Dáil Éireann díospóireacht -
Wednesday, 11 Feb 2004

Vol. 579 No. 5

Finance Bill 2004: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Crawford

Much of the work which used to be done in this Chamber is now dealt with by the farm organisations, trade unions, IBEC and others at the partnership talks. While that is good and has worked, such matters should be dealt with in this House to some degree. However, the issue I wish to address is that of the national partnership groups, some of which I met earlier today.

The partnership groups are extremely disturbed that they are in a position where they cannot devise long-term strategies and have no idea regarding their funding. Groups such as this need to have some long-term strategy and coherence. I learned that one of the groups, Area Development Management, will have its membership released because political hacks are to be put on its board. ADM dealt with social inclusion and did a good job and I wonder where we are going in this area. There is a need to consider how this sector is financed and what guarantees should be given in this regard.

Community employment is another area which obviously needs finance. While we welcome the 2,500 jobs provided through farm assist, there is still no coherent plan regarding how those jobs will be created and, more importantly, whether they will be structured in such a way as to not create another group within rural communities. There should be a coherent plan in this regard.

It would be totally wrong of me, coming from the Cavan-Monaghan constituency, to leave this Chamber after a Finance Bill debate without having raised the issue of the health services. The Minister for Health and Children appointed Mr. Kevin Bonner to analyse the needs of Cavan and Monaghan General Hospitals. Mr. Bonner came up with a plan in which he stated that €15 million was urgently needed in the next year or so. That was almost one year ago and nothing has yet happened.

Some €10.5 billion is being spent on the health services. We are not arguing about the amount being spent, but the way that money is handled. It is being completely mismanaged. When one sees a hospital, such as that in Monaghan where there is a state-of-the-art operating theatre and good surgeons, being under-utilised and patients being sent by aeroplane to Manchester or elsewhere, it is clear that taxpayers' money is being totally wasted. If this Finance Bill is to mean anything, it should be that we are responsible for how that money is spent.

One particular group is being completely marginalised — lower middle income earners, who cannot get a medical card. They were guaranteed by this Government that 200,000 extra medical cards would be granted. Not only have they not been, but every day medical cards are being taken away from people, which is a serious issue.

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

I wish to share my time with Deputy Devins.

An Ceann Comhairle

Is that agreed? Agreed.

Mr. Parlon

I am glad to have the opportunity to contribute to this debate and to raise a number of important issues which may assist the debate on taxation matters in this House. This Finance Bill puts in place a number of significant provisions which are designed to help consolidate Ireland's strong economic position and, in particular, to boost investment and employment. The Bill confirms the budget income tax package which allocated available resources to those at the lower income levels and to older people.

From 1 February 2004, the new minimum wage is €7 per hour. Section 3 increases the entry point to taxation to 90% of the increased new minimum wage, annualised. Thus, for a single PAYE taxpayer, the first €12,800 per annum, or €246 per week, of his or her earnings will be tax free. The measures provide clear evidence of the Government's commitment to keep down taxes on wages and protect the real value of incomes for pensioners on low income. They build on what has already been achieved over the last seven budgets. Average tax rates have fallen for all categories of income earners consistently over seven years.

At the same time, the number of people in consistent poverty has been cut by one third between 1994 and 2001. The ESRI confirms this and everyone accepts its analysis. There is no way people can credibly claim that our economic success is not reducing poverty. It has done so, it is doing so and it will continue to do so.

In the aftermath of the budget, the Labour Party's finance spokesman, Deputy Burton, rather generously wrote as follows: "What Mr. McCreevy did in terms of taxation was truly extraordinary."

That is absolutely correct. What has been done over seven years by cutting taxes, which the Labour Party opposed, has been extraordinary. There are 400,000 more people in employment and there is a much lower burden of tax on people with ordinary incomes. In that time the average tax rate of someone on the average industrial wage has been reduced from 28% to 18%.

Deputy Burton also wrote about the Minister as follows: "His failure to adjust the standard rate band was a massive tax hike for people on modest incomes." That is completely wrong. People whose wage increases this year will put them into the top rate will pay the top rate on a very small amount of their income. When the Labour Party left the Department of Finance, the top rate was 48%. A single person on the then average industrial wage of €19,300 would have paid over €1,000 in tax at the 48% rate. A person now on the average industrial wage of over €29,000 pays just €574 in tax at the lower rate of 42%.

Mr. Crawford

That is just a deposit for a house.

Mr. Parlon

That is a tax cut in anyone's terms.

Mr. Howlin

Stealth taxes.

Mr. Parlon

The Labour Party has no credibility on low taxes. The party stood over a 65% tax rate. It has fought the reduction in the top rate of tax all the way. It left office with people on average wages losing more than half their overtime to tax.

The Tánaiste said future budgets should address the tax bands and the rate at which people on average industrial wages pay tax. This Government has the track record and credibility to achieve tax reductions. No other Government can hold a candle to it. The Government's record is clear. Earnings are up and taxes are down. People pay more tax only if they earn more. For those at or below the average production worker's wage, Ireland now has the lowest tax wedge in the EU and one of the lowest in the OECD.

These are impressive policy achievements. They are fully consistent with European policy to reduce the tax burden on work. Analysis carried out for the European Commission has shown that half of structural unemployment in the EU since 1970 has been as a result of higher labour taxes. Those who advocate, or would allow, higher PRSI and tax on work have the weight of European experience against them.

On corporation tax, the Bill contains some provisions that may have far-reaching implications for future employment growth in Ireland. As announced in the budget, the Finance Bill 2004 provides an exemption from tax on gains made by an Irish company on the disposal of a shareholding in a subsidiary and includes related amendments to widen entitlement to double taxation relief in respect of foreign tax on repatriated dividends. These measures are being introduced to encourage foreign multinational corporations to locate their regional headquarters and holding companies in Ireland.

A common feature of international business is where corporations centralise functions such as co-ordination of group activities and treasury management. However, up to now, Ireland has not been considered as a location for headquarters or holding companies because any gain on a disposal by an Irish holding company of a shareholding in a subsidiary would be chargeable to tax here. The measures contained in the Bill will change the situation significantly for the better. Foreign direct investment continues to play an important role in the Irish economy. Competition for international projects across all sectors is increasing. In that regard, it is vital that our ability to compete on the international stage is maintained and enhanced. Irish tax policy must have regard to international developments and any obstacles to our competitive position must be identified and addressed.

Many EU member states have introduced tax regimes designed to facilitate foreign corporations to set up holding companies. These countries include Ireland's main competitors for inward investment projects. The measures contained in the Bill remove the main barrier to locating in Ireland, that is, the tax charge that arises on a disposal of shares in a subsidiary.

In budget 2004, the Minister for Finance announced his proposal to exempt transfers of intellectual property from stamp duty in the 2004 Finance Bill. Section 73 of the Bill provides for an exemption from stamp duty on the sale, transfer or other disposition of intellectual property as defined. Intellectual property includes any patent, trademark, copyright, registered design, design right, invention, domain name, supplementary protection certificate or plant breeders' rights. The measure is aimed at making Ireland a more attractive place for the location of such intellectual property.

Tax incentives are widely used to stimulate business research and development in other advanced economies. Their effectiveness in doing so has been established by a series of empirical studies, particularly among large firms in high tech sectors where the need for greater research intensity is most pronounced. The Irish relief is a tax credit which means a trebling of the tax saved for companies subject to the 10% rate, that is, 20% credit plus the normal deduction at 10% or 12.5%. I understand that 17 OECD countries offer tax incentives for research and development.

The provisions in the Bill build on the substantial achievements of recent years. Our tax strategy creates the climate for jobs and, crucially, it provides massive new resources for public spending and investment. The Finance Bill is good for the economy, social inclusion and future jobs. I commend the Bill to the House.

Dr. Devins

I welcome the Finance Bill 2004 to the House. The Bill gives effect to the changes announced in the budget. It is worth recalling how well the budget was received on budget day. The changes announced that day are recognised as continuing the policy of the Government and the Minister for Finance, in particular, stimulating the economy and reducing unemployment.

Despite the recession which has gripped most of the leading economies in Europe and further afield, the Irish economy has continued to grow, granted not at the record rates achieved during the years of the so-called Celtic tiger, but still at a rate far in excess of our European neighbours. The Finance Bill will lay the foundation for that growth to continue. It will ensure that the achievements of the past few years are built upon.

It is a very long and detailed Bill. I am sure that during Second Stage my colleagues will cover most of it, but I will confine myself to some of the sections which I feel merit particular attention. I refer briefly to the tax changes. It is the nature of human beings that none of us likes to pay tax, yet we all recognise that if the State is to help supply services such as education, health and social services, money must be raised, and the fairest way to do this is through the taxation system. However, the burden of taxation should not be placed on those who can ill-afford to pay it. The changes announced in the Finance Bill will continue to increase the number of people who do not have to pay tax. It is worth noting that 35% of all income earners do not now have to pay tax. As a result of the budget, almost 700,000 people working in Ireland will be outside the tax net.

Work, as we all know, confers dignity on people, but if the take by Government in the form of tax is such that a sizeable proportion of what a person earns goes to the State, it would not take a rocket scientist to conclude that the incentive to seek work is removed. The Government is committed to ensuring that as many people as possible will want to work and that the jobs are available for them. Those at the lower end of the salary scale should not have their income diminished by taxation. The Bill continues the work which the Minister for Finance has already put in place. For example, for a single PAYE person, the first €12,800 per annum of earnings is now free of tax. Likewise, for those over 65 years of age, people who in the main have given a lifetime of commitment and work to the State, the exemption from income tax has been raised to €31,000 per couple. It is worth noting that since 1997, more than 81,000 income earners over the age of 65 have been removed completely from the tax net. That is as it should be in any caring society.

I welcome the extension of tax relief in section 11 to health insurance policies for non-routine dental treatment where those policies have been issued by insurers providing dental insurance only. In the past, dental care has often been overlooked by the public and, as a result, there is a significant degree of morbidity among our elderly population. Thankfully, this is now changing and as newer treatments become available, people are aware that dental care is not just optimal but necessary for their overall well-being.

As the Minister outlined earlier, the date for the termination of tax relief for the film industry has been extended to December 2008. Like many of my colleagues, I made numerous representations to the Minister on behalf of constituents who are working in the film industry and I welcome his decision to recognise the valuable role this important industry plays in providing employment throughout the country. There is a thriving film industry in Sligo and Leitrim and this decision will allow this sector to expand and diversify. It will also encourage new and innovative products to be developed, and those in the sector are well capable of doing that.

The introduction of tax credits for research and development will promote and increase research and development activity in Ireland, thereby stimulating high quality employment and a knowledge-based economy. The key feature of this incentive is that qualifying research and development expenditure, including capital expenditure, by a trading company will generate a tax credit of 20% in addition to the normal tax deductions available at either 10% or 12.5%. This means that there is a potential tax credit for incremental research and development expenditure of up to 32.5%.

I also welcome the fact that research and development is clearly defined in the Bill. It is widely recognised that companies that invest in research and development tend to develop other activities, such as manufacturing, in close proximity to their research and development facility. I know of companies that in the past closed down their manufacturing facilities and left Ireland to concentrate all their energies near their research and development location abroad. By encouraging research and development, we are providing opportunities for our young graduates to remain in Ireland while sending out the message that Ireland is willing and able to become the intellectual stimulus for the rest of Europe.

I welcome sections 31, 34 and 42. These are designed to encourage multinational companies to locate their regional headquarters in this country. Using the same logic as that of research and development, the measures in these sections will encourage foreign direct investment by facilitating multinational companies to relocate in Ireland. We are competing with every other country in Europe, particularly within the European Union, and with the imminent enlargement of the EU, it is vital that we look to the future. Up to now, multinational companies have played an important role in facilitating employment in Ireland. Abbott Ireland, a subsidiary of a Chicago company, is one of the major employers in Sligo and is an example of the beneficial effect such multinationals have had on our economy. Encouraging such companies to locate their regional headquarters in Ireland is a worthwhile initiative.

I have only touched on a few aspects of the Bill. I congratulate the Minister on introducing it and I commend it to the House.

Ms McManus

I welcome the opportunity to speak on this Bill but I do not welcome its thrust or the ideology that underpins its contents. The Minister had the opportunity in the budget to reduce the yawning disparity in wealth that characterises our society and to provide some relief for working people who find that excessive price rises are biting deep into their incomes. He did not take that opportunity.

The Minister argues that he has reduced taxes but he makes no mention of the growing list of stealth taxes people are forced to pay. In my constituency, the waste collection service has been privatised and there is no longer a waiver scheme to assist people on low incomes, but the cost of the service has rocketed. Elderly people have been particularly hard hit by this charge. When the service was privatised we were promised that competition would lead to keen pricing but we got a monopoly charging excessive prices, increased illegal dumping and littering, and a reduced service. In Bray, one bag of refuse costs €5.35, a penal charge on those on modest and low incomes. To add insult to injury, the maximum tax credit allowed for local service charges is €195 per annum. This takes no account of the inflated charges now being paid to a private company. In the case of charges for sewage disposal for rural dwellings, there is no tax credit.

The Minister for Finance, however, clearly does not believe in the deserving poor. He is happiest when greasing the bum of the overfed pig. His belief is that only the rich are truly deserving, hence his refusal to tackle the bloodstock industry or the plethora of property-based tax shelters that have grown up and are well used by the high earner with a well paid accountant.

The Minister's move to extend rather than restrict property-based provisions is most remarkable. Over the years, there has been considerable investment driven by tax reliefs in, for example, nursing homes, so much so that current nursing home owners have pleaded with the Opposition and the Government to end the tax breaks because over-capacity is now a real problem. Hundreds of nursing home beds are literally lying idle. I have received correspondence from one nursing home owner who is at her wits end because of the number of empty beds she has. She says that she would have been better staying in Britain and setting up business there.

The Minister's response to this issue is interesting. Rather than cutting back on the measure, he is extending it by reducing the number of beds necessary for qualifying developments from 20 to ten. That hardly makes sense. It is a clear example of a fiscal measure that is money supply driven rather than demand driven. Regrettably, it is not the only example. In the case of private hospitals and private sports injury clinics, the scheme is also being extended and changed so that people formerly excluded are now able to invest without preventing other investors from claiming tax relief, as was the case until now. Why is this change being made? If it makes sense now, the Minister should tell us why the restriction existed in the first place.

We all know why the scheme was introduced. The scheme, which costs the taxpayer approximately €63 million, was slipped into the last Finance Bill at the last minute because a constituent of the Minister for Finance asked him for a favour. Meanwhile not one new medical card has been given to those who most need it, families with children who are on desperately low incomes and older people who are under 70.

The over 70s medical card scheme amounts to at least twice the estimated cost. It introduced a new tier of inequality into the GMS scheme and rewards doctors disproportionately by a factor of four for treating the wealthy patient over 70 compared to those who qualify on income grounds. It is a grossly unfair scheme that resulted from the fact that the doctors had the Minister for Finance and the Minister for Health and Children over a barrel because the Minister for Finance announced the scheme before he had negotiated it. It cost so much that the promise of 200,000 new medical cards has been quietly dumped by the Government. It is criminal that so many people cannot access primary care because they cannot get a medical card. They will not be the ones building private hospitals and they will not be able to afford to go into those hospitals when they are sick. Instead their health will suffer and they will end up in accident and emergency departments, often sitting on chairs all night or, if they are lucky, lying on a trolley.

The Minister, however, does not consider investment in the health service a priority. He claims to have doubled the health spend, but he has not spent wisely the additional money allocated. He is ignoring the fact that the health service has been starved of funding for a long time and that even now we are below the EU average of health spend in percentage terms. That is shameful but consistent with the Minister's ideological outlook.

The Bill provides a new provision to allow pension funds to borrow money. If one can afford to, one will be able to invest in property — invest one's pension fund and, on retirement, sell it and keep a quarter of it without paying tax. That will be of benefit to the self-employed and proprietary directors. However, it will be of no benefit to the economy and will exacerbate inequity at a time when the options for workers in the private sector seeking security in their retirement have never been worse.

I welcome one aspect of the Bill. Section 28 extends the life of the scheme for film tax relief under section 481. It also increases the limit for one film up to €50 million and provides for safeguards to ensure the scheme is not abused. Film-making is a major employer in my constituency and the original decision to end this scheme announced by the Minister, Deputy McCreevy, sent shock waves through the industry. It took a well directed and determined campaign by those working in the industry and by Deputies like my colleague, Deputy Burton, to get the Minister for Finance finally to see some sense. This provision was hard fought for and is much appreciated across an industry which is operating in a highly competitive world where tax breaks can make all the difference in attracting a multimillion film like "King Arthur" to Ireland, thereby generating jobs and economic activity on a large scale.

The Bill rewards wealthy investors with tax breaks while ensuring that a majority of PAYE taxpayers will pay tax at the higher rate. This is being done at a time when a range of social welfare cuts are savagely undermining vulnerable people and where access to health care and housing is rationed, not on the basis of need but on the basis of ability to pay for it.

Mr. Howlin

I am pleased to have this opportunity to say a few words on what is normally one of the more important legislative measures that comes before the House. I was in the House when the Minister of State made his contribution and I need to refer to his unwarranted attack on the Labour Party spokesperson on finance and his general attack on the Labour Party. It is not the first time he has singled us out for such treatment. Normally relatively new Members of the House such as the Minister of State take some time to develop the swagger and arrogance some of the more seasoned members of the Government parties have developed. It usually takes at least a few terms in office to get that. The Minister of State seems to have been able to get the swagger, arrogance and confidence——

Mr. English

It comes with the party.

Mr. Howlin

It arrived perhaps with the party but it arrived almost on his first introduction to this House.

Mr. Parlon

It is the same old Labour Party.

Mr. Howlin

He has applied the same intellectual rigour in analysing the Labour Party's position on this Bill as Homer Simpson would. He seems to think that adopting the methodology, abandoned by Fianna Fáil in the 1960s, of strokes and bravado as an excuse for policy and delivery will win votes in the future.

Mr. Parlon

Half of overtime payments went in tax when the Deputy's party was in Government.

Mr. Howlin

It is interesting that the Minister of State wants to continue his attacks on the Labour Party. Such is the ideology of the man that prior to the last election he had an auction between a few parties to decide for which in principle he could properly stand. We understand from where he is coming. I ask that he be a little more discerning in analysing the party and the traditions I represent and the service people who have sat on these benches for generations——

Mr. Parlon

Why does the Deputy not refute what I said?

Mr. Howlin

I listened to Minister of State — God help me, I did — and the least he can do is afford me the courtesy of listening to me. The people who have sat on these benches for generations contributed to this State and to developing rights for ordinary people that are now under attack by a variety of measures that this reactionary Government has implemented in its long unfortunate sojourn in office, and this has been exacerbated by the influx of even more reactionary people in the last election.

I want to focus on a few important issues. I will confine myself to issues germane to my spokesmanship area and also to my constitutency. I refer in particular to missed opportunities. There was talk today about a new Brussels agreement in regard to the availability of moneys to invest in infrastructure. That is a welcome modification — the easing of restrictions on the capacity of this economy, which is a healthy one in terms of our indebtedness, to borrow for infrastructural need.

Anybody who understands this economy knows that one of the crippling issues facing us is that we are a First World economy with First World pretensions, but many of our infrastructures are of Third World quality. It is damnable that we have not spent on our infrastructure in the way that other developed countries have to provide for a road and public transport system that will allow us to do business in an efficient manner. We seem incapable — certainly this Administration does — of rolling out a project, whether it be the port access tunnel, the completion of the C-ring, the development of light rail, the development of fast-track commuter rail services around the country or the implementation of a reasonable sustained spatial strategy to provide proper regional development to allow the regions to develop rather than concentrate on development in some regions and areas to the deprivation of others in their entirety.

In the south-east which my colleague and I represent, after years of talk about 12 towns now have broadband roll-out. That is not good enough. We are putting ourselves forward as the ICT capital of the world, but instead of being at the cutting edge, as we were a number of years ago before the good Minister of State was elected to this House — he would not know about it but we were top of the league in competitiveness, at the cutting edge of technologies and the best in terms of ICT infrastructure — we have slipped greatly down those lists because of lack of leadership and inertia in delivery.

We need a proper delivery mechanism. The National Development Finance Agency was the big idea proffered by the Government parties at the last election, but where are the 33 projects identified that were meant to be in place by now? We see little of them, and I know colleagues would like to see them in place. Why is it impossible for us to do things that other countries seem capable of doing with great panache and without any great difficulty?

Perhaps we lost the argument in the minds of the general public at the last general election in terms of the development of the national pension reserve fund. We are putting 1% of our GDP into this fund and I accept we need to make provision for the future. We did not argue against that idea of that fund, but about how that money is being used. We wanted to free up that money to develop in our economy the infrastructure we need. Rather than that money being used to build roads and bridges, schools and hospitals here, it is being used to build bridges in Tokyo, Singapore and elsewhere, or, more unfortunately, it is being lost in speculation on the stock market where vast sums of money have been lost in a gamble in recent years in particular.

I want to briefly speak about the deficiencies in our hospitals. It is not good enough for Ministers to say that X billion euro is being allocated and voted through this House and therefore all is well. Deputy Twomey and I know that in our constituency Wexford General Hospital is a fine hospital, one that I unfortunately had a direct cause to frequent prior to Christmas because of the illness of my late mother. I went into the hospital every day and saw what its staff had to cope with. There are 19 closed beds in the hospital, yet there were people in the corridors last week. Elective surgery is cancelled.

It is unconscionable that Ministers talk about the wonderful economy we have, the money that is available and all we can do while people are on trolleys. It is well and good to talk about the theory but if a family member is on a trolley one realises this is not good enough. The elderly in particular who are facing death have no second chance. Rectifying their problem in the future is no good to them — we have to get it right now. I appeal to the Minister of State and the Minister to get a grip on this issue and ensure the resources, which are patently available, are made available to those who need them.

We talk about the influence of politics but the truth is that there was a development plan for Wexford General Hospital which was signed off when I was Minister for Health. Ely Hospital was taken over by the South Eastern Health Board at my instigation. It was to become a geriatric facility. The private facility existed but was to move on to campus in Wexford General Hospital. New theatres and day wards were to be built and the allocation was to be made. It would have cost approximately £5 million but it has not been done. Therefore, there has been a deficiency of beds for some time. This modest resource has not been available. I deprecate this fact. It should be acknowledged that the resources need to be provided for a decent, workable service in Wexford General Hospital.

The Minister, in his budget speech of 3 December 2003 used a scare sentence amidst the "Hear, hear" uttered by the Deputies opposite. He stated:

Those states were unwilling in the past to plan for the demographic consequences of ageing. This failure to act in good times leaves them with no option now but to make substantial changes to the pension entitlements of everyone in the public service ...

In other words, if we do not do what he wants to do immediately, he will threaten those who have legal pension entitlements. We have been promised a pension Bill, or threatened with it. Many public servants are deeply concerned about this issue. If one believes decentralisation is a bone of contention in the public service, one should ask how public servants feel about the pension proposals. I understand that there is still no sign of a pensions Bill although it is a high priority in this legislative session. The promise made by the Minister in his budget speech that this would be enacted and in force by 1 April was not honoured.

Where is the Bill? Will there be a reasonable approach to the pensions issue and those affected, such as teachers? Can one reasonably expect somebody who has been teaching for 45 years to teach junior infants at the age of 65? Surely there should be allowances to make reasonable provision that is appropriate to the types of jobs rather than one broad stroke that runs across the public service. We need to see the detail of the Bill and I am simply issuing general caveats on it. It should not be rushed through the House and we should not have a deadline given that it could fundamentally change the work arrangements and pension entitlements of those in the public service. Very careful consideration and decent consultation are necessary.

Taxation is the keystone of the Government and it has spoken about it. Some 50% of PAYE workers will pay tax at the top rate subsequent to enactment of this Bill. This means 50% are paying at the rate of 42%, as well as making PRSI payments. It is a very high marginal rate for such an enormous number of people. The fixation of the Government on headline rates to the exclusion of——

Mr. M. Ahern

The effective rate is 17%.

Mr. Howlin

The much more difficult issue to explain to people, which I accept, is that of adjusting bands. The Tánaiste has accepted the point I am making and said that the bands issue will be addressed in the future.

Mr. M. Ahern

I am not the Tánaiste.

Mr. Howlin

I know the Deputy is not the Tánaiste. I would not confuse him with her but she is his boss, at least in departmental terms.

Mr. C. Lenihan

Dominatrix.

Mr. Howlin

She has accepted my point that the fixation of the Government, because it is simplistic in electoral terms, on the headline rates to the exclusion of dealing with bands has left people worse off.

Mr. M. Ahern

Not at all.

Mr. Howlin

By any criteria, the divide between the rich and poor——

Mr. M. Ahern

By any objective criteria, the Deputy is talking rubbish.

Mr. Howlin

The Deputy should listen for a change. I know he likes to broadcast rather than receive, but he is in the wrong Department for that. By any objective criteria, such as those of CORI or any other objective group, the divide between the rich and poor is being exacerbated by the policies of the Government and by this Finance Bill and the budget that preceded it.

I could say more on these matters but I hope the fixation of the Administration on looking after the most wealthy, who can look after themselves well, and on creating greater inequality in society will be short-lived and that some social justice will prevail in its thinking and counsel.

Minister of State at the Department of Enterprise, Trade and Employment (Mr. M. Ahern)

I would like to share my time with Deputy Conor Lenihan.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Mr. M. Ahern

The Labour Party is similar to editors as described by Brendan Behan——

Mr. Howlin

Is this a rehearsed line?

Mr. M. Ahern

He said: "Critics are like eunuchs in a harem: they know how it's done, they've seen it done every day, but they're unable to do it themselves." I have listened to the spokesperson of the Labour Party on tax evasion. She used the phrase "tax avoidance" and stated that it is a criminal act. She is a chartered accountant and knows well there is nothing illegal about tax avoidance. However, this did not suit her script so she used the phrase in any case. I note that the Labour Party Members have left the Chamber. They have been disappearing for many a year and I am sure they will continue to do so.

I welcome the opportunity to speak on this Bill and I intend to address two issues in particular. The first concerns the provisions in the Bill that will enhance the innovative capacity of Ireland, thus helping to drive our emergence as a competitive knowledge-based economy, and the second concerns the introduction in the Bill of a stamp duty exemption on transfers of intellectual property.

The emergence of Ireland as Europe's high-growth economy has been a feature of the past decade. This transformation has arisen because of many factors, including a dynamic and youthful population; the pursuit of pragmatic and innovative Government policies; openness to trade, not only in goods and services, but also in new ideas; and an emphasis on education and technological innovation.

Ireland no longer depends for competitiveness on being a low-wage economy and is continuing to make the transition to higher value products and services that allow us to sustain and increase incomes. A key part of this process is to recognise the importance of research and development in sustaining and enhancing competitiveness. We must innovate continuously to make our manufacturing and enterprise base more productive and more efficient.

Ireland's sustained economic growth and prosperity will depend upon establishing a culture of scientific and technological innovation, a high level of research and development and a globally competitive knowledge-based economy. Such repositioning is essential to the provision of sustainable, high quality, well-paid jobs in the future.

The emphasis the Government has placed on research, technological development and innovation is reflected in the greatly increased allocation of €2.5 billion for this purpose in the National Development Plan 2000-2006 compared with €500 million in the 1994-99 plan. We have been making significant progress. Ireland's gross expenditure on research and development has increased from €626 million in 1993 to €1.338 billion in 2001. Despite this substantial real increase, Ireland's gross expenditure on research and development as a proportion of GDP and, more appropriately for Ireland, as a proportion of GNP remains low at 1.17% and 1.39%, respectively.

Heads of State at the Barcelona summit in 2002 agreed a target to increase the EU average spend on research and development from 1.9% of GDP to 3% by 2010, and two thirds of this enhanced expenditure is expected to come, not from Government but from the private sector. This key challenge for the EU will be at the heart of the Lisbon strategy to make the EU the most competitive knowledge-based economy in the world by 2010.

The Barcelona target will require significantly increased spend by the private sector on research and development in Ireland and across the EU. It is critical, therefore, that the fiscal environment encourages private sector investment in research and development and for that reason I strongly welcome and endorse the introduction in this Bill of a research and development tax credit which will stimulate and reward this vital activity in companies.

This new initiative is particularly significant for Ireland as the level of research and development undertaken by business here is low for an economy whose output and exports are dominated by high technology sectors. Private sector spend needs to increase substantially if the major investment under way in the public sector is to be fully effective in its objective of fostering a more knowledge-intensive economy.

Internationally, fiscal incentives in the form of tax credits or enhanced allowances are widely used to stimulate private sector research and development. Eighteen OECD member states offer such incentives and interest in them has grown in recent years as the importance of research and development for long-term economic growth has gained general acceptance.

It is proposed that a 20% tax credit against corporation tax will be available to companies for qualifying research and development expenditure above a 2003 baseline. This baseline will hold for three years and move forward on a rolling annual basis thereafter. Critically, the tax credit will apply not only to basic and applied research but also to experimental development, an activity of significant importance to Irish companies. This proposal will provide an effective incentive to companies to increase research and development and will complement the various direct research and development grant supports which are also available through various agencies of the State.

Technological change and innovation are generally acknowledged to be key drivers of economic growth. Their importance has grown in recent decades as science-based sectors such as ICT and biotechnology have come to occupy a pivotal position in modern economies.

Though innovation takes different forms, formal research and development is at the heart of new product and process development in advanced economies. Business enterprises, particularly large companies, invest substantial resources in research and development because of its contribution to output and productivity growth. Estimates suggest that the rate of return on research and development to the firms undertaking it is in the range of 10% to 15%.

The level of business investment in research and development, however, is sub-optimal for two main reasons. First, research is an inherently risky activity. The extent of that risk increases with the degree of distance between research and its commercial applicability. Second, studies have consistently shown that the social rate of return on research and development significantly exceeds the private rate of return to the company undertaking the research.

The case for the introduction of a tax incentive for research and development in Ireland is based on the need for the Irish economy to make a decisive transition from high-volume, lower-value enterprise to high-value, high-innovation, knowledge-intensive enterprise. Critical to this aim is the need to achieve a substantial increase in the current comparatively low level of business research and development expenditure, particularly among foreign-owned firms in high-tech sectors.

The twin advantages of a plentiful supply of good quality, relatively low-cost labour and a highly-favourable rate of corporation tax that underpinned Ireland's economic advances over the past two decades, will not provide a comparable basis for future growth. Labour supply is not now in surplus; wage levels have risen; and other countries have, or are likely to introduce, corporation tax rates close to the level in this country.

It is widely accepted that the only feasible strategic direction for future policy is to create the conditions that will make possible a sustained shift to higher skill, higher value, and more knowledge-intensive enterprise. While this has long been evident, the scale and rapidity of growth in recent years, and the changes which it has wrought, mean that the transition to an enterprise sector centred on knowledge and innovation must now proceed in a more determined and concerted way.

Under the national development plan, an unprecedented investment has been targeted at programmes and measures designed to strengthen research and innovation capabilities. The technology foresight fund is supporting world-class research in the sciences which underpin the strategic niches of information and communications technologies and biotechnology. The programme for research in third level institutions supports a wide range of research programmes in the higher education sector, including a sizeable capital allocation to address deficiencies in laboratory and other research infrastructure in universities and colleges.

A high-value, high-innovation economy will not be built on the back of these public research and development investments alone. Business research expenditure also needs to rise substantially. In 2001, business expenditure on research and development as a proportion of GDP was 0.8%, just over half the OECD average of 1.56% and one quarter of the best performing country, Sweden, where business expenditure on research and development was 3.3% of GDP.

To sum up, therefore, the introduction of this fiscal incentive for research and development is critically important at this stage in Ireland's economic development. It will help foster a more knowledge-intensive economy in order to provide a sustainable long-term basis for growth in employment and incomes. It will complement public investments in research and development and stimulate the much-needed substantial increase in private investment in research and development, particularly among foreign firms in high-tech sectors whose research intensity lags behind that in other countries. It will help to reduce Ireland's comparative tax disadvantage as a location for internationally mobile research and development and research and development-related investment. It will assist in seeking to attract new overseas investment with a significant research and development element to Ireland which is a priority for the IDA. It will help to encourage existing firms to add strategic functions such as research and development to their Irish operations. Given the competitive pressures facing lower-value activities, this is vital if firms are to progress up the value chain and become more securely embedded here.

I would like now to briefly mention intellectual property. "What is worth copying is prima facie worth protecting.” So said Mr. Justice Peterson in 1916 in what he described as the rough practical test. It has been quoted many times since and captures the essence of what intellectual property law is all about. It is true that intellectual property law also protects what may not be worth copying, in that, for example, a novel will be protected, irrespective of its literary merit. That is certainly just as well, as who could be tasked with this? Rather, it will be the market which will decide whether the protection granted is relevant.

Intellectual property is not easily defined. It is a basket of different rights and as diverse as human ingenuity. In any one product several rights may exist. For example, in the case of a compact disk, the production process may be subject to a patent; the words of the song subject to copyright; a right is also given to the arranger and to the performer; the cover will almost certainly have a trade mark; and a design right may also be involved. The value of these rights can be significant, as evidenced by the success of firms that utilise intellectual property rights in the course of their business. One need only think of the premium price which can be charged for a branded product. There are many examples of this, and it is this extra margin which will give these companies the edge in that they will have the extra resources for research or to strengthen their position on the market place. There is often a quid pro quo for this. For example, a patent will only have a limited life. After that, anyone may use the patent process. In this they will be helped by the fact that when applying for the patent the applicant must disclose the invention clearly enough and completely enough to enable a person skilled in the art to carry out the invention. Rights conferred by a patent do not extend to acts done for experimental purposes. The system, therefore, encourages further development, and with most patents given for incremental improvements in known technology, it has been said that innovation is evolution rather than revolution.

For those engaged in research, an examination of existing publications can often save time and effort. In this regard, the European Commission has estimated that European industries are wasting over €630 billion each year by simply repeating previous efforts, the results of which can be found in published patents.

In Ireland, over the past 12 years or so, we have seen a complete updating of our intellectual property legislation. We had the Patents Act 1992 followed by the Trade Marks Act 1996, the Copyright and Related Rights Act 2000 and the Industrial Designs Act 2001. While much of this legislation is relatively new, further legislative proposals are in preparation.

Stamp duty is only one aspect of the tax system in this country, and obviously it is necessary to look at the system as a whole, to see whether change is justified. We received representations about the application of stamp duty to transactions which I have mentioned. In the UK and in the US stamp duty would not apply to these transactions. We were advised that in many instances, the transfers would incur 9% stamp duty, which is not an insignificant sum. It was clear that it could be seen as a tax on innovation and could well be regarded as a serious impediment to entrepreneurial exploitation of technology. On those grounds, we decided to remove the stamp duty and I believe it will improve the involvement of people in research and development and in the use of innovation. Those two issues are important for the development, continual improvement and upskilling of the economy.

Mr. C. Lenihan

I am grateful for the opportunity to speak on the seventh Finance Bill to be presented by the Minister for Finance, Deputy McCreevy. It is a source of great pride to me on the backbenches of Fianna Fáil that we have a Minister who has managed simultaneously over those seven years to cut taxes, raise spending on essential services——

Mr. Eamon Ryan

What about the environment?

Mr. C. Lenihan

——and close many of the glaring gaps in investment spending that existed prior to this and the previous Government coming into power. Even tonight, for the seventh year running the Labour Party is crowing again about this Minister being ideological. The proof of his seventh budget is that he is blissfully non-ideological and highly pragmatic in his response to the unfolding drama that is our economic life. The previous two budgets in particular prove that there is not an ideological bone in the Minister's body.

Mr. Eamon Ryan

He is looking after Fianna Fáil.

Mr. C. Lenihan

He is pragmatic and convinced and persuaded of the argument of adding to our great net worth as a nation by increasing investment and lowering the weight and burden of taxation, not just on the ordinary citizen but also the corporate sector. The corporate "citizen" is important because he and she and those great corporate entities drive growth and job opportunities for our young people.

Mr. Eamon Ryan

And funds for Fianna Fáil.

Mr. C. Lenihan

There are 300,000 extra people in the workforce because of the reactions of the Minister and the various budget measures and Finance Bills he has presented to the House.

Again the Labour Party crows that he is ideological. It is a cliché at this stage. It is like a Chinese proverb that, automaton-like, is trotted out every time. It is like something from the Little Red Book of the 1960s. It is just trotted out; there is no need to think about it; just trot it out, state it and maybe, hopefully, someday, somebody somewhere will believe it. The electoral evidence is that nobody believes the Labour Party when it comes to the economic management of this country. It has been rejected consistently in the polls in recent years precisely because its economics are bereft of creativity.

This is a dilemma that Fine Gael also has as a party. It is expected to join up with a party that fulsomely supports benchmarking. Yet Fine Gael opposes benchmarking for our great Civil Service——

Mr. Durkan

Dilemma is something to which Fianna Fáil is not a stranger.

Mr. C. Lenihan

——as it tries to deliver public services efficiently and in a manner that provides value for money. These two parties are supposed to join together and form an alternative to this coalition after the next general election, along with the more dysfunctional Green Party. How those three are to get together——

Mr. Durkan

The Progressive Democrats and Fianna Fáil came together.

Mr. C. Lenihan

Fianna Fáil and the Progressive Democrats have been blissfully free of ideological conflict. Imagine the ideological conflict contained in a Government composed of Fine Gael, Labour and the Green Party. The Green Party openly rejects growth economics. Fine Gael is bellicose in advocating growth economics, but——

Mr. Durkan

The Deputy has given a new meaning to the term "bellicose".

Mr. C. Lenihan

——not very good on delivering. That is the contradictory ideological composition or stew that the people must choose if they want to move this party and the Government of which it is a part out of office at the next general election.

Mr. Durkan

They will not have any difficulty.

Mr. C. Lenihan

The other old canard that one hears from the Labour Party, whose members are blissfully absent from the Chamber as I speak, is the idea that tax reliefs and tax shelters are evil and that they somehow protect and assist high net worth and wealthy people to avoid paying their due taxes. This is another nonsense and it is an area in which the Minister has been quite pragmatic. He has stated in recent weeks that he wishes to provide and continue with tax reliefs and shelters where they provide an economic and social benefit to our people. That is the right approach.

If one were to listen to Deputy Burton, one would believe that the horse industry is whipping everyone else in the country.

Ms Burton

Fianna Fáil only cares about strolling around Manchester United.

Mr. C. Lenihan

Without intending to pun, her blinkered attitude to the racing industry is rather comical, given it is one of the few indigenous industries we have managed to create ourselves and it has a competitive global edge. It is one of the few genuinely Irish industries not created through inward investment that generates jobs and wealth here and, critically, is a world leader.

There are few areas, apart from the software sector where one can see Irish-owned capital investing and taking a global leadership role. I am the last person in this country to close down an industry of benefit to the Irish people. The Minister and every one of us accepts there must be some element of a ceiling to the amounts people can take in terms of tax-free income from that scheme and I expect it will be dealt with in the years ahead, and rightly so. However, I do not believe in closing down Irish industries or in taking a blinkered view about tax shelters and tax relief, and neither does the Minister.

The Minister is the most non-ideological person I have ever met and I am glad this is so. I was somewhat heartened by Deputy Howlin's contribution. What a great pity it is that Deputy Howlin is not finance spokesman for and leader of the Labour Party.

Mr. Morgan

The Deputy has just destroyed any chance he ever had.

Mr. C. Lenihan

He speaks with much more sense than the other two. I name in that context Deputy Rabbitte and Deputy Burton who are the most ideological and least practical people in the House.

Ms Burton

The Deputy is auditioning for the next Christmas pantomime.

Dr. Twomey

One should always thank Deputy Conor Lenihan for his contributions to Dáil Éireann. I am old enough to remember the days when this country was referred to as a banana republic because of high taxation, unemployment and inflation. In the interim we have moved on to become known as the Celtic tiger. Fianna Fáil was in Government for both those eras of political life. Perhaps Deputy Lenihan should expand somewhat on how the Minister for Finance has made this country so great to explain how we may ensure that the economy remains competitive. Many people feel our economy is losing competitiveness and that, unless we get something right, in some respects we may be reverting to the days when, once again, our children will refer to this country as a banana republic.

The Minister of State, Deputy Michael Ahern, is correct in saying that research and development is the major way forward. It is one of the good aspects to the Bill. I hope it succeeds because our future depends on it in the same way that secondary education made our society what it is. Mine is the first generation of our family ever to receive third level education. We know where it comes from and we know how long it takes to turn the economy around. For any Deputy to make silly remarks to the effect that this has all been accomplished over seven years of a Fianna Fáil Government is quite stupid.

Let us look at some features of these tax concessions that were considered so brilliant. Holiday homes under section 23 had brief benefits for society as far as I am concerned. In the area in which I live, Rosslare, thousands of holiday homes have replaced the indigenous industry of small B & Bs, small hotels and even private homes, where the owners moved into a caravan at the end of the garden and rented the house for the summer. They paid tax on the income received from this industry as it developed. It has been replaced by a sprawl of small boxy houses all over the place. These houses only have their lights on for around six weeks in the year. They lie idle for the rest of the time.

Has anyone analysed the benefits to society where an indigenous industry has been wiped out and replaced by housing such as this? These houses have a minimal contribution to make. At one stage they were being used by people on local authority lists. They were drawing their rent supplements to rent these holiday homes. The tax concessions have remained, but unfortunately it seems the rent concessions have gone.

The next approach could be to consider tax concessions for the health service, including nursing homes, private hospitals and sports clinics. I hope the Minister will make clear during the Committee Stage debate the reason sports clinics should receive tax concessions. It is a little like the situation which prevailed last year for private hospitals. It has more to do with the construction industry and a cherry-picking exercise of the health care industry than with any thought for the common good.

Providing tax concessions for patients of nursing homes rather than investors would lead to a more uniformed development of the nursing home sector. There is one issue with which, perhaps, the Minister for Finance could assist the Minister for Health and Children. The Irish Hospital Consultants Association, the Medical Defence Union and the Department of Health and Children are currently involved in a row regarding historical liability with the MDU stating it is not responsible for these historical claims and the Minister refusing to pay them. Will the Minister consider giving tax concessions to consultants affected by these claims thereby ensuring the patients affected by the financial compensation claims will get their money? If this issue is not resolved consultants might be advised to remove their money from this jurisdiction as quickly as possible. As we all know, claims against medical consultants, in the obstetrics sector in particular, can amount to more than €1 million per year. This matter could have a detrimental effect on health services if not resolved. I am surprised it has gone on for so long.

There are so many tax concessions being given, it is hard to keep track of them. Aside from Deputy Conor Lenihan's views on the horse industry, do we really need to give wealthy individuals the right to make unlimited incomes on which they pay very little tax? What is the reason for that provision? Though tax concessions were useful when first introduced, they are not useful in terms of retaining wealth in the country. We should look back to when they were first introduced. Many people will have forgotten that they originated at the time Charles J. Haughey was in Government. They worked well in terms of bringing money into the country and in retaining it in the economy because we had a high tax environment at the time. However, our economic situation has changed in that Ireland is wealthier, taxes are low and the justification for these tax concessions, which were valid 20 years ago, no longer exists. They are merely a mechanism to ensure wealthy people remain wealthy. That is not ideological. The Government should take another look at this issue. Tax concessions is tax forgone and we have to get that tax from somewhere else to pay for our health services.

When exempting artists from tax, we never intended to make multi-millionaires of musicians. The surrealism of this policy and an indication of the time for serious review is when a particular musician, now very wealthy, tells the rest of us we should pay more tax so as to write off Third World debt. This is from a man who pays no tax.

I commend the Minister on the concessions given for the use of rape-seed oil to form biofuel. I hope it succeeds because it affects my constituency. It is a sustainable energy project and is something which works effectively on the Continent where 5% of diesel sales on cars, trucks and heating oil are substituted by an agricultural product that can be grown every year. A number of other issues raised, such as how we tax individuals and pay PRSI, could be more appropriately discussed during the three day Committee Stage debate at which time I hope to make a further contribution.

Mr. Eamon Ryan

Deputy Conor Lenihan's contribution cheers one up because one realises pride will undoubtedly come before a fall. He and many of his colleagues have a blind faith in the ability of the Minister for Finance and in his ideology. Deputy Lenihan said it was not an ideology but it is clear, on this side of the House, that there is an ideological direction to the Government. It is neo-liberal, right wing and privatising. It benefits the corporate sector, business people and the construction industry. The ideology is one of, pour the concrete on the economy and society will take care of itself, but unfortunately that is not a smart ideology. I do not believe that when people look back at the seven Finance Bills introduced by this Minister they will say, "What a clever and brilliant ideology this group followed." It is a corrupt ideology in that it corrupts the heart of society. It is a narrow and simplistic ideology which does not address the complexities of this world.

In the brief time available to me, I wish to address a few specific issues. One positive provision in the Finance Bill is the emphasis on research and development, a policy which the Green Party has advocated for years in its economic arguments. We need to move away from being a low-cost, low-tax destination and an aircraft carrier into Europe for US multi-nationals. We need to move towards higher value added research based projects which we innovate, develop and market. The Bill is welcome in so far as it provides tax breaks for research companies. However, the Minister still manages to include his ideological kink. There is no doubt that these research tax breaks are not for small Irish companies, they are for large foreign and Irish companies such as CRH, Eircom and the other multinationals of the world. They will not, as stated by the Small Firms Association, apply to small companies. That is a mistake and is an indication of the Government's ideological bent.

Another indication of the Government's ideological failings is its inability to acknowledge the importance of environmental sustainability in everything we do in our economy. The Minister for Enterprise, Trade and Employment is left with the real task of setting out the details on what research and development will be undertaken. She made it clear, in her formation of Science Foundation Ireland, that our research will be concentrated in the software, IT and biotechnology areas. We can be successful in the software sector. Small Irish companies have a chance of growing because we have proven experience in that area. That is a shining light of how we should tackle other areas.

The biotechnology areas in which we will invest are ones in which it will be almost impossible for Irish owned companies to obtain the capital and expertise to undertake research and development. We are speaking of multi-million or billion euro projects in genetic engineering and other complex product development which Irish companies will not be able to control or own. We will continue the policy of Ireland being an offshore satellite research centre for American or other international companies. There is no problem advocating that as part of our policy but what the Minister for Enterprise, Trade and Employment has failed to invest in and what the Minister for Finance does not appear to have faith in is the new technologies that will dominate this century. They are the ones that will provide a sustainable, environmental, economic and social future for this country.

The Government would not know what sustainability is if it hit it on the head. Last week, I attended a conference in Dublin Castle on sustainable investment. The Taoiseach and our enlightened Minister for the Environment, Heritage and Local Government, Deputy Cullen, were present to respond to international speakers, some of whom gave very intelligent, thoughtful presentations on the need for investment in sustainability. The Taoiseach and the Minister, in their response, might as well have been talking about chicken ranching in China. They had not heard a word that was said. It was clear they had no interest in sustainability. That can be seen every day in the roads programme, for example, and every other programme. There is no sense whatsoever about the major environmental issues facing Ireland.

The Bill is full of such anomalies, particularly in terms of the Government's obsession with buildings. It believes economic and societal growth is led by the builder. The tax benefit for research and development will only apply to incremental investment with the exception of the buildings provided for such activity. That is the most ridiculous provision I have even seen in a Finance Bill in terms of the promotion of entreprenuership. Entreprenuership has nothing to do with building and everything to do with ideas, dynamism and creatively. The only creativity shown by the Government concerns how many buildings, for example, holiday homes, can be constructed, no matter what the environmental cost.

Mr. M. Ahern

The leader of Fine Gael introduced that provision when he was in office.

An Ceann Comhairle

Please allow Deputy Ryan to continue without interruption

Mr. Eamon Ryan

My colleague, Deputy Twomey, pointed out the Government is finally providing a minimal tax break for the use of biofuels on an experimental basis. The experiments began a decade ago. Deputy Gormley travelled around Dublin, when he was Lord Mayor, in a biofuel powered car ten years ago. Experimentation is not needed because biofuels work. A tax break is needed to get the use of biofuels off the ground and the Minister does not have the wit to provide for such fuels, even though Ireland is at a competitive advantage because rape seed can be grown efficiently and effectively here rather than importing it from the Middle East or elsewhere.

However, the Minister does not have the wit to understand that, nor to address the issue of energy taxes. It is incredible and a disgrace that, after seven years in office, while the entire world is examining the use of energy taxes and the reduction in energy consumption, he has done nothing in this regard. He did not mention energy taxes in the budget or in this legislation. He is waiting until the last minute to see if he can get away with doing nothing. That is a sign of a blinkered, narrow ideology, which runs through the legislation and everything else proposed by the Government.

Mr. Morgan

The Bill does nothing to tackle the inequalities in society but, at this stage, we could expect nothing better from a Minister who has played a leading part in destroying social and State services and shoving the disadvantaged into the hopelessness of poverty and homelessness.

Mr. M. Ahern

We are not debating Northern Ireland.

Mr. Morgan

The Government has consistently attacked the supports that enable the disadvantaged and poor to survive. Rent supplements and CE schemes were first in the firing line. The Government has completely ignored the human consequences of its actions. I accept the rent supplement scheme is flawed and does not represent a preferable method of assisting people in housing but, until a new better system is devised, it is all there is.

The Government has chosen to attack rent allowance for the second consecutive year, following the unreasonable cap on rent allowance at €107. In the absence of housing reform, rent supplement fulfils a necessary function, which enables many people who would otherwise become homeless to remain in private rented accommodation. While it may be flawed and is not the best method of assisting people, rent supplement is necessary because the Government continues to fail to adequately fund social housing and it has failed to cap rents in the private rented sector.

The Minister for Social and Family Affairs claims that up to 2,000 fewer claims for rent supplement will arise in 2004 because of the six-month rule, yet she also claims it will not have a negative effect and vulnerable people seeking housing assistance will be supported. What evidence is there for such a claim? What logic could lead to such a claim? The Minister said the measure will be implemented in the context of a greater role for local authorities in meeting the long-term housing needs of people who rely on rent supplement. This does not hold up, especially as cash-strapped local authorities signal their intention to move away from housing provision. Dublin City Council, for example, has stated its intention to dispose of its housing stock within the next ten years.

A significant number of NGOs working with the homeless have severely criticised the cuts in rent supplement and warned of the consequences of the move, stating that it highlights the lack of joined-up Government characterising social housing policies. This decision was taken under the belt tightening regime of the Minister for Finance and it is unacceptable that the Government shows no regard for the consequences of this change for people who are at risk of becoming homeless. However, this belt tightening does not extend to the retention and extension of the property-based tax shelter which allows for tax breaks for a multitude of activities.

I call on the Government to reverse the changes in regard to the six-month condition and to remove the €107 cap on rent allowance, which is causing severe hardship for people as there is not much rental accommodation available which costs below this level. Every Minister must be aware of this through his or her constituency work.

It is impossible to address a Finance Bill without referring to the ongoing disaster that is our health service. That a Government could preside over a system that has hundreds of people lying on trolleys in hospital corridors, is nothing short of a scandal. Louth County Hospital, Dundalk, ran out of trolleys and, consequently, patients, some of whom were very ill, were forced to lie on chairs and benches. The country recently came out of the so-called Celtic tiger era and it cannot afford to look after its people who are ill. It is a sad legacy of the Government.

The Government has also made unwarranted cuts to CE scheme and seems unconcerned that these schemes have played a central role in helping disadvantaged people both in terms of services and employment opportunities. Such schemes play an important role in the provision of badly-needed services to local communities and in giving many people an opportunity to make the transition from welfare to work. They give many disabled people the opportunity to work, which is denied to them by the failure of successive Governments to implement targets for the employment of disabled people in mainstream employment. Currently 10% of CE places are allocated to people with disabilities.

These cuts have been disastrous for many community and voluntary organisations which provide essential services to the community and they have had a devastating effect on long-term unemployed people, lone parents, the disabled and those seeking to make the transition from welfare to work. The Government has shown no sign that it intends to provide alternative funding for services that were provided through CE schemes such as child care, support for the elderly and disabled, and youth services.

Mr. Dennehy

According to the news earlier, the Minister for Finance has changed minds on the Stability and Growth Pact rules, to which I will refer later. Deputy Eamon Ryan commented on the Minister's lack of ability. Perhaps we listen to different economic commentators. For example, the Irish Independent reported today on comments made by Paul Hofheinz, the president of the Lisbon Council, which was set up to promote the EU. He stated, “I think Ireland's experience is needed more than ever. We'd like to see Ireland asserting itself more confidently and proudly. France and Germany need Ireland a lot more than Ireland needs them.” The lack of confidence in our people is amazing.

As the Minister of State pointed out, the holiday homes scheme was introduced by Deputy Kenny when he served in office.

Mr. M. Ahern

Deputy Quinn was Minister for Finance at the time.

Mr. Eamon Ryan

The Government has maintained the scheme.

Mr. Dennehy

Section 4 provides for tax allowances on union contributions. I welcome the decision to increase the tax allowance in respect of trade union subscriptions from €130 to €200 per month with tax credit increases from €26 to €40 per month. The ICTU is in significant trouble as it owes more than €330,000. Affiliation fees have been increased twice recently. I have reservations about the opt-out clause regarding political levies. As someone who has been a trade unionist from a young age, I resent the fact that so many Fianna Fáil members among the 750,000 union members have dropped out. Having said that, however, I am firmly of the view that we need a strong trade union movement with which the Government can co-operate. I welcome the change.

There are always issues on the periphery, some of which may not come within the Minister's remit. However, he has been innovative in his approach and dealt with issues which others placed on the long finger. One such issue, which appears to have affected people in the south more than those elsewhere, is that of staged payments on buildings. Such payments are unfair to house purchasers who are funding the costs of the construction of their houses. These people are paying their mortgages long before they obtain the keys to their houses. This may be a matter for the Department of the Environment, Heritage and Local Government. However, the Minister for Finance has shown that he can deal with matters with which others failed to deal, and I hope he will consider this issue.

I wish to refer to the Stability and Growth Pact. I agree there was a need to put in place a control mechanism when the euro, the single European currency, was introduced. I recall that this point was belaboured to quite an extent. I was Government convenor on the Joint Committee on Finance and the Public Service when this matter was thrashed out by the Minister, Deputy McCreevy, Deputies Noonan and Rabbitte and others. People have quickly forgotten the raiding that was done on various national currencies at that time. There was a need to put in place some control mechanisms to ensure that countries could not go under. A cap, namely, the 3% surplus over budget spending was, therefore, introduced. This also involves consideration of balances of payments etc.

It is worth noting that in 1986 Ireland's balance of payments was 126% of GDP to the debt ratio. It may have been the former Deputy Noonan or Deputy John Bruton, as Minister for Finance at the time, who oversaw that situation. The current Minister, Deputy McCreevy, as anyone with an interest in the topic will admit, has helped in a major way to resolve that problem, and we now have probably the best debt ratio within the EU.

As stated, controls were put in place by the EU to ensure that no member states became bankrupt. There was a need for such controls but the difficulty with them was that the ruling was too rigid and applied equally to all participating countries, regardless of how well their economies were doing. It is important to note that three years ago the Minister, Deputy McCreevy, was the first Minister for Finance to draw the attention of ECOFIN and others to this situation. I recall that he was lambasted in the House, at committee and elsewhere for doing so. It was stated that he was a loner and a troublemaker, that he was awkward, that he was upsetting our colleagues in Europe etc. He was castigated by the Opposition and received the usual bashing from the sidelines. That was three years ago, but the picture has changed radically in the meantime.

It was discovered during the past year that Germany and France are up to their tonsils in trouble with regard to their balances of payments etc. The commentators who attacked the Minister, Deputy McCreevy, three years ago are now attacking him because they believe he has gone soft on the two countries in question. Instead of being a loner, the Minister has been joined by no less a person than the President of the EU Commission, Romano Prodi, who referred to the pact as the "stupidity pact". Mr. Prodi pointed out, exactly two and a half years after the Minister, Deputy McCreevy, did so, that the pact might not be appropriate for all economic climates. However, we have not attacked Mr. Prodi because he is on a pedestal, he is not Irish and is not one of our own. Deputy Eamon Ryan engaged in that type of attack earlier. It appears that if a person is Irish, he must be wrong. Mr. Prodi has proved the Minister, Deputy McCreevy, right. Our experts, including those opposite, did not have the vision to anticipate what the Minister identified, namely, the need for greater flexibility.

People in my constituency have a particular interest in this issue. As most Members are aware, one of EUROSTAT's rulings has affected public private partnerships. The ruling in question is that the total expenditure for a scheme must be front-loaded in the year of commitment or in the year the work commences. That has led us into trouble and created major problems for capital works in general. It will now be almost impossible to remain within the 3% budget deficit. The first public manifestation of the effects of that ruling has been the delay to the Cork School of Music project. It was incorrectly stated on several occasions, including by a senior Member of Parliament, that it was not affected by any EUROSTAT decision and that the latter was not asked to comment on that specific project. That part is correct because EUROSTAT did not need to comment. It had already commented on a parcel of six schools which had been submitted under the same contractual procedure and insisted that they be included in the way I described earlier.

I welcome today's news from the EU in respect of the possible non-inclusion of private sector finance in the annual borrowing figure. The Minister for Transport, Deputy Brennan, has indicated that he will be studying that development in great detail to assess its impact on infrastructural projects. It is a common-sense development and I hope it will break the logjam we have experienced in respect of the Cork School of Music. We need the go-ahead for the project immediately. Cork will be the European City of Culture in 2005 and that facility must be available at that stage. The project was delayed by something the Minister, who was castigated for it, anticipated three years ago. I compliment him and thank him for pursuing this issue. He stated that he would try to build in flexibility and talk people around, and I congratulate him on seemingly winning his way.

The matter to which I refer is important to Cork but is it also important to the country because we have a massive programme for development under the NDP. I spoke to the Taoiseach on a number of occasions and informed him that the NDP could be wrecked if flexibility and change were not introduced.

I compliment the Minister for Finance on the many changes he has introduced and the actions he has taken in respect of pensions and pensioners. I stated this last year at about this time and it is worth repeating that one of the most courageous and unselfish political actions I have witnessed since I was first elected in 1987 was the decision by the Minister, Deputy McCreevy, to set aside massive sums from current funding for the pension needs of future generations of elderly people. There are those who claimed that the previous Government spent election money at election time and did this, that and the other. The proof is there that the Minister, Deputy McCreevy, put the money away for the future. He did not get political kudos for doing so.

Mr. Durkan

He put it aside for future elections.

Ms Burton

He lost a great deal of it.

Mr. Dennehy

We had peace and quiet while Deputy Durkan was absent from the Chamber. The money to which I refer could have been spent on projects and used to do the popular thing. However, the Minister put it aside.

I have heard many Opposition spokespersons on finance and others refer to the pensions time bomb. However, during the period they made statements in this regard, they did nothing. No one did anything until the Minister, Deputy McCreevy, came on the scene.

Mr. Durkan

That is not true.

Mr. Dennehy

That is a fact.

An Ceann Comhairle

Deputy Durkan should allow Deputy Dennehy to continue without interruption. The Deputy will have an opportunity to contribute.

Mr. Dennehy

It was difficult to listen to some of the so-called experts lambasting the Minister for poor stock market returns on the investment of those pension funds. That matter was dealt with at the Committee of Public Accounts and elsewhere. International stock market returns fell but people stated that this was the fault of the Minister for Finance. This was despite the fact that he had established a group to oversee the fund, over which he could exert no influence. The equities market collapsed and the Minister was blamed. I hope that the same people will compliment the Minister in the coming weeks on the massive turnaround in these markets and the money that is rolling in to the pensions fund.

Ms Burton

Why have the funds been invested in tobacco companies?

Mr. Dennehy

They cannot have it both ways.

An Ceann Comhairle

Deputy Burton had her opportunity to contribute. Deputy Dennehy without interruption.

Mr. Dennehy

I have never crossed swords with Deputy Burton and I have no intention of starting now.

Ms Burton

Why were they invested in tobacco companies?

Mr. Dennehy

The Deputy has been waffling on about this for the past two days.

Ms Burton

Deputy Dennehy's colleague from Cork wants us to stop smoking while the Minister for Finance is investing money in tobacco companies.

Mr. Dennehy

If the Minister for Finance was wrong last year, he must be right this year and I suppose he will have praise heaped upon him for what he has done.

He has also made radical changes in pension schemes generally.

Ms Burton

For the rich and super-rich.

Mr. Dennehy

He has made changes in how they can be used and in their benefit for people. Set-aside is one aspect of this, but there are many other areas.

Mr. Durkan

They will have to be 90 before they receive a pension.

Mr. Dennehy

I will post the details of these measures to Deputy Durkan tomorrow and he can read them over the weekend. They make good reading.

The Minister has dealt with many aspects of the pension situation. There are also old situations. I saw crocodile tears being shed last week when we debated emigration. The first positive move I saw with regard to emigrants related to a matter we raised at the British-Irish Interparliamentary Body in 1991. Very little was done about it until the Minister for Finance, Deputy McCreevy, gave a reckoning for pre-1953 contributions for the old age contributory pensions. This was a marvellous move. He extended the measure to the UK, Canada and Australia, where many of our people are elderly and in need.

Mr. Durkan

That was not 1991.

Mr. Dennehy

What response did we get? As no one had ever bothered to find out how many of our older people were in those countries, the figures available were wrong.

Mr. Durkan

The Government's figures were 100 million out.

Mr. Dennehy

The Opposition talked last week about giving €3 million to emigrants and said it would be a breakthrough from the €1 million given by the rainbow coalition. For this scheme alone, the Minister has sanctioned €43.804 million. This will be paid to our people in the UK, Canada, Australia and the United States who are entitled to this money.

Ms Burton

The Government could not do its sums.

Mr. Durkan

The tax benefit was 3 cent per day.

Mr. Dennehy

It is interesting that 56% of all the money went abroad. These people had been ignored previously. I compliment the Minister on that move.

The Bill provides for the tax refund of money owed by the Revenue. The Ombudsman played a part in that decision and I am glad the Minister has updated it and made it easier for that to happen.

Will the Minister of State draw the rent-a-room scheme to the attention of the Minister? A householder can rent out a room and pay no tax on rental income up to the value of €7,600. This is an excellent scheme, especially in a city like my own where there is a university.

Mr. Durkan

It is a sad scheme.

Mr. Dennehy

It can provide accommodation, give people an income and help to keep houses in good condition. However, I do not believe people are fully aware of the scheme. There is no need for a householder to register with the council and the rental is not covered by landlord and tenant legislation. I ask that the attention of the Minister be drawn to that scheme.

The Ceann Comhairle has ruled that I cannot call the Opposition hypocrites so I will not do so when I refer to the pre-1953 social welfare contributions.

Mr. Durkan

Deputy Dennehy should get his figures right. A mistake of 100 million is too much.

Mr. Dennehy

I compare the reaction of the Opposition to the plight of emigrants in the House last week with their reaction, in the Committee of Public Accounts and elsewhere, to the large amount of money paid out to emigrants. I say, "well done," to the Minister.

A Member referred earlier to tax rates.

Mr. Durkan

There are also high rates of local taxation.

Mr. Dennehy

The reduction of capital gains tax brought an increase of 25% in receipts. I will not have time to refer to many other interesting facts but I will send the information to Opposition Deputies.

When Deputy Burton's party was in Government, 10,000, 14,000 and 10,000 people were taken out of the tax net in the three consecutive years of the coalition Government. This year 41,000 people were taken out of the net.

Mr. Durkan

The minimum wage would have seen to that.

Mr. Dennehy

The Minister has introduced innovative measures. People have long argued for an exemption for personal injuries awards, but no one did anything about it until the Minister took hold of the problem. Those of us involved in the health care area pointed out that a 20 unit nursing home scheme was too large for capital allowance and that a smaller size was more manageable. I am glad to see the Minister has reduced the figure from 20 to ten. I am glad the benefit-in-kind question has been dealt with again. The tax code here is realistic and has kept up with the changing economic environment. It is important that we move with the times.

The horse industry was referred to again. The great champion of the horse industry, Deputy Penrose, has pointed out to the House that 30,000 people work in the industry. The person who referred to the tax concessions for the horse industry was heard some time ago arguing for exactly the same concessions for the film industry. I have nothing against the film industry but about half the number of people work in it as work in the horse industry. Exactly the same type of people finance it. They are the big hitters.

I do not have the sort of money that would cause me to be interested in how to avoid paying tax, but these schemes are introduced to provide jobs. The best thing we can do is to have people working. If people are in favour of one scheme and against another, there must be something wrong. They are personalising matters too much. Like others, I went along with the film lobby. People working in the industry, probably for very small wages, came to me. However, the big people behind the film industry are exactly the same as those who finance the horse industry. Again, there is hypocrisy, with people supporting one form of tax concession and opposing another.

Had I time I would have referred to the excellent farm leasing scheme which will encourage young farmers and encourage people to continue in the business. At the end of the budget debate an Opposition spokesperson told the House that, as a result of the budget, twice as many people would pay the higher rate of tax. The spokesperson did not take account of the massive number of people who would be taken out of the tax net. I will send the details of those calculations to Deputy Burton.

Mr. Murphy

I wish to share my time with Deputy Noonan.

An Ceann Comhairle

Is that agreed? Agreed.

Mr. Murphy

Most political analysts would now argue that we have moved way from right-left politics. In most countries, political parties are now holding the middle ground. Most will accept that the days of Margaret Thatcher, Ronald Reagan and the Berlin Wall are history, as they should be because those were dangerous times. Those two world leaders did more damage to society and created and advocated a selfish attitude which continued until very recently. In most of the world, except the United States, this philosophy is, thankfully, fading gradually and, in October, I hope, it will also fade in the US. All this is with the exception of our own Government. Margaret Thatcher, Ronald Reagan and George W. Bush would be proud of our Government. Thatcherism and Reaganism are alive and well, but in this country they are called Bertieism, McCreevyism and Harneyism.

The two parties in Government have corrupted each other. Fianna Fáil, once a party of the centre-left, has adopted as part of itself the far-right economic politics of the Progressive Democrats who were once the watchdogs, have become part of the pack and now on a daily basis accept the lowest standards in public life.

After seven years of this Government, the gap between rich and poor has widened by €294 per week. As well as this, most services are suffering from lack of funding and it is the poor and the low paid who depend most on essential services. Those with no health insurance will face longer waiting lists, home help cutbacks for the elderly, no places in community hospitals, insufficient funds made available to keep people in nursing homes, our young couples faced with high mortgages, high child care costs, and now, the massive costs of looking after the elderly in nursing homes. Each day they are faced with increased stealth taxes, development charges on new homes, increased refuse, water and medical charges, as well as trying to provide for the ever-increasing cost of education for these children.

There must be a better way. Ireland is no longer a poor country. Its per capita income is now one of the highest in Europe. Despite this, Ireland's infrastructure and social provisions are far below the EU average. Our growing poverty rates, unequal income distribution, the growing gap between rich and poor and under-funded health and education systems are a manifestation of the selfish society we have become under the stewardship of this Government.

Recent economic data continue to show the economy is good, that there are prospects of continued economic growth and that Irish per capita income will be well above the European average. The opportunity to rectify many social injustices has been there for the last seven years, yet this Government continues to favour the really rich and the privileged, and this budget and Finance Bill worsen the plight of the poor and the middle income families. If this Government spent less money on political patronage, concentrated on more effective and efficient government and stopped favouring the rich and famous, most of the objectives set out by most social voluntary groups could be achieved.

There could have been a further increase in social welfare to keep pace with inflation and stealth taxes. Some of the targets of child poverty could be achieved, and there could have been an increased allocation for social housing. Issues like the community employment schemes could have been addressed. The area of disability issues could be advanced. We now have a situation where the disabled and the elderly must wait over a year for the simple necessities of life, to get a shower or toilet installed.

It makes economic sense to give more support and assistance to carers, but none of this fits into the Government's ideology. Ultimately, the Government's choice in the Finance Bill was based on its vision of the future, but this Government cannot see beyond its nose. The provisions in the budget and the Finance Bill continue to maintain a deeply divided three-tier society at a time when, as a nation, we have the resources to build a society where every man, woman and child could have sufficient resources to live life with dignity, where everyone has meaningful work, whether as a community employment worker or a Minister, where every citizen has the opportunity for a good education, and where citizens can depend on the health service and have a house to live in. The resources exist to build this society but once again this right-wing, arrogant, selfish Government has not the political will or vision to create such a just society.

Mr. Noonan

I agree greatly with Deputy Murphy's speech. He has fairly summarised what a lot of people feel in this country.

The biggest problem with this Government is not its ideology so much as its belief that the decisions it has taken over the years caused the economic boom. That is a very serious delusion, and the Government is likely to become more delusional as time goes by.

There is little enough in the Finance Bill. In that respect it reflects the budget. There are some good things in the Finance Bill, but in effect it is like the budget, marking time. It is probably a good time to mark time, because what will happen in the economy as time goes by is not clear. It is very hard to foresee the future from where we are standing, domestically or internationally.

The budget debate was dominated by decentralisation, which was irrelevant to the budget process. One notices there is no mention of it in the Finance Bill. It will probably go ahead in a piecemeal fashion. It looks as if there will be great difficulty in implementing it on a voluntary basis, and if the Government follows the route hinted at by the Tánaiste of introducing an element of compulsion, it will be stopped by the public service unions.

One of the most notable things in the budget is the treatment of income tax. There is currently a lot of talk about stealth taxes, but in last year's and this year's budget, and in this Finance Bill, there is quite an element of stealth in how income tax is treated. The basic income credits have not been increased at all. That is bringing about a situation where increasingly large numbers of taxpayers are paying tax at the higher rate. The man in the street will say that the Minister for Finance, Deputy McCreevy, stands for low tax rates. What is meant is not corporation tax or capital gains tax, because they are low anyway, but income tax.

There is still an impression abroad that the vast majority of taxpayers pay tax at 20%, but when one looks at page C18 of the Minister's statement on the budget, there is a very interesting table which shows the incidence of tax last year and this year. Regarding the term "standard rate of income tax", standard means what is generally acceptable. It is what the majority agree to. By definition, the standard rate of tax would be the rate paid by the majority. That is not the case any longer. It is not generally known, but more taxpayers currently pay tax at 42% than at 20%. As a consequence, if we are not to abuse language, we should redefine, and say the standard rate is 42%, and there is a lower rate of 20% which applies to a smaller group of people.

Quoting from the Minister's own figures, after the budget, 617,415 taxpayers, or 32.6%, will pay tax at the standard rate, while 632,655, or 33.4%, will pay tax at the higher rate. To blunt the impact of that statistic, the Government and the Minister no longer talk about a percentage of taxpayers. They talk about a percentage of income earners in the country. When one does that, one includes every child working in every sweetshop for a few hours before or after school. One includes all part-time workers. However, if one looks at the original commitment made by the Minister in 1997, that 80% of taxpayers would pay tax at the standard rate, one can see how far that commitment has been negatived, and the level of drift which has occurred.

At one time in the middle of the last Administration, the Minister came near enough to that figure when he introduced individualisation. It was a sleight of hand manner of achieving his objectives, but he came close. Now we are at a situation where instead of 80% of taxpayers paying tax at the standard rate, 46% of taxpayers do so, while 54% of taxpayers pay tax at the higher rate. Even on the primary plank of policy, as enunciated by the Minister for Finance, that is the level of progress after seven years. If one changes the basis and says that one is not talking of taxpayers, but of anyone who earns a euro in this country, one can run the statistics differently. However, the promise was that 80% of taxpayers would pay tax at the standard rate only. The situation now is that about 54% of taxpayers pay tax at the higher rate, while 46% pay tax at the standard rate.

That is the major policy change that has occurred in this budget and in last year's budget. Behind the ideological screen there is a reversal of the Minister for Finance's position on one of the basic commitments of this Administration — income tax. As time goes by and we move forward on the projected growth rates enunciated by both the Central Bank and the Department of Finance, I do not see the Minister having much leeway to reverse that position.

This is a type of stand-still budget. There is a hope that everything will come right as time goes by, and the Minister is pinning expansion in public expenditure to approximately 8%. Obviously we will need an economy which will be able to fund that, with the kind of arithmetic he has introduced into the public finances.

A number of speakers talked about the importance of competitiveness in the economy, and I agree with them. There is no doubt that over the past two years or so, but very rapidly over the past six months, competitiveness is seeping out of the Irish economy. If it was not for the strong domestic consumer spending and the huge borrowings that are funding consumer spending, the economy, and many individuals in the economy, would be in major trouble.

Deputy Dennehy said we had the lowest national indebtedness of any country in Europe, but if he had said "bar Luxembourg" he would have been correct. If we look at what has happened since the 1980s, however, we had massive public indebtedness in the 1980s but we had very low private indebtedness. The situation is reversed now. We have massive private indebtedness with low public indebtedness but if something goes wrong, it would have the same effect on the economy. It might even happen more rapidly with individuals making individual decisions.

There are many risks, and obviously exchange rates are a huge risk. In the debate on financial resolutions on budget night I talked about exchange rates, and the euro-dollar exchange rate that night was $1.17. I said the trade weighted exchange which economists regard as justified would be $1.15, and the rate was slightly above that. The frightening aspect would be if the American administrators allowed the dollar to weaken to the same extent as it strengthened. We must remember that our currency went back down to 84 cent as the dollar strengthened. The effect of that was a huge suck-in of imports into the United States and a massive consumer spend. If the American administrators decide, as an instrument of policy, to correct that and direct their balance of payments by allowing the dollar to weaken, and it appears they are doing that, we would have to go 30% on the other side, which would give a rate of $1.55. There were many smiles here on budget night when I said we were heading in that direction. The rate is approximately $1.27 today, and going up.

The European Central Bank has decided that the real problem is not the level of the exchange rate but the rapidity at which the change is occurring. That is a type of Jesuitical position but that is what Mr. Trichet said the other day. Many people thought he had intervened to stabilise the exchange rate but he had not. Effectively he was arguing for a more progressive weakening of the dollar and a strengthening of the euro to allow industry adjust over a period of time. It was the sudden shock of quick change that was the problem, but in the past six months indigenous industries exporting outside the sterling area are finding it extremely difficult, and we are losing competitiveness.

The fact that we had such an advantageous exchange rate was one of the main features in the economic growth over seven years. We devalued in the late 1980s and the early 1990s. We took a competitive devaluation when we pitched our exchange rate with the euro when we entered the euro zone, and obviously that led to export-led growth. That, combined with very low interest rates, was what drove the economy, with the availability of the privately educated people and so on.

Some Deputies spoke earlier about the fruits of policies initiated 25 or 30 years ago. We are fortunate to be in this generation when all this has come together but there will be changes in the future. Before I came into the Chamber I was watching CNN. Mr. Greenspan enunciated tonight that he expects the American economy to grow by 5% in 2004. That would be very welcome. The commentators said that if this happens, by the end of 2004 there will be inflationary pressures possibly in the United States, interest rates will have bottomed out and they will rise. Interest rates have risen already in the United Kingdom, Japan and Switzerland. The political agenda has taken over in the United States but if interest rates begin to rise in the United States, they will rise here and there will be absolute devastation. If we consider the level of personal indebtedness across the economy among the PAYE workers and particularly among the young, a 3% increase in interest rates over the next two and a half years would inflict such pain here that it is almost unthinkable.

One of the dangers is of the Government holding the ideological position it holds — I am not referring to everyone in Cabinet but the faction which appears to dominate policy in Cabinet, the five or six people we all know. They appear to be driven by this ideology. I do not believe that ideology is responsible for the growth. If we keep driving forward on an ideology which is not what caused the growth in the economy, a lot of grief could be caused. That is the danger.

The public, in their own way, are expressing their unhappiness. The reflections on the opinion poll last week and the analyses by our broadcasters would suggest they are not very strong on arithmetic but what struck me about it was that if we add up the left of centre parties in the Opposition — Sinn Féin, Labour and the Green Party — they got as far as 35%. It is a long time since left of centre parties in this House were equal to the Government parties. The Government should not think the ground is not shifting or that the events Deputy Murphy talked about are not impacting, and I am leaving my party out of the equation. If the Deputies opposite are still connected through their advice clinics and if they are knocking on a few doors in housing estates——

Mr. Durkan

One gets the odd hint.

Mr. Noonan

——they will know that what Deputy Murphy said is correct, and they know that what I am saying, in a kind of general analysis, is correct also.

I welcome the provisions on research and development in section 33. That is progressive. It is a 20% tax credit but I understand that can be added on to the relief one would get anyway if one was paying corporation tax at 12.5%. The effect of credit, therefore, is 32.5%. That is a very significant inducement to multinational manufacturing companies to set up significant research and development units here.

I notice in the small print of the explanatory memorandum that this provision requires sanction from the European Commission. I am not too sure the sanction will be that easy to obtain because it is Ireland repositioning itself with a tax advantage for manufacturing industry, and we are not the most popular people among our European partners on that issue. I wish the Minister success in negotiating that tax advantage and the others, which will require the permission of the Commission also, the exemption of intellectual property from stamp duty and the inducements from multinationals to set up their headquarters in this jurisdiction.

Mr. B. O'Keeffe

I wish to share my time with Deputy John Curran.

An Ceann Comhairle

Is that agreed? Agreed.

Mr. B. O'Keeffe

I welcome the Bill and congratulate the Minister for Finance on his firm control of our public finances. It is interesting to look back to two weeks ago when the Government's policy was endorsed by the European Commission. The suitability of the Minister's budgetary policy has also been endorsed by the Central Bank and the ESRI in all the recent reports. Given that premise used by Deputy Noonan of "if" and "would", the impact on inflation will be minimal as a result of the budget and Finance Bill. It is clear from the budget that the deficit is prudent. It is clear also that the discipline the Minister for Finance has introduced in current spending will continue.

We all accept we have experienced an international downturn. So far, we have survived it much better than many other countries. There is no disputing the fact that the downturn has been disappointing and painful for some. Tough choices have had to be made and we can be grateful that we have a Government and, especially, a Minister for Finance who has no problem with acting decisively.

It is worthy of note that the public realise the need for fiscal restraint and the need to avoid too much borrowing. I remind the Opposition that borrowing, as Deputy Noonan said, is the real stealth tax. We need to limit our spending to what we can afford. When I was first elected to the House, the national debt was more than 100% of gross national product and the International Monetary Fund was at the door. This was because of irresponsible and profligate borrowing policies pursued by Governments of all stripes, hues and colours between 1972 and 1987. There are encouraging signs, both internationally with strong growth in the US and domestically with encouraging GNP growth figures for the first nine months of 2003.

The fall in inflation is welcome. We hear much nonsense about inflation. The recent rise in inflation was caused by the weakness of the euro combined with the fact that much our trade is outside the eurozone. Irrespective of what way one looks at it, inflation is falling. This is welcome in terms of our competitiveness. I hope it will encourage moderation in pay rises when the new round of talks begin.

This Bill, yet again, reaffirms Fianna Fáil's commitment to the less well-off in society. No Minister for Finance has provided more for the lower paid than the present incumbent. The budget for 2004 again protected the weaker sections of the community through substantial real increases in welfare payments. Social welfare spending is double that of 1997, even though unemployment has been halved. It is not just through social welfare increases, which are well ahead of the rate of inflation, that the Government has done its duty. It has also improved the tax position of the lower paid and the Bill delivers the increased employee credit which ensures tax is not payable on up to 90% of the minimum wage.

When the minimum wage was introduced in April 2000, fewer than 64% of those in receipt of it were exempt from tax. The minimum wage, which was introduced by the Government, increased to €7 on 1 February and is the third highest in the EU. On a monthly basis, our minimum wage is almost three times that of Portugal. In 2004, 668,000 will be exempt from income tax, an increase of 40,000 on 2003 and 300,000 since 1997. The entry point to the tax system for a single earner has risen from €223 per week in 2003 to €246 per week. In 1997 the entry point was €97.

The Minister pointed out after the budget for 2004 that, for a person on an average industrial wage, the average tax rate will be 10 percentage points lower than in 1997. An increasing proportion of those on the income tax record, more than 35% of all earners, will pay no tax. This obviously refutes the claim that this is a mean-spirited Government. As the ESRI said after the budget, the impact of these budgetary measures is progressive by favouring those on the lower incomes. There is no way one can dispute that.

The budget introduced measures to foster enterprise and to protect our jobs base for the future. The Finance Bill will legally enact these provisions as it puts in place measures to support our ability to sustain and expand employment.

In his Budget Statement, the Minister emphasised the importance of a low direct tax burden to create and protect employment. To encourage the development of sustainable high-quality employment in Ireland, the budget introduced a research and development tax credit for incremental research and development expenditure by companies. This is a long-standing commitment. That the Minister has moved on this to assist firms to carry out and manage research and development in Ireland is welcome. It is vital for us to develop a world-class research capacity.

Greater emphasis on support for research innovation is vital. We must continue to ensure that sustainable, high-quality, well-paid jobs are part and parcel of Ireland in the future. Therefore, the €2.5 billion which is to be spent on science, technology and innovation over the lifetime of the national development plan is remarkable, especially when compared with expenditure of €500,000 from 1994 to 1999. It is a welcome measure on the part of Government. It enhances an already attractive taxation regime. Our corporate tax regime is one of the highlights for attracting investment and has been for many years. I have no doubt this will continue.

This is an excellent Finance Bill on the part of the Minister. Since he took office, we have seen the halving of unemployment, the halving of the national debt, the doubling of public expenditure, the doubling of the social welfare budget, the increase of 150% in capital expenditure, the introduction of the national minimum wage and, most important in refuting everything that emanates from the Opposition benches is the return of €5 billion to the people through tax reductions. That is something that cannot be disputed.

Mr. Connaughton

Will the Deputy say something about house prices?

Mr. B. O'Keeffe

There is also the reduction of the basic rate of income tax from 27% to 20% with the entry point rising to €246 per week from €97 and an increase of more than 50% in national income. Deputy Noonan said that society is spending money, but it is on the basis of the additional funds that have been put into people's pockets on a regular basis through various budgets in recent years.

Mr. Connaughton

They are borrowing it.

Mr. B. O'Keeffe

The Opposition appear to ask infertile questions. The words "if" and "would" are all we hear from the Opposition. There is a track record from 1997 which is prudent and in the best interests of this country. The spirit of the Opposition is extremely negative and churlish. I have no problem in welcoming and supporting the Bill.

Mr. Curran

I welcome the opportunity to contribute to the debate on the Finance Bill. Comments were made during an earlier debate that Fianna Fáil backbenchers read from a prepared script given to them by Ministers. I assure the House the few notes I have brought with me are my own and were not given to me by anyone.

I listened with great interest to Deputy Noonan. I am sorry he is no longer present in the House as I would like to take up some of the points he made in his thought-provoking contribution. When we consider the global scale, I accept that there are questions which can be asked and that there is a degree of uncertainty. However, Deputy Noonan turned that around and considered specific instances in Ireland, and he spoke about income tax in particular. I thought his position was slightly disingenuous in regard to some of the figures used. He gave the accurate number of people on the standard and top tax rates. However, to be fair, this Finance Bill takes almost 40,000 people out of the tax net. Every time we take people out of that net, it reflects on the percentages in the other bands and one cannot disregard that. If one could, the incentive to take people out of the net would not exist but we have taken out a sizeable number. This budget change alone has taken approximately 40,000 people out of the tax net. It is disingenuous not to take that into account when considering earners and workers, of whom there are approximately 1.8 million in the country — a very real figure. It is a pity Deputy Noonan ignored that point.

In general terms, over recent years the policies adopted by the Minister for Finance have seen this economy thrive as a low tax economy, a situation which stands today. It is low in regard to income tax, capital gains tax and corporation tax. An earlier contribution to this debate pointed to the consequences of raising tax rates. There is misunderstanding in this regard. If one considers recent years, as the rate has dropped in regard to capital gains and corporation taxes, the yield has increased — an important point. While it was asked whether we could still do X, Y or Z if we lowered the rate, yields have increased consistently as rates have dropped, and those yields have funded a variety of projects, including infrastructure development. When people talk about corporation tax rates being too low, they need to consider the yield. While a point made often in the House is that we should increase rates, rates have dropped significantly yet activity and yields have significantly increased.

I wish to consider aspects of the Bill which are particularly interesting to me and the area I represent. One is in regard to section 26 which refers to urban renewal schemes. A general comment made in regard to the schemes is that the wealthy benefit from them. This is simply not the case. For example, Rowlagh, which comes under this scheme and is in my area of Clondalkin, had seen no development or investment. That development and investment was driven by this scheme although the local authority had earlier tried to encourage development and struggled. The point I wish to make is that it was not a particularly large company or a multinational which came in and made the investment, but a person who was running a local business and who took the sites on and entered the development process.

There is a misunderstanding regarding the change made in the budget in that it does not allow new entrants but instead extends the period that those who have entered this scheme have to complete their projects. To qualify, one must already have expended at least 15% of the project funds before a particular date which has now expired. The extension applies to the completion time but does not allow new entrants. It was right and proper that the Minister made this change because people have already committed their funding to these projects. If the projects are to be delivered in a proper manner and properly developed, the scheme needs this extended time period.

People may say that such projects have had enough time. I was a member of a local authority and saw the difficulties regarding such sites in that they were not attractive and were in various areas with all sorts of problems, including derelict sites prone to anti-social behaviour and illegal encampments. Significant problems were overcome to make these sites available and to bring them to a stage from which they could apply for planning and subsequently be tendered, or whatever the case may be. It was a big job for the local authorities. Since this change was made in regard to the schemes in my local authority area, the local authority staff who worked for a significant amount of time trying to progress this are delighted that the projects in which they invested so much time and effort have a realistic chance of being properly completed. This applies not just to the county manager but to the various people in the development department.

With regard to the status of developments, there are community linkage funds which come from them. It is not just wealthy developers who benefit from this and it is inaccurate for that view to be constantly put forward in this House. By and large, these sites have delivered to communities. They have transformed areas which were derelict and neglected, and have given the people of those areas real hope and opportunities. Moreover, the linkage fund is going into other projects in those areas. It is disingenuous to say that this constantly benefits wealthy developers; it does not. In fact, most of the schemes I have encountered in the South Dublin County Council area do anything but that. They have been developed by people who are part of the community and who have availed of opportunities. In many instances, there were not many other takers.

I also wish to comment on section 28 which deals with section 481 film relief, which has been extended to 2008. I greatly welcome this. It is only a year and a half since I became a full-time politician. For 20 years before that, I worked in the audio visual industry which has strong connections to the film industry. I have seen the film industry grow and evolve over that time, and have discussed this at parliamentary party meetings and with various others, including the Minister.

The Minister rightly made the point that in a low tax economy it is vitally important to spread the tax net so that everybody pays something. The very nature of the film industry is transient. It is quite easy for a film crew to locate in any geographic location. We often think of big producers and famous actors when considering the film industry but, as the industry has evolved, another group of people sometimes gets missed out — those involved in catering and supplying props, generators, lighting and so on. They do not just do that in |reland. I know of several people working in small companies supplying the film industry. They began supplying films produced in Ireland but that market has grown and evolved and they are now providing the same services for films which might be produced in foreign countries. They are part of crews going abroad to produce films.

The entire industry has benefited and I welcome the fact that this relief has been extended as it is a very transient type of industry. We have done very well out of it over recent years and I am glad to see it will be protected. In particular, I welcome and think it right that the Minister has added new conditions to protect any abuses of the scheme. If the Minister was in the House, he would argue that in a low tax economy it is necessary to have everyone paying their fair share and, when making special exemptions, we must be sure such schemes are not abused.

Deputy Burton is not in the House but I wish to refer to a comment she made in the debate this afternoon.

Mr. F. McGrath

The Labour Party Members have all gone home.

Mr. Curran

I will finish my contribution in any case. I am glad the Deputy is in the House to listen. Deputy Burton made a comment in regard to the Revenue Commissioners, tax enforcement and so on. She stated: "Having regard to their resources, the Revenue Commissioners are wise to focus on cases where there is a significant likelihood of a return rather than on random audits." She argued that instead of carrying out random audits, it was best to go after targeted cases. She mentioned that last year there were approximately 16,000 such cases and that 50% of them produced a yield for the State.

The Revenue Commissioners also carry out a number of random audits. The sample is quite small but such random audits produced a yield in one third of cases. The Committee of Public Accounts, of which I am a member, has argued on this matter with the Revenue Commissioners, and the Comptroller and Auditor General would agree that random audits are an absolute necessity.

We run a tax system where the onus is on people to comply. There is self-assessment and companies return income tax, PAYE, PRSI, VAT and so forth. Random audits are a necessity to ensure compliance. However, from the Revenue Commissioners' point of view, they are also critical because true random audits provide a means by which to determine what the understated tax situation might be. If one knows what the figure is, one can then adequately target one's resources to recover these taxes. I disagree with Deputy Burton because random audit is an absolute necessity for the two reasons I have outlined.

Mr. Connaughton

I wish to share my time with Deputy Coveney.

At this late hour, I assume most things one could possibly say have already been said. I find the Finance Bill just like the budget. While it includes some good things, it is almost a non-event. If the decentralisation aspect was excluded, we would not have had a budget. It is a damp squib as such. I have not the time to go through the decentralisation aspect, other than to say that I have always been an advocate of the decentralisation of Departments, and I sincerely hope it will happen. I hope the various problems that appear to be besetting the programme will be solved. I hope it will be done on a voluntary basis and that there will be no coercion. I hope that people who decide to decentralise will be at no disadvantage in so far as their future in the Civil Service is concerned. There is need for a much greater debate on the issue, but that is for another occasion.

Section 88 of the Bill provides for a carry-over from one year to another of unspent Exchequer capital allocations. There is nothing dramatic about this. This could be seen on a roll-over basis as a book-keeping exercise. An independent evaluation was done on spending on roads under the National Development Plan 2000-2006. The evaluation was independent of the Government, the Opposition and this House, and it came up with alarming figures. It found that under the national development plan, from the beginning of 2000 until now, investment in the eastern region stood at 157% of what should be spent, while it stood at 55% in the BMW region and in the west. This means, in effect, that there is a very uneven spread of resources, even though they were earmarked for very important infrastructural projects in the BMW area.

Regardless of what was said about the Finance Bill today or what was said about the budget, at least let it be fair to all citizens and all communities. I must put on record that whatever else the Government might have done during the very good times, the not so good times and in more recent times, there is no point talking about X millions or billions of euro being spent throughout the country on infrastructural projects if, for one reason or other, one area dominates the whole thing. I say this on the basis that we are mid-way through the programme. I call on the Minister for Finance to ensure that the projects which were evaluated and earmarked for the BMW region are costed and financed between now and 2006. We are all aware of the huge infrastructural pressure in the Dublin area. I recall watching television when a Minister opened a new plaza on the M50. Three hours after it was opened the biggest tail-back for a month happened on the M50. The front page news the following morning was that two new lanes would have to be added to the M50, which I have no doubt are needed. When the Dublin Port tunnel is finished, lorries will spew out on to the M50.

This is little good to areas such as Tuam, Ballinasloe, Carrick-on-Shannon or Ballina. We are entitled to what was agreed in the national development plan. Intense consultations occurred on that occasion. However, when it comes down to actual spending of the money, there is a huge deficit. There is still time for this to happen so we will see the colour of the Minister for Finance's eyes on this issue. This brings me to the important matter, namely, that the money must be ring-fenced. This had to be done in the agricultural area in the west in regard to the milk quota. Otherwise the west would have lost out. The only way the Government can give a guarantee that there will be fairness in the system is to ring-fence the money earmarked for projects to be completed by 2006.

I want to refer briefly to another matter about which there is nothing in the budget, even though two Ministers will visit the west next Friday. This issue relates to the western rail corridor. One would certainly know that 11 June is coming up the track, pardon the pun, because they are all arriving at the same time. It never made more economic sense to begin to build the western rail corridor — I appreciate it cannot be done overnight. If ever there was a conduit to bring prosperity to the region to which I am referring, it is the rail corridor. I cannot understand why highly paid consultants were blinkered in so far as they believed the western rail corridor would not be an economical project. Not only did they say the project would not be economical, they could not even see fit to have a commuter train connect with Galway city, the fastest growing city in Europe. Much work has been carried out on the main railway line. The signals are in place. All that was needed was an engine and carriages, and they could not even see fit to agree to that. This comes back to what I said about fairness, balanced development and the spatial strategy to which Fianna Fáil members always refer. None of these promises has come through for the west.

If I were on the opposite side of the House, there are aspects of the budget and the Finance Bill I would certainly praise. A central problem which besets almost every family in the country is the provision of houses for young people. I asked an auctioneer to do an experiment by looking over his books for the past couple of years. This has nothing to do with the terrible injustice done by the Government to every young person who is trying to build a house when it decided to discontinue the first-time buyer's grant and increase VAT, and now there is the crippling development levy. These charges amount to €10,000 or €12,000 in most counties. A house was sold in a town in County Galway in 2001 for €170,000. A few days ago the same house was sold for €230,000. Prices increase by 10% each year.

Debate adjourned.