. In the course of 1997 taxpayers will pay £700 million beyond that which the Government of the day and the House in voting on the budget intended them to pay.

Over the past few years I have noticed that forecasting in the Department of Finance is quite soft and tax revenues have increased beyond the forecasts. It is not a science but rather an imprecise art. Will the Minister of State indicate whether it is the case that the Department got it wrong this year, as in previous years, or is it that they erred on the side of prudence? It is important to have prudent forecasting on which politicians may base policies. Is it that the Department thought that politicians were spendthrift in nature and there needed to be an underestimation to keep them in line?

Mr. McDowell

Perish the thought.

Mr. Noonan

Is it simply prudent forecasting or getting the result wrong to a significant degree, having applied the best information available in an imprecise art? Is there an element of deliberate underestimation? If so, it is a serious issue for policy makers, for the House and, more so, for the taxpayer. The payment of taxes in a democracy must be premised on the willingness of the taxpayer to continue to pay, otherwise the edifice collapses. This year taxpayers will pay approximately £700 million more than was intended by the policy makers who put the budget together and by the House which voted for the budget. It is a serious issue to which we should return.

It also puts the promises of tax concessions to taxpayers and demands by various sectors in context. What is so marvellous about the prospect of tax cuts of £500 million if taxpayers have paid £700 million in the course of the year beyond what the Government of the day intended? Is there not a case to be made for a primary clause in tax law which would allow taxpayers to get back what was not intended to be taken from them as a matter of course? I advise the Government not to underestimate the expectations of taxpayers, in particular those of PAYE taxpayers. They have already discounted £500 million pounds and if there is to be a penny less than that the Minister for Finance, Deputy McCreevy, need not come to the House on 3 December. That is the level of expectation and it is reasonable because of what has happened since the budget.

I do not intend adverse reflections on the Department officials. When I was a Minister I had the utmost respect for the expertise in the Department of Finance. We are fortunate to have such dedicated civil servants. There is a core of civil servants in the Department of Finance whose equals are not to be found in Europe. I admire them greatly for their dedication. I am raising a serious policy issue here and I would like to receive a serious answer to it.

The Minister of State in his speech decided it would be prudent to comment on corporation tax. I understand the Minister for Finance and the Tánaiste are in Brussels negotiating or, to put it more bluntly, trying to undo the damage done by the Fianna Fáil/ PD commitment to reduce corporation tax to 10 per cent for manufacturing industry and financial services.

Former Taoiseach, Seán Lemass, said that when an election was over he believed all election promises were null and void. I am very glad to see the Minister for Finance, Deputy McCreevy, is clearly in the Lemass tradition, given the alacrity with which he has dumped the Fianna Fáil/PD election promise to reduce the rate of corporation tax for manufacturing and the financial services to 10 per cent. That promise was made by Fianna Fáil and the Progressive Democrats in the full knowledge that it could not be implemented. It was a spurious promise; anybody familiar with what was going on in Brussels in June knew it would be impossible for a Government to deliver on a commitment to reduce the rate to 10 per cent. The Minister for Finance was well aware of that.

The Minister for Finance and the Government are guilty of a far more serious offence than breaking an election promise. The previous Government had decided to apply corporation tax at 12.5 per cent after the year 2010. It informed the European Commission of this and the Commission did not demur. The Minister has now reopened the issue at a time when other member states and many of Commissioner Monti's advisers are hostile towards Ireland's corporate tax regime. He did this less than a week after informing the Dáil during Question Time that the Government had made no decision on corporation tax and would not make any announcement on it until budget day. In the course of answering finance questions, the Minister floundered from one topic to another in his very ambiguous replies and he now appears to have transferred his floundering to Brussels. He has put the primary incentive for attracting investment to Ireland at risk by the manner in which he has handled events and is now in a very difficult situation. Had he stuck to the decision of the previous Government the matter would have been closed. By introducing the element of 10 per cent, the Minister reopened the matter and the mood has changed in Brussels.

I advise the Minister to look at today's Financial Times— a newspaper which is usually fairly well informed — in which there is a suggestion that, as recently as last week, officials advising the Commission were prepared to settle for 13 per cent in respect of corporate tax in Ireland thereby raising the figure a little from 12.5 to 13 per cent. My understanding is that they will not settle at 13 per cent now as sentiment in France and Germany has hardened, as has sentiment in the Commission. The Minister for Finance has been particularly foolish; the way things stand at the moment, he will be lucky to get out of this at 15 per cent. I wish him and the Tánaiste well in their negotiations in Brussels.

Former Minister for Finance, Deputy Ruairí Quinn, acting on the instructions of the Government, went to Brussels after the decision on corporate tax was taken and informed the Commission of it; the Commission did not demur. The regime would be introduced progressively over a number of years and we would have had two different tax rates along the lines indicated by the Minister of State in his speech. The lower rate for manufacturing industry and financial services would have been pegged at 12.5 per cent.

By reopening this issue, the Minister has been extremely foolish and has made life very difficult for himself. I wish him well and hope he can settle quickly at the 12.5 per cent decided on by the previous Government and proceed with the detailed proposals for the December budget. Our corporation tax regime is essential to the country's future economic development. It cannot be cut off now if we are to sustain the growth, the creation of in excess of 50,000 jobs this year and the low inflation rates which the Minister lauds; all the good news of our economy can be related to the inward flow of investment. That inward flow will stop for the manufacturing and service industries and for job creation unless we can give certainty to potential investors about the tax regime under which they will live if they invest in Ireland. That is a vitally important point and the Minister for Finance has bungled seriously. He bungled after receiving a great deal of advice here last Wednesday when he was told that he was opening a dangerous door. He was ambiguous and floundering and could not give us a straight answer. When he told us the Government had not decided on the matter I asked him if he would make a preliminary statement to set jangling nerves at rest. He said there was no need for such a statement as nothing would be announced on the matter until 3 December. Within six days of that statement, the Minister is in Brussels trying to pull irons out of the fire which he himself pitched in. That is extraordinarily imprudent and damaging and when the Minister returns I expect him to explain the position here in this House.

I turn now to the only element of the speech — outside of the statement of intent contained on corporation tax — where there is any development of policy where the Minister said the Government intends to use this opportunity to achieve a balanced budget over the economic cycle by running budget surpluses when possible. I agree with its general tenet. One does not need to be a financial expert or a leading economist to understand it. One need only have a knowledge of the Old Testament to understand the position being outlined here. If there are seven years of plenty, the corn is stored in the barn and surpluses are run; if there are seven years of famine one draws the corn from the barn. We have had many years of famine and it is time we had some surpluses. That economic device is as old as the world.

I find interesting the statement that this will be done over the economic cycle. There is a developing view that we are not in an economic cycle in the traditional sense, that, as information technology impacts on the economies — particularly in what were known as the western democracies before the fall of the Berlin Wall — we are in the middle of another industrial revolution. As well as dealing with the ups and downs of the economic and trade cycles with which we were familiar, where the good years had to balance the bad, we may be in a situation where there will be a quantum leap in the creation of wealth in the western democracies. That will give rise to a whole new series of decisions. We should not necessarily proceed on the basis that we will have the traditional business or economic cycle up to the millennium and beyond. It is possible to see things differently; it is certainly possible to see them differently at a conceptual level when one looks at all the evidence. That evidence includes the impact of information technology on the manufacturing process and the service sector, particularly the financial one, the systematic reduction of trade barriers by the great trading blocs like the European Union and the implementation of the last GATT round. I am not saying there should be any policy change or the language should even be changed when one speaks of running surpluses to compensate for deficits in the economic cycle. However, it is worth thinking about this from an overall perspective of where Ireland and Europe in general is going. It is worth pausing for a moment to ask whether something new and totally different is happening. Perhaps we should keep that in the back of our minds when we speak about running the traditional type of budget strategy up to the millennium and beyond.

The Minister of State has outlined very well what is in the Bill. It contains nothing new and retains everything old. There is neither an addition nor a subtraction to it. We will give the Bill ready passage on Committee Stage and, while we will do our job, we will not hold up the Minister of State by unnecessarily debating issues which have been debated already. If we want to change the tax law we will have an opportunity to do so after the budget of 3 December by making our proposals for change in the Finance Bill.

I am interested by the manner in which the information is being made accessible. It is encapsulated in the Minister of State's speech and in the introduction to the White Paper which says it will be possible for the individual to drill down to find the item of information required. That is a good approach and the "drilling down" concept puts it very accurately. Going through the Bill one can move from the general to the particular to see what is meant and find what one wants. The commitment by the Minister to enable us to do that by way of CD-ROM will be of great benefit in accountancy offices and businesses.

Will the Minister of State also consider incorporating in the CD-ROM the advice and explanatory publications of the Revenue Commissioners, which he says will follow the Bill's enactment? In addition, will he consider a second CD-ROM, while he has a group of experts in place, to enable the case law of the past 30 years to be made more accessible? The individual could thus drill down to get at the decision which will cast further light on sections of the consolidated Act? If that could be done the Minister of State would achieve the same level of recognition as a reformer in the tax area as the former Minister, Deputy Quinn will achieve as a result of all the work he put into consolidating this legislation.

I thank the Minister of State for his courtesy and for the manner in which he explained the Bill. We will support it on Second Stage and do not envisage any difficulty on Committee Stage. We envisage providing a ready passage for the Bill in accordance with the timetable laid down by the Minister of State and his officials after consultation with our Whips.

Mr. McDowell

I agree with Deputy Noonan that corporation tax is a serious matter. In his remarks yesterday in Luxembourg and in avoiding the issue last Wednesday in this House, the Minister did serious damage to the prospects of inviting direct foreign investment in the years to come. He has damaged the integrity of the political system — something we should not take for granted — and his reputation as an administrator and a self-styled straight talker.

It is worth looking back over recent months to see exactly what happened. Everyone in the House has been conscious for some time that the European Commission was less than enamoured with our regime of corporation tax as it applies in the financial services centre and generally. We all knew the Commission did not like the 10 per cent rate and insisted that it be limited in application and increased over time. The then Government, including the Minister for Finance, Deputy Quinn, agreed some months ago to seek a rate of 12.5 per cent. This was made known publicly at the time and we got a reasonable response from the European Commission.

This was in the public arena. It was known to the Progressive Democrats and Fianna Fáil spokespersons at that time, yet both parties in the general election campaign felt able to commit themselves to reducing the rate to 10 per cent in the long-term. This was always an unrealistic commitment and it was potentially dangerous in so far as it set up a possibility which the Commission had already firmly rejected.

Whether they knew this or not before the election, the two parties which now form the Government must have known it by the time they came to draw up the priorities for the Programme for Government after the election, yet the same commitment appears. Whether they knew it then, the Minister certainly knew it when he responded to questions last week. The Minister styles himself as a straight talker, yet in his responses last week he managed not to give a serious straight answer. He gave the impression the decision has not yet been taken by Government, that the issue is still open and that Fianna Fail and the Progressive Democrats still want to reduce the rate to 10 per cent. Yet, he must have known that simply will not happen and is not possible.

The double talk that worked in the House last week, apparently worked during the election campaign and which governed the putting together of the Programme for Government, clearly had to be abandoned when the Minister came to the Commission's table yesterday and today. Now we find the Minister, out of the corner of his mouth, admitting that all along 10 per cent was never really on and the previous Government's decision has not been changed. It stands at 12.5 per cent. Perhaps the Minister will say that it will be 10 per cent over time but we know it will not and at this late stage it is important for us to acknowledge that.

It is no secret there were negotiations between the parties in Government earlier this year when we eventually agreed on the 12.5 per cent rate. We agreed that because it was important to have all party consensus on the issue. We must present a national pitch to potential investors and that pitch should not be destroyed by a Government which does not seem to know what it is doing.

The integrity of the political and electoral systems is an issue which arises here. In the last week both Government parties have reversed at least three important decisions which only a few months ago they identified as priorities in their Programme for Government. We were told that, as a matter of priority, the mandatory reporting of child abuse cases would be introduced. Now, however, it will not be. The Minister of State, Deputy Fahey, told us so last Thursday. We were told the Sellafield case would be fully funded, but it will now be partially funded according to the Minister of State, Deputy Jacob. This was followed by the Minister's utterances in Luxembourg yesterday and today. None of this helps the integrity of the political system; it cheapens it. The usual excuses are not available. This is not a case of a Government just in power making promises it suddenly finds it cannot afford. The Government knew what the figures were and the realities. There was no reason to make these promises, people were deliberately misled. Suddenly we see the consequences and, sadly, such is the standing of politicians and politics today that we will all suffer as a result.

I welcome this important legislation. The House will forgive me if I repeat that much of the credit for driving this initiative lies with my party colleague, the former Minister for Finance, Deputy Quinn. I acknowledge the Minister of State was generous in his remarks as was Deputy Noonan.

It is now nearly three years since the former Minister took the initiative to consolidate income tax, capital gains tax and corporation tax. The work was directed by the Revenue Commissioners and I understand a number of staff have dedicated a good deal of time to the task. I commend them for a job exceptionally well done. I also understand the Attorney General's office was involved, at least in the latter stages, and that the private sector was also centrally involved. I will return to that matter later.

The result of all this commendable and extensive effort is a comprehensive volume which will make life a great deal easier for many people. In the first instance the two volumes will be of enormous benefit to accountants, solicitors and tax advisers generally. As one who has practised law and may do so again I am well aware of the dangers of trying to advise a client in an area of law which sees frequent changes, and tax law is one such area. I am only too familiar with that awful feeling when a client has left the room satisfied and one then discovers that some obscure amendment or later provision renders every advice offered a complete nonsense. Clearly at least in this area of law those disasters will be a thing of the past.

There is a broader and more fundamental issue, that is the question of access to law. Ignorance of law is not a legal defence but, there are areas of law which are so technical and diffuse as to be almost inaccessible to most of the public. Tax law is so complicated that no normal person can possibly aspire to understand it. The Department of Social, Family and Community Affairs has made significant progress in recent years in publicising what it does and in alerting people to their entitlements. Perhaps we need to do the same in relation to tax. Why is it that most of the information about tax is effectively channelled through professional advisers. Obviously it is important that people are accurately and comprehensively advised, but it is also important that people should have a basic knowledge of their rights and duties as taxpayers and citizens. Our democracy can only be enhanced if there is a greater diffusion of information than is currently the case.

I warmly congratulate those who have been involved in the project to date, but there is scope to go a good deal further. The first consolidation of the law relating to Customs and Excise was published in 1876, 121 years ago. It has been amended in most subsequent Finance Bills but it has not yet been re-consolidated. Surely there is a case for doing so. Likewise, VAT legislation goes back to the early 1970s and that has not been consolidated, though I welcome the Minister's commitment to do that at an early stage. As the Minister will be aware, the position on VAT is all the more complicated because we rely on VAT law for at least some interpretation on EU Directives and that obviously adds another element to the accessibility of the legislation. We got an interesting illustration of that during the controversy about the taxation of child care facilities earlier this year.

This project was carried out as a joint venture between the private and public sectors. Perhaps this points to the future. Perhaps until now we have drawn too rigid a line between what we ask of civil servants and what we ask of the private sector. I am somewhat critical of the out-sourcing to which some Departments are given in terms of appointing consultants. The expertise in many cases exists within the Departments and I doubt the need to incur the expense of employing consultants but there are cases where there are obvious advantages of doing that, and this was clearly one of them. There have been privately produced consolidated volumes doing the rounds for some years. Without those consolidated volumes most private tax advisers would find life very difficult, if not impossible. In consolidating other areas of tax law, there is obvious advantage in using that private sector expertise.

The work cannot stop here. The technology exists for rolling consolidation of the law and the way in which the law is presented. The pattern in the past has been that we have enacted law in a piecemeal way and consolidated it from time to time when things got that little bit too confusing. The consolidated Act then becomes the new base measure and it, in turn, is amended. Given the improvements in technology, it must surely be possible to consolidate as we go along. Would it not be possible for the Department or the Revenue Commissioners to produce a consolidated package each year on CD-ROM or disk after the passage of each succeeding Finance Act or tax legislation?

The Minister has responsibility for tax law but I hope he will forgive me if I mention some other areas of law urgently in need of consolidation, the road traffic laws, for example. To find out the law on drink driving would require one to trawl through at least five Acts, something which most normal people cannot or will not do. In the same way planning law is rapidly becoming more extensive and in need of consolidation.

I take this opportunity to say a few words about tax. A few things struck me in turning the pages of the Acts. In many cases the statement of the charge to tax is relatively short but in all cases it is followed by an extraordinary recital of exemptions and reliefs. Some of these could hardly be relevant any more and surely they can be excised without damaging the initial legislation. Maybe there is a more fundamental question here, one which will appeal to the Minister's reforming zeal: is it not time to dust off the report of the Commission on Taxation? Maybe it is time to consider whether some reliefs and exemptions are really necessary or fair. Some of them arose at times of special need and the need has long since been catered for. In other cases the marketplace has simply moved on. I am thinking of the housing market as a good case in point.

On tax and budgetary policy generally, and the way in which we deal with these matters in the House, I would be interested to know this year's budgetary policy. This is the first year there will be two Budget Statements. The previous Government stated its intention to publish the Estimates in June or July to facilitate public discussion in advance of the Budget Statement. It was intended that the Budget Statement would be made in October or November. The general election obviously intervened and, as a result, the Minister, Deputy McCreevy, has announced his intention to make the statement on 3 December. Why has it taken so long to get to this point? It is the middle of October and by all accounts the Estimates campaign is still continuing. Has the Minister announced when he intends to publish the abridged Book of Estimates?

Mr. Cullen

Not specifically, as far as I know.

Mr. McDowell

How long will we have to study the Estimates in advance of the Budget Statement?

Mr. Cullen

It should be due shortly.

Mr. McDowell

The Minister is looking to spend £15 billion of taxpayers' money. We are almost unique in Europe in that Estimates are not seriously discussed by Parliament before the money is committed. At various times all parties in this House have agreed that more time should be allowed for debate in advance for the money being committed. Now the Minister seems to be going in the opposite direction. The Estimates will be dealt with in private without any public scrutiny in advance of the Budget Statement. The time has long since passed when that sort of practice was acceptable and I am disappointed the Minister is treating the budgetary process in such a secretive way. He said only last week that it was not his money, that it is taxpayers' money, yet decisions as to how this money is spent are made in private. I look forward to the day when Ministers and civil servants will be required to make their pitch in public. If we really need to spend more on a project or scheme, why not say so in public? If we need to spend less, why not do the same? We have made very little progress in public scrutiny of the way we go about public expenditure in recent years but what little progress there has been seems to have been reversed by the current Minister.

The Minister will be aware that in 1996 the Select Committee on Finance and General Affairs conducted nearly two dozen pre-budget hearings in the last quarter of the year. Like many others, I was less than fully convinced by the process and the committee later agreed a number of significant reforms. Despite all its faults, at least the process last year shone a few rays of light into previously unlit territory. We had the benefit of a briefing from the Secretary and the Department in early September as well as the attentions of one or more of the Minister's officials throughout. In some ways this briefing may have been a step too far in as much as the hearing was televised and lost much of the spontaneity and frankness which it might otherwise have had. The briefing was, in effect, a public one and not a briefing offered to Members of the Dáil. It was in stark contrast with the briefing the Minister and I had with the Governor of the Central Bank, which was more frank and conducted in private. To the best of my knowledge, the confidentiality of that briefing was respected by everybody present. We all found it useful and it could be built on in the future. Incidentally, I do not intend this as a criticism of the Department or the officials. The reality is that we must expect caution if meetings are held in public. For that reason, if for no other, we need to look again at that part of the process.

I was unhappy about the use of consultants to advise the committee at that stage. The unfortunate company which did the job last year was clearly ill at ease with the nature of the project, not least because the terms of reference were all over the place. In the event, the company ended up in the middle of a political row — in which I was pleased to play some small part — and the report was emasculated and sidelined. There was no need for that as all of the necessary expertise is within the Department of Finance. I hope it will be possible to make that expertise available to the revamped committee whenever it is re-established.

The Minister cited a number of figures at the beginning of his contribution to demonstrate the success of the economy under the previous Government, which I welcome. However, as Deputy Noonan said, cautious predictions may be made from the figures before us today. I would take a bet with the Minister that the GNP growth figure of 7 per cent may be understated. I might even take a bet that the 10 per cent tax revenue increase is likely to be a little on the low side. I know the current figure is about 15 per cent and there are factors which will decrease that before the end of the year. Nonetheless, I cannot help feeling those figures are, to say the least, a little understated.

One way or the other, the figures are very good. We will almost certainly not have any Exchequer borrowing requirement this year and we will certainty have a huge current budget surplus. Growth will be at least 7 per cent, even according to the figures supplied by the Minister today.

On the other hand our health spending is still the lowest per capita in Europe. We still have 26,000 or 27,000 people on hospital waiting lists. The transport infrastructure in our capital city is still among the worst in Europe, despite the money we have spent on it in recent years. There are still outside toilets in some rural schools.

For years, we have told people who depend on public services that we cannot afford anything better. We have told the poor they have to wait until times get better. Times are now better. Let us reduce income tax for those who are earning money, but we must also look at our social services — not just for those who depend on them entirely but also for those of us who send our children to public schools and depend on the public sector health service, as the great majority of us do. We have underspent in those areas in years gone by and there are still some areas of very great need. At this time of economic plenty, we need to look at those areas to see whether improvements can be afforded.

Nobody on this side of the House is suggesting irresponsible spending sprees — quite the contrary. I make an important distinction between capital and current spending. For example, there is no reasonable excuse for not proceeding with the northside Luas line at the earliest possible time and to otherwise improve our infrastructure. These are one-off investments which will improve our future productive capacity and need to be made now when we can afford it.

Instead, the Government appears to have shackled itself to an utterly daft spending target. We are being told that spending will be limited this year and into the future to a gross figure of 4 per cent, not taking 2 per cent inflation into account. I do not understand this. We are being told we must save for a rainy day. It appears, however, that those who are earning reasonably decent incomes and can look after themselves at the moment will not have to wait in the same way as those who depend on public services.

It seems the Government is still determined to reduce the upper rate of income tax from its current level of 48 per cent. It seems it is still determined to go ahead with a tax reduction which is plainly skewed to those who need it least. However, those who depend on public health services and education, and those on low incomes, in the Civil Service and elsewhere, are being told they will have to wait.

The Minister needs to look carefully at the provisions of Partnership 2000 in relation to exclusion. Perhaps he needs to look again at the programme for Government and to consider whether a great deal more could be done on those issues.

The Minister and his Government have shackled themselves with an ideologically driven hatred of public spending. I listened, for example, to the almost throwaway remarks which the Tánaiste made in Killarney last week when she decried the previous Government's record on public spending. It is true we employed an extra 11,000 people in the public services while we were in Government, roughly half in the health services and roughly half in education. I do not apologise for any of that. We made important improvements, and there is still much more to be done.

However, the Tánaiste apparently considers public spending to be something which, by definition, is bad. She should consider what public spending does. It is not all good and, perhaps, in the past we did not look for value for money as much as we should have done but lessons have been learned. However, we need to spend more on important social services. I wish to put down that marker on behalf of my party in relation to the upcoming budget and future economic policy. We cannot just run this country for the benefit of those who pay 48 per cent income tax.

I join the Minister in commending those who drafted this Bill, which I hope will be the first of a number in the tax area, where there is much work to be done. The Bill was drafted in a relatively short time, considering the size of the task. I am sorry my colleague, the former Minister, Deputy Quinn, is not here today as I know he would have liked to take the plaudits and see the Bill through, even from this side of the House. However, I acknowledge on his behalf the compliments paid to the work. The Minister can be assured of our support on Committee Stage to bring the matter to fruition.

Mr. Ardagh

This Bill is a magnificent opus. It is written in a coherent and logical manner and is a tribute to all the people who were involved. I too pay particular tribute to and congratulate Deputy Quinn, the previous Minister for Finance, who, in February 1995, set out in a determined manner to ensure this came about. He deserves all the plaudits he has received.

The Bill will benefit practitioners, particularly, as it will make it much easier for them to examine cases. It will also benefit tax inspectors and their clients. The Bill is much easier to use than the previous legislation as there is now no need to flit between the 1967, 1974 and 1993 Tax Acts. It is a beautiful piece of work. I understand that future changes to the Act in budgets will be made by amendment of the consolidated Act, which will make it much easier for practitioners to use the legislation properly and to provide a good service to their clients.

It is great that the legislation will be available in CD-ROM format. There will also be more detailed guidance notes. The notes with this Bill were excellent and helped one to read the detail of the Bill.

The Bill however, lacks a subject index which would be very useful. There is talk of drilling down the edges of the page. However, given the state of technology and the publishing programmes it would not be difficult to provide an index. While the Revenue may say that the Act in its entirety must be taken into account, such an index would be helpful and necessary, even if it was a non-statutory part of the Act. I was unable to find paragraphs which related to specific items without devoting considerable time to the matter.

Small and medium sized enterprises have specific concerns. Owners of small businesses want to reduce bureaucracy. The Bill will do this because it will ensure that a better service can be provided by the inspectors of taxes and professional advisers.

Small and medium enterprises consider themselves to be unpaid tax collectors for the Government and there continues to be a plethora of VAT and PAYE forms. These forms must be addressed and reduced in any consolidation process. They also require the use of simple language in the legislation. I therefore welcome the elimination or simplification of the archaic language used in the previous Acts.

Times have changed in the 30 years since the last consolidation Act. In view of this, the individual sections must be looked at. While the Bill is a consolidation of all taxation laws some of their provisions relate back to 1967 and before. These are now archaic. For example, section 14 provides that no tax is charged on a denomination lower than 1p.

Businesses can deduct expenses that are wholly and exclusively spent for the business but the employee can only deduct expenses that are wholly, exclusively and necessarily spent for the job. This relationship must change. There must be more equality between the business person and the employee. Employees must sometimes pay expenses which are not necessarily incurred. For example, many employees pay for home computers, travel to seminars and books and magazines which they use to improve their knowledge. All should be tax deductible.

The presidential election campaign demonstrates that much expense can be incurred in improving one's image. This is not a sexist remark. Derek Nally has improved his image through the use of reputable tailors in Pembroke Street and Capel Street. Questions have arisen as to whether grooming and dress, which must be paid for, should be deductible expenses.

Businessmen travel approximately 15,000 miles a year. I understood that, on a discretionary basis, the inspector of taxes allowed 5,000 miles as private mileage. It is now written into the legislation that if an assessment is being made by the inspector of taxes he will allow 5,000 miles as private mileage. This provides greater certainty for the small and medium businessman, which is to be welcomed.

The language employed in parts of the Bill is not simple. Section 123 provides that all income on termination of employment is chargeable to income tax, subject to section 201. Section 201 refers to payments for redundancy and leaving employment, which could amount to between £10,000 and £15,000 if a person was in a job for a number of years. That is normally far greater than what somebody would be paid on termination of employment. If reference is made to another section there should be a brief description of what it contains.

Section 126 refers to widows' contributory pensions, orphans' contributory pensions, retirement pensions, old age contributory pensions, disability benefit, unemployment benefit and pay related benefit, all of which are chargeable to tax. Many people in those income brackets may have a small amount of extra income and may be slightly over the exemption limit. They then pay tax at the rate of 40 per cent as opposed to the standard rate of 26 per cent. They resent being in this situation. The matter must be addressed.

Section 140 provides that profits or gains for stallion fees, greyhound service fees or occupation of certain woodlands are disregarded for tax purposes. While the Minister is a racing fan he should look at whether these profits should continue to be exempt. The provision may have been included many years ago but it must now be reconsidered.

Deputy Noonan mentioned that Charles J. Haughey consolidated the Taxes Acts in 1967. In doing so he also introduced tax relief for authors, sculptors and writers in respect of income derived from the creation of an original work. The section is four and a half pages in length and comprises a significant part of the Act. Given the size and beauty of the Act could the drafter look upon it as an original and creative work and would he be exempt from income tax on his salary while he was engaged on it?

Sections 223 and 226 provide that if an employment grant from the IDA, county enterprise boards and back to work scheme is given, including the grant given in respect of the employment of an individual who is more than three years unemployed, it is exempt from tax. This means that it is effectively valued at more than the net amount. At times people have produced this in connection with their wages and would, therefore, effectively pay tax on it. Small and medium business owners should look at this.

Section 272 refers to the 15 per cent annual allowance for hotels and the 10 per cent annual allowance for holiday cottages used as a trade. There are a huge number of hotels in Dublin. The tax saving on the 15 per cent allowance pays the interest and some of the capital on a loan secured to finance projects. With property prices increasing and interest rates decreasing the Revenue ends up fully financing these hotels. There is no balancing charge after seven years so there is no claw-back of the allowance provided and the balancing charge is disregarded if any capital gains are made. This is a matter of the rich getting richer; it widens dramatically the gap between the rich and the poor. The allowance for hotels must be examined.

Under section 291 computer software is treated as a capital investment. However, people are aware that computer software comes in a package and is out of date in six to 12 months. The idea that it can be written off over seven years is ridiculous in this day and age. It should be treated as a normal expense.

Regarding section 355, many people are seeking section 23 apartments of which there is a dearth in the city. People should be made aware that holiday cottages in designated holiday resorts can be set off against rental income from other sources. It is, effectively, a type of section 23 and people who cannot find such properties in Dublin should consider investments in Lahinch, Tramore or elsewhere because they will receive the same tax benefit.

The anti-avoidance measures are set out in various sections. Perhaps all these measures could be contained in one section. This would make them more obvious and stronger. The House should also consider if retrospective legislation could be introduced with regard to tax avoidance. If the Revenue Commissioners believe a provision in the Act is used to avoid tax, the House should consider implementing retrospective legislation so the tax loss can be recouped. This matter must be examined and addressed.

There are too many personal allowances and reliefs. Following the recent CORI report on basic income, a new analysis of this area should be carried out, particularly as the country has surplus revenue of between £500 million and £1 billion. With regard to reliefs associated with films, 80 per cent of £25,000 is most generous, giving £10,000 relief on tax in one year. A £20,000 repayment on a £25,000 investment would give an investor in films a reasonable profit quickly. Given the structure of films, perhaps 80 per cent is too high and that amount should be re-examined.

Regarding section 1003, if one donates an important heritage item a tax credit against past, current and future tax can be given. The ceiling at present is £750,000 and perhaps it should be increased up to £4 million.

Section 1065 gives the Minister for Finance the right to mitigate fines and penalties. I was not aware the Minister had the right to mitigate up to 50 per cent of fines and penalties imposed. Given the existence of revenue audits and that fines and penalties can amount to sums in excess of £1 million, which would not be unusual in this day and age, the power of the Minister to reduce that by £500,000 needs to be re-examined.

The Bill is a splendid piece of work and I am delighted to contribute to the debate. I look forward to using the legislation in the future.

An Leas-Cheann Comhairle

The Deputy indicated that he wished to share his time with Deputy Michael Ahern, who has two minutes in which to contribute.

Mr. M. Ahern

I welcome the opportunity to contribute to the debate. For more years than I can recall I tore out my hair trying to deal with changes in various sections in different Finance Acts. It was music to my ears in 1995 when the then Minister, Deputy Quinn, announced that a consolidation project would proceed. The background to the Bill is that the introduction of the legislation relating to capital gains tax in 1975 and the corporation tax code in 1976 had a major impact on the 1967 income tax code. In addition, successive Finance Acts included numerous changes to the codes. In all, the three codes comprised 2,000 separate sections and 50 related Schedules. When one considers those figures, one can understand the problems and headaches the Revenue authorities, accountants and tax advisers experienced. The decision to introduce consolidating legislation was tremendous and the result is outstanding. It is now possible to look at one Bill and understand its simple language.

I commend the former Minister for initiating the consolidation project. The Deputy almost met his deadline because he hoped to have it in operation during his term of office. However, times change. I also commend the Revenue officials and the private sector who worked together to bring this Bill to fruition. They co-operated extraordinarily well and this shows that great results can be achieved in a short time if people work together.

Deputy Noonan mentioned the Minister for Finance, Deputy McCreevy, earlier. Deputy Noonan continued on his merry way, as he has done over the years, raising fears where none should exist. He tried to scare companies by stating that there will be a rising 15 per cent corporation tax rate. This is typical of the Deputy but he knows in his heart and soul that this will not happen.

I commend all those involved in formulating the Bill which will be of tremendous benefit to people involved in business, the Revenue authorities, tax practitioners and accountants.

Mr. Rabbitte

As my colleagues said, the Bill is a monumental enterprise and I congratulate the Minister and the Government for bringing it to fruition. I recall when the previous Minister for Finance, Deputy Quinn, advised the Cabinet that he intended to initiate the consolidation process. There were more than one or two whispers to the effect that people would believe it when they saw it. The Bill is a great tribute to Deputy Quinn for driving the project forward and to the many dedicated people who worked on it.

I apologise that I was unable to attend earlier for the Minister's speech and the contributions of the Opposition spokespersons. However, he referred to this being the first time any tax law has been consolidated since 1967. In tax terms that is a long time and a great deal of water has passed under the bridge since then. In 1967 many people had only a passing familiarity with the concept of being taxed or paying tax at all. Whereas a number of people would suggest there are still legacies around from that era, nonetheless there has been a revolution in the taxation system and in its enforcement since then. It was some considerable time after 1967 when the little old lady in Deputy Deenihan's constituency said, when told about decimalisation, it was a great idea but it would never catch on down there. Income tax was viewed in that way around 1967 by a great many people. Much has changed since then even if a good deal remains to be done.

This Bill is a monumental enterprise. The two previous speakers — Deputies Ardagh and Ahern — know more than a little about the taxation code and I agree with much of what they said. It is laden with nuggets as Deputy Ardagh said. It will not be just of assistance to the tax advice industry but to Members and to anybody who wants to be able to find some aspect of the tax regime and to have it intelligibly explained. Nonetheless, some of the nuggets will cause raised eyebrows. Certainly my constituents in Jobstown will be fascinated by the section on stock relief for farmers, the residential requirements to be in the State to pay tax and Deputy Ardagh's fascinating comment about stallion fees. I hope Deputy Ardagh, who knows a little about this area, will not take offence if I say that in tossing off the top of his head, the notion that the stallion fees provision might be changed, he has still much to learn about the hard politics of this House. However, I support him 100 per cent and believe the time has come to look at the existing provisions for the blood stock industry. It would be a very productive area for examination and may well add a great deal to our knowledge of the tax system here.

The Minister dealt with the question of overseas investment and its contribution to the growth and strength of this economy. I do not know why that issue has been selected for early and prominent mention other than the discussions which are taking place elsewhere about the corporation tax regime. I do not agree with Deputy Ahern. The comments by Deputy Noonan, if described accurately, are not fantastic. It is regrettable, having made a foolish promise at the time of the general election, that the two parties in Government have decided to reopen this issue.

The Minister is right in saying the continued attraction of foreign investment at the rate we have been attracting it in recent years is a critically important factor in terms of the growth of this economy but there are arguments behind why the previous Government decided to look at the corporation tax regime. It was foolhardy to reopen that issue. I hope the Government escapes with the agreement the previous Government had in place in terms of 12.5 per cent for the traded sector. A 15 per cent rate would mean a 50 per cent increase in the existing CPT regime. I take with a grain of salt the remarks today by the IBEC representative about why the Government parties should adhere to the 10 per cent platform announced during the general election but we could have some serious and real problems if corporation tax was increased by 50 per cent which is what a 15 per cent regime would mean. On Question Time last week we pursued the Minister for Finance on this issue. I regret he did not tell us then he was in the hot water we have since discovered he is in and from which I sincerely hope he can extricate himself. It is a foolish mission to change that decision, a decision reached after a great deal of thought and consideration at the time. In all the circumstances, it was a reasonable compromise and one with which industry and Government can live.

Previous speakers referred to the projections in the Minister's speech in terms of revenue buoyancy, tax revenue specifically, the expectation for a small surplus and so on. I note the tax revenue forecast at the time of the budget was 6 per cent. If some of us had the Chair's experience around the Cabinet table we might have taken a slightly more jaundiced view of that projection of 6 per cent. That is not to say I regard other than with the highest esteem, the civil servants who work in this area of the Department of Finance. They have nothing other than the public good in mind. In an election year, in particular, it is their job to make sure they ride shotgun on the Government of the day.

When one sees projections of 10 per cent and £1 billion in excess of expectation after the third quarter, one would not be human not to think what might have been and the decisions which might have been made. The result is the Minister for Finance inherits the most propitious economic circumstances any Minister for Finance has inherited in the lifetime of this State. That is an extraordinary position to be in. No previous Minister for Finance has ever been in the situation where a surplus is being budgeted for and where buoyancy in tax revenue is coming through. Against the projections in the Minister's speech and the figures for the third quarter of £1 billion in excess of expectations, that is a most propitious climate for tax reform.

If we do not achieve fundamental tax reform during this period, characterised by strong economic growth, buoyancy in public revenues and significant resource transfers from the European Union, when will we have genuine tax reform?

For my party, tax reform is about taking the lower paid out of the tax net, striking the appropriate balance between thresholds, allowances, bands and tax rates, the interplay between the tax system and the social insurance system and fund and making as little demand as possible on the taxpayer while keeping the European social model intact and maintaining its integrity here. Irish taxpayers consider they pay too much tax and most do. There are two points I would make. We need to take care that we do not simply cut, or promise to cut, the taxes of taxpayers, thus undermining the ability of the State to provide services. However, simply to depict the issue as one of cuts versus reform is also misleading. It is not a question of one or the other. It is a question of achieving both — tax reductions for those who are overburdened and a fair contribution from those who pay too little or nothing, while maintaining and improving public services according to the demands and needs of our society.

The second factor feeding into the feeling that taxes and spending are too high is the behaviour of politicians themselves — and not simply in Ireland. Western democracies generally have ended up in a bind. They, that is to say the voters and politicians, believed that the State could and should provide more public services without reference to the level of national output and, in particular, to trends in the growth — or lack of growth — of output. They engaged in particular in attempting to insulate their societies and economies over decades from enormous external shocks, rather than adapting to such shocks, for example, the oil crisis, but more recently technological and global economic developments. Governments promised corrective measures but patently did not keep their promises. Ireland was no exception to any of this.

The result is the politics of the lobby and vested interest. Farmers rail against public spending and debt, yet want to be fully compensated for bad weather, good weather, every animal disease imaginable and anything else they see as representing a reduction in their rightful — as they see it — living standards. Individual industrialists are no different. They are equally loud in their similar demands for rectitude. Spending must go, yet their trade and representative bodies are equally demanding in their pleas for the maintenance of their grants, supports and subsidies, and for more of the same.

More controversially from my political perspective, the public service system itself is not immune from a tendency to engage in special pleading. More spending is regularly equated with more service and better service. The ideas of value for money, evaluation, replacement and even the closing down of programmes where they are shown not to be working, or to have worked and to have achieved their purpose, are notions with which many in the public service and perhaps the political left are not comfortable. There is every reason why the left should address the idea of controlling and limiting public expenditure. After all, public expenditure is largely funded by ordinary taxpayers and much of it, directly or indirectly, accrues to low or non-taxpayers. For example, one could look at who the real beneficiaries of university access are. Every year in recent times the Kilkenny People has published the names of the recipients of university grants from the different Kilkenny local authorities. It makes very instructive reading because it is an essay on the class system in Ireland, on who benefits from public expenditure and specifically from university grants. This cocktail has debased politics, made electorates cynical and unbelieving, sapped civic purpose, cultivated selfishness and made the politics of private desires, rent-seeking and provider-capture the predominant and driving force in the three-way relationship between civil society, political parties and the State. This is not an argument against either public spending or the creation of debt.

Society cannot do without public spending. A fair education system, a decent health service, the provision of clean water and adequate public transport are cases in point. Deputy McDowell instanced serious weaknesses in all of these areas. For example, the subsidy to Dublin Bus is paltry compared to the public perception of the extent to which Dublin Bus is subvented. As a result, the very populous area that I represent, or the whole belt of west Dublin that does not enjoy the super DART system, lives with a permanently inferior public transport service. That is a real issue in the context of the arguments that we have been making. As to debt, notwithstanding what I heard Deputy Noonan say, the countercyclical case still has substance, while debt-funded public investment can also be justified. However, in the former case we have to be concerned with ensuring that current deficits are cyclical, while in the latter case we have to look at issues to do with funding and be concerned with the rate of return, however that is defined.

Let the Minister therefore take courage and go for tax reductions for those who are overburdened and a fair contribution from the dodgers, while maintaining and improving public services according to the demands and needs of this society. Let him target tax relief on those low to middle income earners who deserve it most and abandon the PD/FF election platform just as he has been forced by the European Commission to abandon the PD/FF election platform on corporation tax.

Establishing a fair and equitable system of taxation is only half of the equation; ensuring that the system is administered in a fair and effective way is equally important. Enforcement, evasion and tax avoidance in this economy are critical questions still to be addressed. Everybody accepts that there have been tremendous advances in terms of enforcement and so on in recent years and I do not doubt the commitment of the Revenue Commissioners to ensure that continues to be improved. Nonetheless, when we have come through a period such as we have come through recently, there are questions in the public mind about how certain things are allowed to happen right under the noses of the Revenue Commissioners. It is a matter of restoring public confidence in the fairness and efficacy of the tax system that the Revenue Commissioners are seen to respond fairly and even-handedly. It stills remains a mystery, if one were to look at the two tribunals we have had in recent times — the Goodman tribunal in the first case — as to why one of the largest employers could have been making tax returns for a very modest small-sized employer and no alarm bells went off. We know now that the largest organised tax evasion scam in the history of the State was going on. I think it was Mr. Donnelly who offered before the tribunal certain explanations, some of which were quite persuasive to me in terms of resources, systems and benchmarks not then operating in the Revenue Commissioners. However, in the Dunnes payments tribunal we have seen it again. We have seen the reluctance to get clear answers on, for example, the Ansbacher accounts. Was that purely a tax evasion scam, as it seems to have been? Are there wealthy individuals who can put through an amendment to the Finance Act on the last day altering the residential requirements in this State? Nobody will ever convince me, although I am open to listening, that that was not put through for certain specific individuals. That is still one of the major issues in terms of restoring confidence in the tax system.

Mr. Perry

The consolidation of the taxation Acts is a positive step. A substantial amount of work has already been done by the previous Administration towards this end. I welcome the introduction of the Bill which will consolidate the Corporation Tax Act, the Capital Gains Tax Act and the Income Tax Act. When does the Minister intend to consolidate the law relating to capital acquisitions tax, value added tax and stamp duty? This Bill is the first step on the long road to consolidation of tax law. I hope we will not have to wait another 30 years for further consolidating legislation. The process of consolidation should be ongoing. To avoid a proliferation of tax Acts the Bill should incorporate a facility to allow for consolidation on a yearly basis.

Consolidation of some of the tax Acts is a positive step and has been welcomed by the accountancy bodies, the Institute of Taxation and the Revenue Commissioners. It will be of immense benefit to the professionals. Simplification should be the aim. The tax regime is too complicated and complex. This is a disgrace. I intend to return on another occasion to this matter about which members of the business community feel strongly.

This Bill should allow for publication of tax Bills in the electronic format. Does the Minister plan to do this?

A vital ingredient in economic development is prudent financial planning. The Government has reneged on its promise made in recent weeks to lower corporation tax rates. This is appalling and unacceptable and not the way to plan for the future given the need for certainty. Such changes of mood send the wrong signal to the financial capitals of the world and cause dismay among the members of the small and medium-sized business community here.

On the issue of rates — a form of indirect taxation — there is an anomaly in the system. Regardless of one's ability to pay, members of the business community have no option but to pay the amount demanded. This is unfair. Exemptions should be provided for in certain areas where the amount to be paid would be assessed on the profits of a business rather than location. The business community is the only sector now paying rates on property.

With the additional funding available in a booming economy the Minister should have discretion to provide for the designation of small towns and villages to ensure their survival. This would be of immense benefit in promoting an enterprise culture and lead to job creation. The urban renewal scheme has led to a welcome boom in our larger cities and on the east coast. This has been at the expense of small towns and villages. I will fight tirelessly to ensure they get their fair share of the additional funding available. They have been penalised for far too long.

Failure to provide for the designation of small towns and villages will in the short-term lead to the erosion of small inherited family businesses whose survival is of importance to the economy and the Exchequer. Their survival is already threatened by the establishment of foreign companies in key locations. The survival of the small farmer and other symbol groups, such as the small corner shop, is threatened in a similar way.

The Minister should consider providing additional tax allowances to ensure the survival of the small business community, the members of which have to meet high maintenance costs, including electricity which is charged at the highest rate. Customers in small towns and villages now expect high standards and should not have to drive 15 to 20 miles to a large urban centre to obtain their requirements. To ensure a service continues to be provided the tax laws should be amended to provide developers with an incentive. In Northern Ireland the urban renewal scheme was introduced first in small towns and villages. A similar policy was not adopted here. This matter should be addressed in the forthcoming budget.

While tax reform is important, simplification is the way forward. Businesses have to employ full-time staff to keep abreast of tax legislation and to ensure returns are made on time. This is an added expense.

Mr. Deenihan

I compliment Deputy Perry on his maiden speech. He has demonstrated that he has a good knowledge of how the tax code affects small businesses. I am sure he will make many more fine contributions.

This long-awaited Bill is about consolidation and is much needed. I called for such legislation to be introduced some years ago because of what tax practitioners and others in that field were saying to me. I compliment both the previous and current Ministers, as well as the Minister of State, Deputy Cullen, on introducing this Bill.

I also compliment the officials of the Department of Finance. From my experience in the Department of Agriculture, Food and Forestry, it is the officials of a Department who do the hard work in bringing Bills to fruition. The departmental officials deserve that recognition and they must feel fulfilled that they have brought in this Bill, which is the first of its type since 1967, although other significant legislation in corporation tax and capital gains tax has been introduced since then. Members have suggested that other taxes should be consolidated under this Bill and I am sure that will happen in the future.

This Bill will facilitate accountants, tax consultants and the legal profession. It will make the tax system more user-friendly and thus cut the costs to the consumer. If people find the system more accessible and more information is available then the time involved in wading through different Bills will also be cut, as this Bill consolidates approximately 40 separate Acts. With the aid of technology, a cheaper service can be provided to the consumer, as the expense of getting taxes and accounts done greatly inhibits small businesses.

I welcome the suggestion to have this information on CD-ROM, which is a welcome innovation. It is good to see the Department of Finance moving in this direction and other Departments should follow suit. It will not only be useful to practitioners in the field but to academic institutions, various pressure groups, groups representing small businesses and chambers of commerce.

Members have spoken of reform and simplification. More simplification is needed. The Minister of State understands how taxes affect small businesses. It should be possible for those small businesses to have a different regime, perhaps a 10-point tax system, that they could operate so that they need not go to professionals for advice. Then they would not have to spend a large percentage of their profits employing accountants, tax consultants and lawyers to do their accounts. We must strive for that situation, even though it may not be easily achieved. There are simpler systems for small businesses in other countries. If we cannot reform the tax system for these businesses, there will be more casualties. A large number of small businesses fail, not because of their expertise but because of cash flow, which is directly related to taxation.

More reform and simplification is the feedback I have received from the small business community. The tax code is too complex for them. This will help as they can now see where their own family of taxes, as the Minister of State put it, exists. They can refer to that in the Bill. However, how many small businesses will be able to use this Bill on CD-ROM? Will this information be available to small businesses? Will the Minister of State ensure that local tax offices help small businesses to understand this legislation?

Regarding corporation tax, the biggest advantage we have in attracting foreign investment is our 10 per cent corporation tax. Foreign businesses invest here because of our educated workforce and our environment, but the greatest incentive is the 10 per cent corporation tax. We have found it to our advantage when we are compared to our main competitors, Northern Ireland, Scotland and Holland. If it is as attractive elsewhere to foreign investors, we will lose that advantage.

The new urban renewal scheme which is to be introduced in 1998 has been mentioned. That will not favour smaller towns, as a town must have over 6,000 inhabitants before it benefits from the scheme. Many small towns would benefit from such investment but investment is leaving them for designated areas. I will raise this with the appropriate Minister, but as currently drafted it does not favour small towns in rural Ireland and will have to be closely examined.

Mr. Ferris

I congratulate the Minister of State on his appointment, as I have not had the opportunity to do so formally before now. He will apply his intelligence to this wide brief, which includes the Office of Public Works. That is particularly important to my constituency, and I know the Minister of State will not forget the flooded areas of Clonmel and Carrick-on-Suir, which are the subject of much discussion. The Minister of State's assistance is needed on this matter, otherwise those paying tax will not be able to do so. They have been washed out of business three or four times in recent years. I do not doubt that the Minister of State will address this matter as soon as possible.

I join with other Members in commending Deputy Quinn when he was Minister for Finance on initiating this consolidation of taxes. I commend the present Minister on continuing and completing that work. It was thankless but important to those of us who are consulted on tax affairs in our clinics. It is also important for all those professionally involved in advising the taxpayer. If there were no taxpayers there would be no need for taxes or tax officials, nor would there be any public services. It is a fundamental cog in the administration of Government. I join with Members in complimenting the officials of the Department of Finance who have worked so hard to ensure that this legislation is completed and continued.

Debate adjourned.