Léim ar aghaidh chuig an bpríomhábhar

Seanad Éireann díospóireacht -
Wednesday, 12 Nov 1986

Vol. 114 No. 14

Worker Share Ownership: Motion

I move:

That Seanad Éireann (a) supports the concept of wider share ownership by workers in their own firms and by members of the public generally in productive industry; (b) notes that the Finance Act of 1986 contains provisions promoting profit sharing, share option schemes, and improvements in the Business Expansion Scheme; (c) calls on all Chambers of Commerce, Trade Unions, Employer Organisations, and other economic organs to involve themselves in the establishment of funds to use these tax relief provisions for job creation.

Molaim é seo, mar tá tuairim agam go mba cheart gach gríosadh a thabhairt do chuile dhuine sa tír chun feabhas a chur ar an bhfostaíocht atá ag dul i laige. Tá sé an-fhurasta an milleán a bheith á chur ar gach éinne ach amháin orainn féin go bhfuil an dí-fhostaíocht go dona, ach tá sé deacair rud a dhéanamh faoi. Dá bhrí sin, molaim an tAire gur ghlac sé leis na moltaí seo atá os ár gcomhair san leabhar beag seo "Tax Incentives" agus tá súil agam go mbeidh toradh as an obair sin.

It is better to light a candle than curse the darkness somebody said many years ago. The Minister has set about doing this in a big way by proceeding to encourage workers to be very much involved in their own business. By being involved in their own business and firm, having an interest in seeing that the firm is not there just to be bled for anything that can be got from it, the workers will actually put greater effort into it. Many workers feel completely cut off from the company they work for. They see the owners as the people making the profits and they seldom see the owners as the people who share the headaches, who perhaps wake up screaming at night. I heard on the radio this morning of somebody who woke up screaming every two hours at night because of his worries. Many a business person has that kind of experience. They do the worrying at home and often-times the workers feel that is okay for them.

The Taoiseach mentioned the question of people being absent from work. If workers feel they are involved, it will help to correct that fault. One cannot have absenteeism and progress at the same time. All in all, the incentives which have been offered by the Minister should do much to encourage individual workers to have a greater interest in their job, to turn up on time and feel they are part and parcel of what is going on because, in the long run they are producing the goods, they are doing the work and without them companies cannot flourish.

In relation to some of the schemes the Minister has introduced the business expansion scheme encourages people to invest money in Irish companies. We heard much about the black hole and £1.5 billion disappearing out of the country. If we have money it is very important that we do something to help ourselves. The business expansion scheme certainly encourages people to put their money where it should be — helping ourselves. If they can get total relief from income tax, it is a big encouragement. The fact that £5 million was invested in that scheme last year was a tremendous start up to a new scheme and especially a scheme we are not used to. It is easy for people to talk about the stock exchange and a certain group of people who are regarded as the well-to-do, as people who have much money to invest, whereas the ordinary person feels completely cut off from the idea of investing money. The whole concept of how to save money has been mentioned by the Minister on many occasions. The "safe" money is the money that is doing nothing for the country whereas money going into business is what we really want. Many businesses are stuck for finance. If they can get this money it will help them to expand, and will help the workers to have more work.

Research and development are badly needed. Within a State where diversification is the name of the game very few companies can afford to remain as they have been for the past 50 years and expect to survive because markets are changing and it is a very difficult time. It is very important that people should be encouraged to invest their money in research and development. A company in Carlow survived the slump in the building industry by manufacturing tiles from concrete blocks and exporting gravel and sand to European countries for road making. This is an example of what can save a company from going to the wall. We need research and development to come up with new ideas and alternatives for companies who, perhaps with a reasonable amount of effort can switch their production to goods of a different type.

In relation to patent income I know a local individual who spent much time developing a new idea and this is something I welcome on a personal basis. Very often people who come up with new inventions spend much time developing them. They take a risk. They borrow money and hope it will work out and sometimes it may not work out. For the person who comes up with the idea and who knows exactly what he is trying to produce, it is proper that he should have a reward at the end and that his profits should be free of tax. This scheme is intended to encourage people to invest in the work they are doing.

The profit sharing scheme under which a company pays out profits to the workers in the form of shares gives an incentive to workers. Fifteen companies are involved in this profit sharing scheme. This is a marvellous step forward in an era when we have the "them and us" mentality in many firms and the workers feel cut off from the bosses. Division of profits with the workers in the form of shares is another step in the right direction towards encouraging people to become involved, to feel they are part of the scene and part of the company they are working for. The fact that this is limited to 5,000 shares per employee per year will not affect too many people. They will be very happy with that level of money.

There is also a new scheme of share purchase by employees giving income tax relief. All of the schemes which were implemented in this year's budget, and the tax relief on loans where people borrowed money to buy shares, have been a big encouragement because if people borrow money to buy shares they take a risk and we need risk in this country at present. We need people to invest their money. Wise men go to the gilt markets and the Stock Exchange, but I applaud giving interest to people who borrow money to invest in these shares.

Many incentives have been introduced by the Minister to encourage workers to become more involved in their work and this is very worthy of support. The third part of this motion where we call on all chambers of commerce, trade unions and employer organisations to involve themselves in the establishment of funds to use these tax relief provisions for job creation is very important. There is no point in having these schemes in speeches and books preserved in an office. The people involved in chambers of commerce, the business people, know what it is all about. They are in touch with their workers and so are the trade unions from the opposite side. While from the trade unions' point of view the job is to get as much as is possible for the workers, in the long run they can do a disservice if they press for too much at the wrong time. Leaders of trade unions in all walks of life are looking for more and more money but what we need is tax relief. If we stopped looking for the maximum salaries none of us will ever reach in our own jobs because of our tax, we could have a freeze for almost five years and still be gaining as much money if we got more tax relief.

The chambers of commerce, trade unions, employer organisation and so on mentioned in this motion can play a leading role. I would like to see them giving this their goodwill and not seeing it as something that is against them or has long term effects for them as regards profit. Together we stand; divided we fall. We would gain immensely from the fact that everyone was pulling together. Is ar scáth a chéile a mhaireann na daoine, as we have heard so often in the past. We all depend on one another and, the more we depend on one another, the more we need to pull together. I hope these schemes introduced by the Minister over the years, — and in particular those in the Finance Act, 1986 — will be used by the workers. I hope their leaders will encourage them to take part and that the country as a whole will gain immensely. Instead of talking about unemployment, we will be doing something that will help to cut back unemployment and make this a better country.

I would like to formally second the motion and reserve my speech until next week. I do so because I am conscious that the Minister and Members from the other side of the House want to speak this evening. For three Fine Gael speakers to speak one after the other would be unfair. Therefore, I will reserve my speech until next week.

That is not exactly what the Senator means.

That is exactly what I mean.

An Leas-Chathaoirleach

In fairness to Senator O'Leary he usually means what he says.

We are all agreed that the most pressing economic and social problem facing the country is that of unemployment. Any measure, therefore, that will help the objective of job creation is to be welcomed. The incentives which are the subject of the motion are designed to encourage investment in Irish companies by Irish residents and, secondly, to achieve significant participation of the ownership of business by employees. Nobody could quarrel with the commendable objectives of these schemes. There are, however, serious disincentives in the way of success for the schemes and I will return to these later.

First, let me take profit sharing. Under profit sharing schemes the company profits distributed to employees in the form of shares are free from tax in certain defined circumstances. Assuming that the companies are profitable and that there are profits to share, there are benefits which may be reasonably expected from these schemes. Among the benefits to the employee of this type of incentive scheme are a potentially tax free reward and a stake in the success of the business.

The employees of the company should become more cohesive in that through their shareholdings they will identify themselves with the company and with its future. There is also the prospect that industrial relations will be improved. A profit sharing scheme may help to motivate employees and to encourage involvement in participation at all levels since it will tend to demonstrate that the interests of the employees and shareholders are similar, a gulf that too often is the case in Irish industry. To the extent that employees identify themselves as stake-holders in the fortunes of the company they should recognise that individual performance, aggregated over the company, will have an impact on profitability. In the United States, for example those who have monitored the effect of profit sharing schemes note that the economic realities facing the company when negotiating pay levels come to the fore in realistic bargaining on what the company can afford to bear and how it will impact on the future of the company. These schemes encourage employees to think of the capital growth of the company as a whole, not just the particular part in which individual employees work.

In relation to profit sharing, will the Minister give consideration to extending the right to profit sharing schemes to Irish residents who work in companies operating in the State but where the parent companies are registered outside the State? I have outlined some of the benefits that should accrue to employees and the company as a whole from profit sharing schemes. Will the Minister, therefore, agree that the balance of advantage favours extending the profit sharing schemes in the manner I have raised?

The three schemes named in the motion, while all excellent in themselves, will only be attractive on a general scale if other disincentives against investment for employment and development are reduced or, better still, removed. This means in turn that the climate for enterprise and investment must be right. But is it?

The business expansion scheme, for example, which permits relief from income tax on amounts of up to £25,000 in any one year, relates to companies which must be engaged mainly in manufacturing. This scheme, again while excellent in itself, as I understand it has attracted investment of less than £10 million in any one year. This rather disappointing response is due, first, to a shortage of viable projects in which to invest and, secondly, because the total environment for enterprise and investment is still regarded by many investors as hostile. Furthermore, for would-be investors in the business expansion scheme guilts and other attractive investments are available at a time when they judge the climate for investment in manufacturing companies is not yet right. There is keen competition for these funds. Tax advantages are available for both profit sharing schemes and share options. The key incentive for investment under either arrangement is the profit level of the companies concerned. There is no point in investing in companies if there is no profit to share.

With regard to companies in the manufacturing sector, input costs are a source of particular concern. Compared with our international competitors, electricity in industrial companies in Ireland is 20 per cent higher than the average in the EC countries, adding between £50 million and £60 million a year to manufacturing costs. In relation to road transport and other input, automative road diesel costs are twice as much here compared with the EC average, adding an estimated £100 million a year to industrial costs. Premium levels for employers' liability insurance are three to 15 times higher in manufacturing industry in Ireland compared with the UK. This form of insurance adds an additional £20 million compared with our competitors in the UK.

A further serious imposition on industrial costs is the level of interest rates. These rates react to supply and demand. We have a situation at present where inflation is falling but interest rates are rising. Each 1 per cent increase in interest rates adds £16 million to the costs of the manufacturing sector. One reason for the rise in interest rates is within Government control. I refer to the scale of Government domestic borrowing which is crowding out other potential borrowers who would use such funds for investment.

All in all, industrial input costs in this country are £200 million to £300 million greater than our competitors. The burden of these additional costs reduce profits — and that is the sense in which I want to raise it here — in industrial companies and, therefore, make the profit sharing scheme and the share option scheme that much less attractive because there are less profits to distribute. I understand a working group were established in May 1986 to examine industrial input costs and that their report — and here I would like the Minister to give me the picture on it——

I am sorry. I missed what the Senator said because I was trying to get the answers to some of his earlier questions.

I will repeat it. I was making the point about the weight of industrial input costs in Ireland compared with our competitors. I reckon they amount to an additional £200 million to £300 million per year compared with the countries with which we compete. There is, of course, a further dimension here. In the case of imports with which we are also competing, they have the advantage of lower input costs and, therefore, they can sell that much more competitively on the Irish market.

The burden of these additional costs reduces the profits in industrial companies and, therefore, makes the profit-sharing scheme and the share option scheme that much less attractive. This is the point I was raising about the working group. I understand a working group were established in May 1986 to examine industrial input costs and that their report was submitted on 8 July to the Taoiseach, the Minister for Finance and the Minister for Industry and Commerce. I have not heard anything further about the findings of the working group. Is the Minister in a position to let us know the present status of that report?

As I said earlier, the removal of disincentives against investment for employment are essential if the scheme, which I think are highly desirable, are to have any real chance of success. The DIRT tax was a move in the opposite direction. This rentention tax on interest payments has already adversely affected the Irish banking system. Furthermore, it will continue to have an adverse effect on the cash flow of companies who are in receipt of deposit interest. I want to highlight a point here which I think is not adequately catered for in our plethora of State agencies. Working capital and cashflow are the life and blood of enterprises. The DIRT tax is adversely affecting working capital and cash flow. It is essential that governments should understand the role of working capital in job creation and in the retention of jobs. As a country, we have a range of State institutions and services that help companies at their formative state; for example, the IDA and CTT. We also have services if a company is in serious financial trouble or on the way out for example, Fóir Teoranta. We do not, however, have adequate support for companies during the main part of their life cycle.

As I said, the DIRT tax goes in the opposite direction. It represents a further serious imposition on working capital and cash flow, the very areas that present trouble repeatedly for companies and contribute to their demise. This tax has chased hundreds of millions of pounds out of the country and while it remains on the Statute Book it will act as a disincentive to the return of funds to the country. We need these funds back, not least because of the contribution they would make to reducing interest rates. The DIRT tax, therefore, is a seriously misplaced measure which will continue to discourage investment and, therefore, will continue to discourage job creation.

In conclusion, it will be evident from what I have said that the profit sharing, share options and business expansion schemes are excellent in themselves but strong disincentives remain to counter these highly desirable investment incentives. Foremost among these disincentives are the particularly servere tax régime which obtains in the country, the very heavy additional industrial input costs which I would put at £200 million to £300 million per year compared with our competitors and, thirdly, the DIRT tax which is a serious disincentive to personal savings and, worse still, a tax which has driven massive funds out of the country which are needed right now to encourage investment for job creation.

I welcome the opportunity to speak in Seanad Éireann on a motion dealing with wider share ownership. I am a strong believer in the merits of promoting such ownership as a means of generating more investment and more employment. This will ultimately create a situation in which everybody owns a stake in the wealth-creating sector of the economy. I see this not so much as a desirable option but rather as a necessity, if we are to achieve the scale of growth in the economy that we need in the years ahead.

What I want to set, therefore, are targets we can achieve. I want to put in place a system to monitor progress. I want to find out what the obstacles there are to faster progress. I want to talk about how we can stimulate action to surmount these difficulties. I hope, indeed I am confident, that the debate here in the Seanad will be a help to me in all of these four regards.

We are all here agreed on the need to develop a strong indigenous industrial base. We all recognise there is potential for investment in new sectors of the economy. We are beginning to get a stronger appreciation of the valuable role which small business can play. It behoves us then to develop policies which will maximise our potential and open up new opportunities.

Some other countries have a stronger tradition of risk investment than here. In Ireland people, unfortunately, have preferred to invest in gilt-edged securities with a guaranteed return. A consequence of this has been that there has been insufficient capital for productive investment. This is especially true in the case of small industry.

We have seen over and over again, instances of small businesses, with definite potential, struggling, and in many cases failing, because of their excessive dependence on bank borrowing. They are unable to cope with the volume of debt. Interest bills come when they are least able to be met. They would have much more flexibility if a higher proportion of their capital was provided in the form of shares rather than bank borrowing. One only pays the dividend on a share when there is a profit but one has to pay interest whether a profit is being made at the time. This is an essential economic and industrial argument in favour of share-ownership and is why it is so important to promote it.

Wider share ownership opens up the possibility of another source of investment for the developing company. Such investors are likely to take a close interest in the fortunes of companies into which they have put money. They may also be a source of further funds as the company expands. They may have some special expertise to bring to bear, or they may have contacts which can aid the company's progress.

If you have a small company employing, perhaps, 15 or 20 people set up by somebody who, for instance, has a production background producing some engineering product, for example, he may have no expertise in marketing or in the accountancy area and his business may fail subsequently for lack of adequate marketing or lack of adequate financial control. If he had gone looking for capital early in the life of his company there is a strong possibility that under the business expansion scheme one of the people who had a high income and who might have invested in his company might be the marketing director of a large local co-op or other business. That person would then go on the board of directors and in addition to money he would bring the specific expertise the company lacked. Likewise, another person with a high income wishing to reduce his income tax by investing under the BES might be a local accountant and if he came on the board of directors of the company he would provide a very valuable free service to the company in the form of consultancy at board meetings through his membership of the company. That is a very important reason why wider share ownership should be seen not just as a means of getting extra capital but also as a means of bringing extra expertise into the company.

I have spoken of the clear need for investors to get away from the idea of limited returns on relatively risk-free investments. Firms must lessen their dependence on restrictive and expensive loan capital. There is a wider dimension. There is justifiable debate at the present time about poverty in this country. I know that is a subject which frequently engages the attention of Senators. Poverty takes many forms. The most obvious is lack of funds to support an adequate living standard but a more pervasive and equally damaging form of poverty is the sense of non-involvement in society. Those who are unemployed, sick or housebound suffer not only some material deprivation but an even greater sense of being cut-off from the main stream of society. The aim of social policy must be to address not only the sense of material loss but also the sense of isolation that is suffered by so many at the present time.

The concept of wider share ownership is one way of bringing more people into the mainstream of economic activity in Ireland. The sense of being involved in a company as a part owner is a very important way in which people can play a part in society. That is something that can be undertaken by people of all ages and stages in life. The level of involvement in the company can be fitted to suit their capacities at a given time.

I see the promotion of wider share ownership as a key element of social policy, not just an economic issue. If we can get more people involved in the wealth creation sector of our economy, we are removing one of the major perceived senses of inequality and grievance in our society. This is the sense of being excluded from the important wealth creation activities of our society. It is obviously important that those who work in firms should, as far as possible, own a share in the company in which they work, but it is equally important that those who have retired from firms should continue to hold shares in that company after they are no longer actively employed. This is not a substitute for a pension, but it is a basis for continued involvement by retired people with the firm in which they worked. This can be very important as the sense of being useful one day and rejected the next is frequently felt by those who retire.

It is equally important that people should also own shares in companies with which they have no working connection. It is prudent that people should own shares in a wide range of companies rather than have all their shares in one particular firm, putting all their eggs, so to speak, in one basket. It is equally important that people should have an interest in different sectors of the economy.

We have to take new initiatives quickly to speed up economic growth and employment. We are in the unenviable position of having the highest budget deficit and the highest unemployment in the EC. Creating new jobs in the public sector is no solution and would simply magnify our problems in the longer term. We need self-sustaining, self-financing jobs which generate their own wealth. This is not a choice but a necessity. These jobs presuppose investment in the private sector in particular.

We have introduced here in Ireland the best set of tax incentives for share ownership in the manufacturing sector that exists anywhere in Europe. They are designed to make it tax efficient to do what is patriotic from a national point of view. People can pay no income tax at all on money they invest in shares in a manufacturing company. The maximum income tax they will pay on any dividends they receive from those shares will be 24p in the £, compared with 58p in the £ paid by many people. This is a really attractive tax package and should, as I intend it will, make a major impact to broadening share ownership in Ireland and reviving the manufacturing sector of our economy.

Some say it is wrong to confine these incentives to manufacturing but it should be remembered that Ireland is an exporting nation. We can, of course, develop our services sector, but we suffer the inherent disadvantage that people have to travel across two stretches of sea from continental Europe to get to Ireland. It is easier for goods to travel than it is for people. Thus, Ireland is likely to retain a larger dependence on the manufacturing sector because of its physical isolation than other countries more centrally placed in Europe who can more easily provide services. Ireland, therefore, is right to put the accent on development in manufacturing. It is concentrating on that area in which we have a comparative advantage.

However, it should be stressed that these incentives are not in all cases confined to manufacturing. They also include traded services, but it would make no point to extend the tax incentives to non-traded services. All that would then happen would be that new firms would be set up, with the aid of the tax incentive, to displace old ones. In other words, we would have new jobs replacing old ones and we would be no further on. No extra jobs would be created. By confining the incentives to the traded sector, whether it be manufacturing or services, we are ensuring that the emphasis will be on extra jobs, not the displacement of existing ones.

There is a great deal of concern in Ireland about our failure to develop the food industry and other aspects of our material resources. The real problem here is marketing. We have the raw materials. Our fresh food is better than that produced in most other countries.

What we lack is sufficient investment of money in marketing. We have not invested enough in quality control, in after sales service, in advertising, in research into new markets and new products and all the other factors that go to make the difference between a good product that is left on the shelf, and an equally good product that is a runaway best seller.

Investment in marketing to achieve this has a long lead time. You cannot develop a new market over-night. Thus bank finance is unsuitable for the development of markets. Bank finance requires interest payments to be made virtually from the day the money is available. This is no use for a long term project with, initially, a low return. Indeed it is worth noting that banks are not interested in financing marketing because there is no physical asset to provide security for the bank in a marketing programme whereas there is in a building or a machine. That is another reason we must seek other forms of finance if we are to develop our full marketing potential.

On the other hand the provision of equity in the form of shares under the business expansion scheme is ideal to financing marketing. It provides capital that only seeks remuneration when the marketing programme has been a success. It is essential that the food industry use the business expansion scheme to the full to develop new food products in Ireland. I have stressed this time and time again at every opportunity. Most recently I addressed the Irish Co-operative Organisation Society, ICOS, at their annual meeting and urged them to use these schemes to fund food marketing, rather than relying unduly on bank finance.

I also believe that, with the development of specialist foods for particular market niches, farmers themselves will be able to avail of the business expansion scheme to develop food products. New products are going to be required, and there is no reason why farmers, with an income tax liability, should not use the business expansion scheme to fund companies to develop the marketing and processing of products on their farms. This is particularly relevant to the development of alternative forms of agriculture in areas that are not surplus in the EC at present.

I have asked the Irish Farmer's Organisation and the ICMSA to see how their members, who have an income tax liability, can use this scheme both to offset the tax liability and develop new products for the market place. It is only through developing new products which do not rely on EC subsidisation that Irish agriculture will achieve its potential.

The special package of tax incentives which has been incorporated in the 1986 Finance Act to stimulate private investment are, of course, selective. They can and do involve a loss of revenue to the State and consequently it is important to ensure that the benefits will outweigh the immediate revenue loss. If they are too generous or too wide in their application, they can cause serious distortions, as well as being very expensive.

The main incentives are: the business expansion scheme; the research and product development scheme; a reduced tax charge on dividends for manufacturing companies; and selective reductions in capital gains tax rates. The take up of the business expansion scheme in recent months has increased dramatically and this is in a sense to the point made by Senator Hillery. Ten companies received £1.53 million in investment in 1984-85. In the following year to April 5, 1986 29 companies and investments of £3.7 million were approved. Since then the rate of growth has been spectacular.

By the end of August last a further 17 companies and £1¼ million of investment has been approved. In the past two months alone 24 more companies have been approved with investments of over £2½ million. Inquiries are now being processed from another 102 companies. I can see every prospect of this scheme alone producing £15 million or more of new investment in 1987 as against £1.5 million in 1984-85 and £3.7 million in 1985-86.

Clearly firms, investors and specialist finance houses are now becoming fully aware of the possibilities of the BES to generate growth and expansion and, at the same time, earn very generous returns. The life of the scheme was extended to 1991 in the Finance Act and I fully expect that, long before then, it will be making a major impact on investment.

A number of the other changes made this year will help to accelerate the use of the scheme. In particular, the reduction in the rates of capital gains tax to a flat 30 per cent for shares disposed of on the smaller companies market of the Irish Stock Exchange will have a twofold benefit. It will encourage companies to come to that market and, at the same time, increase after-tax returns for shareholders realising gains. The capital gains tax rates for gains on shares acquired under the BES are also being reduced to that rate. This is important because people frequently say: "Yes, it is a good idea to buy shares in the business expansion scheme company but how can you get rid of them? If you want to realise your gains, if you want to sell your shares how can you do it?" Some of these companies are too small to get a full quote on the Stock Exchange. That is why the smaller companies market is an important disposal mechanism for the business expansion scheme. The knowledge that such a disposal mechanism exists, suitable to small companies, is a very good incentive to people to go into these companies as shareholders in the first place because they know that, as the companies develop, there will also be a means of disposing of those shares, selling them to somebody else who will bring in other money instead.

The research and product development scheme which was newly introduced in this year's Finance Act is designed to widen the range of methods open to investors to become involved in investment and research. This new scheme also enables trading companies, known as sponsoring companies, to have much needed research and development done specifically for them without diluting their own capital base or taking on expensive loan finance. Again research and development are more suitably financed by equity than by loan finance. The scheme is a complicated one but experience with the BES suggests that once investors, their advisers and firms, become familiar with the "workings", its use will spread rapidly as it is spreading now two and a half years after its initial introduction.

I have been concerned during the past few months to publicise the value of these schemes. I have done this consciously because the need for action is so great. We just have not got the time any longer to wait for incentives to be gradually adopted. We need not only to bring about change but to bring it about quickly. I should like to refer to a point made by Senator Browne in his contribution. He referred to the tax relief for patent income. It is only now that people are beginning to take an interest in the fact that if you get a patent in Ireland, the royalties you receive from it are entirely tax free. That scheme was introduced by the then Minister for Finance Deputy R. Ryan in 1976. It is only now that it is really being taken up. We certainly cannot wait ten years for these incentives to deliver their full fruits. That is why it is very important that a debate like this should take place and that every means should be used to bring to the public mind the availability of these incentives. We cannot afford to have good incentives lying dormant in the Statute Book when the need for innovation and investment is so great.

That is why I have approached the opinion makers in the financial and commercial world to throw their weight behind these schemes. The banks have undertaken to distribute promotional literature on the schemes at branch level. Some banks have advertised loan finance for investors who wish to become share owners. I have approached the chambers of commerce of Ireland to set up a designated fund. I have referred to approaches I have made to the IFA and the ICMSA. The chambers are working on this at the moment and I am hoping for a positive outcome in the next few weeks. The chambers organisation can provide a powerful motivation at local and regional level for practical steps to create jobs.

These initiatives to encourage investors are balanced by a package of measures to stimulate employee participation in bringing about the success, and enjoying the fruits of the success, of the firms in which they work. We need to get past the stage of talking about improving the industrial relations atmosphere. My contribution is not on theory but on the form of practical changes.

Some of our best talent in Ireland is wasted in industrial relations conflicts. The idea of two "sides" in industry is a time-wasting phenomenon. If workers were share owners as well as the providers of labour, both management and unions would be on the same side. Both would have exactly the same interest, which unfortunately they do not have at the moment, in the development of the firm. They would not be looking at it from different angles with different demands.

My ideal would be a society in which trade union officials were participating actively as representatives of member shareowners in the development of new policies that will increase the profitability of the firm in which their members work. This would be a much better, and a more fulfilling use of the talents of our trade union officials than the current adversarial system. It requires a revolution in trade union thinking but worker share ownership also requires a revolution in traditional management thinking as well. These tax incentives provide an opportunity for both so called "sides" in industry to meet one another half-way and develop a common interest.

The fundamental employee participation incentive is that for profit sharing. This term is something of a misnomer because the actual incentive is concerned with wealth sharing and only secondarily with profit sharing. Under it, firms are encouraged to allocate shares, that is part ownership, to employees. Employees may obtain full income tax relief on the value of the shares allocated and the company may deduct, for corporation tax purposes, the cost of providing the shares. This scheme encourages employers to give and employees to look for not just an interest in their company but a say in their company as shareholders. The upper limit on allocations of £5,000 a year is very generous.

The growth rate in the use of this scheme is phenomenal. In 1983-84 after two years in operation only £1.8 million worth of shares had been allocated to workers share owners. In the following year a further £2.9 million was issued. In 1985-86 the figure rose to £8.2 million. Up to the end of 1985-86, 15 company groups were approved. In this year so far a further 11 companies have been approved or are under active consideration. I want to see the number of firms operating profit sharing schemes this year doubled.

At this point I wish to refer to a point raised by Professor Hillery. He referred to foreign-owned companies not being open to use the profit sharing schemes. There are two profit sharing schemes in existence. One originated in the Finance Act, 1982, and another separate scheme originated in the Finance Act, 1986. The 1982 scheme is one which allows companies to distribute profits to employees in the form of shares in the company. That scheme is available both to domestically-owned and foreign-owned companies. The problem referred to by Senator Hillery does not arise in that scheme which, incidentally, is the most commonly used of the two schemes. There is a restriction in regard to the 1986 scheme which allows companies to allocate not shares out of their profits but actual money to employees to enable them to buy shares as distinct from the company giving them shares. That second scheme, and one can use both, is confined to Irish-owned companies. It is no harm to give a little bit extra to Irish-owned companies because it is our common objective in the Houses of the Oireachtas to promote a little bit more the idea of indigenous, Irish-owned companies.

A parallel scheme covers share options where completely new tax arrangements have been introduced this year. These arrangements will facilitate firms in attracting and holding on to key staff. We frequently hear in debates on Finance Bills and elsewhere representations on behalf of high tech firms that they cannot hold on to key research personnel, that these people are being attracted by fantastic salaries to Silicon Valley, in California or somewhere else, or even to England, where not only is the salary higher but the tax level is lower.

Obviously it is not possible in a country where the entire PAYE revenue has to be devoted to paying interest on debt to introduce big cuts in income tax for top taxpayers in general to keep a number of key personnel in the country. That is not on; it is not on in grounds of equity and it is not on in practice. This share option scheme provides an alternative route where profitable companies, instead of allocating money, can give options to people to buy shares on tax advantageous terms. If any firm complains to Senator that they cannot keep key executives he should refer them to the share option scheme. That is designed and targeted specifically at profitable manufacturing enterprises to enable them to keep staff, without giving a general tax concession to doctors, accountants and all the rest in society to whom one might wish to give such concession but which simply cannot be afforded.

Another new measure, this is one I have already referred to, gives full income tax relief to an employee on money used to buy shares in his company. The limit here is £750. Supporting these measures is a tax relief referred to by Senator Browne on interest on loans used to acquire shares. This I think — and I summarise now all the elements in the package — represents an unprecedented set of co-ordinated measures to stimulate the creation of wealth and, secondly, the equitable distribution of that wealth among investors and employees as stake-holders.

Wealth creation should not just be an option for the very few. The opportunities and the right conditions are there for everybody to take part. The measures introduced are extended in this year's Finance Act and are intended to bring all these elements together. I am asking the House to support these measures and I call on the key institutions in the State to actively promote them in the interest of creating and maintaining jobs.

There were one or two points referred to by Senator Hillery I would like to refer to although I am not sure whether they were relevant to this debate. The Senator rightly pointed out that the profit level is a key factor. He referred to input costs and naturally enough — I presume he might have got some information from the Confederation of Irish Industry — he picked out the areas where we are disadvantageous in terms of industrial costs vis-à-vis our competitors in Europe. It is important to put this context by pointing out a few things. First, most European countries do not offer manufacturing the general range of grants for marketing, for technology acquisition, for research and machinery that we offer. This is a very important means of reducing costs. Secondly, no European country offers a 10 per cent corporate tax rate to manufacturing companies, as we do. Thirdly, most other European countries have higher rates of social security taxes on employees than we do; much higher in some cases. Fourthly, cost of labour is considerably less in this country than it is in other European countries.

While some costs are higher, partly as a result of the fact that Ireland is an island off another island off the mainland of Europe and cannot enjoy the benefits, for example, of an electricity interconnecter for producing electricity, there are other areas in which the Government and the trade union movement make up that disadvantage. In relation to the report on industrial input costs, the position is that it will be the subject of a meeting in the near future between the Taoiseach and the Confederation of Irish Industry who initiated the report.

Senator Hillery referred to the Deposit Interest Retention Tax and suggested that this was a move in the opposite direction to all of these incentives. I beg leave to disagree with the Senator. If you want something done, you apply a combination of the stick and the carrot. One of the things we do not want is money lying dormant in bank accounts or in gilts. If you have the Deposit Interest Retention Tax that gives people encouragement to look around for another form to which they will put their money that will not be subject to that tax at 35 per cent. Clearly, therefore, the Deposit Interest Retention Tax encourages people to take their money out of bank deposits and put it into shares in the directly productive sector so, far from it having the negative consequences Senator Hillery referred to it could be argued that it is consistent with the general move of trying to get people to put their savings into the risk sector rather than the saving sector of the economy.

Is the Minister saying that the money is no longer going into the risk or the saving sector?

The evidence certainly would suggest that the money is not in the country because otherwise the revenue from the Deposit Interest Retention Tax would not be £5 million higher than we expected it would be. If the money had run away we would not have been able to get a larger revenue than we expected. That probably disposes of that argument once and for all.

The Minister should check with the banks and they will tell him the level of deposits.

I know what I collected two weeks ago. I know it was more than I expected. If the money was gone, I would not have got the money in.

That does not mean it is right.

I am not talking at this point about whether it is right or wrong. I am simply dealing with the question of whether it is consistent with the idea of share ownership or whether it is consistent with the idea of getting them to put their money into risk sectors rather than non-risk sectors. I am also dealing with the point raised by Senator Hillery that it was chasing the money out of the country. The evidence clearly indicates that that is not so. That is an important point to make. Also, there is the question which I would put to all those who urge that this tax be done away with——

From the PAYE sector.

——that it will be lost by such a move. Those are really all the points I want to make. Despite my last remarks I want to thank Senator Browne and Senator Hillery, for very interesting and useful contributions. I hope this Seanad debate will get some publicity not necessarily for my contribution but for the fact that the Seanad is discussing this matter. It is extremely important if we are to find an answer to our economic and social problems.

In relation to the scheme of tax relief to an employee on money used to buy shares, the Minister mentioned that a marginal advantage is given to Irish companies. The thrust of what I have been saying in relation to the advantages of profit sharing, including this scheme, was that the advantages were so important to employees and, in turn, to the health of the company in the corporate sense that there are literally hundreds, if not thousands, of people who are working in companies here where the parent company is abroad, who should be encouraged to gain the same advantages for themselves and for the companies as in the case of Irish companies. Would the Minister give it further consideration?

The problem is, if you encourage Irish people to buy shares in companies that are maybe 90 per cent operating overseas, only 10p. of the 100p. invested by the Irish share owner will be used in Ireland. That is why it makes more sense in general to give a slightly better tax regime to encourage Irish workers to invest in Irish companies. That is not to say I have a closed mind on the subject.

I was delighted to listen to the Minister's speech. One of the tragedies is that, if the Minister had not been defeated on the budget that time, we would have had a lot more of this legislation on our Statute Book. His positive attitude towards the small business is to be welcomed. I welcome wholeheartedly the idea of share ownership by our workers and also the idea of profit sharing and involving the trade unions and chambers of commerce in the activities of business.

He touched on a very important aspect, the social policy. If more people become involved in companies and take shares in companies there will be less friction, more employment, better industrial relations and a better feeling throughout the companies. I would like to take up the time at my disposal to outline what I think the situation is and to outline the assets we have available to us. We stand at a strategic crossroads between two powerful blocks of countries and their trading, the USA and the EC. Our international reputation as a location for profitable investment offering a stable and a very good political environment is invaluable.

We are well poised to take advantage of the new industrial and service sector frontiers opened up by the information technology explosion. We have the expertise and the technical systems to make this country a winner. Our population is young, well educated and flexible through its youth to be able to change with the economic changes. Given the right environment, the Irish people are a great people for achievement. They can achieve great things in other countries. We should be encouraging them to stay at home and to achieve at home. It is a tragedy, as the Minister knows, to see young, highly educated people leaving all sections of the country. It used to be the west; now it is the midlands. The best possible people are leaving the country. We have got to address ourselves to that problem to keep them here, to invest their time and their energy in Irish industry.

The Minister spoke about people participating in industry. I worked in an industry in the sixties and I know what it is like to be part of a company going places, to be part of a workforce who identified themselves with the management and with the products. The relationship between the management and the staff was excellent because we were all going on the same road.

I agree with the Minister about taking aboard all sections of the community because we have massive unemployment, high interest, massive problems on all sides. The only way to tackle the problems is to get people to work together. We have a lovely country. Why should all the tourists go to England? Why should they not come here? A vast number of tourists go to London every year. There is an unbelievable difference in the number who come here. We should be developing a positive attitude towards risk taking; we should not be afraid of failures. If you have two losses out of every ten very good things, you should be able to take risk and there should be an incentive to go back to take more risk.

The large IDA factories that we have spotted all over the country should be broken up into smaller units to encourage small companies to develop. If two people with an idea come together with one employee, next year it can be four employees. The following year small companies become big companies as in America where the once very small companies are now the major companies. When Ford started off he was alone and he developed an empire. The thing is to identify people, get them into small clusters of units and get them working.

It is the Minister's idea to get people to put their savings into industry rather than into gilt-edged securities. I agree with the Minister about the reduction in the tax on dividends in manufacturing. Why not consider the possibility of actually doing away with it altogether, of not having a tax on dividends when you invest your savings into manufacturing companies? The provision of the same interest rates for small companies as well as large ones is very important.

The IDA should be picking winners. They should be identifying small companies, seeing that these companies are winners and putting everything they have into those winners so that they can develop them and spend their time developing companies that will do very well in the future. The Minister spoke about marketing and product. Marketing is a massive area because, if we have not got our marketing right, we cannot have our products right. We should look at the Irish Goods Council, revamp it, and get it involved basically in Irish production.

Another area where the Government could help is to reserve about 30 per cent of all State purchases for small firms. With regard to the long-term emphasis on teaching foreign languages in our primary and secondary schools, I am not saying we should train people to go abroad but that we are training them to become Europeans, to understand the languages and to be able to trade in them. The Minister said we should not have one faction here and another faction elsewhere and I agree totally. The Unfair Dismissals Act is a major barrier with its emphasis on the employee: it should be directed to the employer and the employee.

An area the Minister should be examining is the provision of staff for a special inquiry branch for the Revenue Commissioners. These people should be recruited locally where they would have the necessary knowledge of the small industries in their areas. At the present we are talking to a faceless person in the Revenue Commissioners Office. The Government should consider a real amnesty, to wipe the slate clean and to start afresh.

There are many accountants servicing small companies around the country that are in severe financial trouble and who owe the Revenue Commissioners millions of pounds. The Revenue Commissioners come along and say: "You owe us this amount of money and now the interest is half of what you owe us"— in some cases the interest is exactly the same as the amount owed. These companies have no ability to pay the money and they will go out of business. The Minister should ask the accountancy companies around the country to second these accountants for one day per month to come together and examine these companies to see if they can pay their arrears and still trade. People owe so much money now and there is no way that they can pay it. The only way out of this is for them to go into liquidation or out of business. These expert people who have no axe to grind could examine each company, interview the directors and the board and see from their cash flow projections if they are in a position to pay this money. Perhaps they could waive the interest. It is better to get some money than not to get any money; it is better to have employees who will always be there.

I know of one company who owe £100,000 and they have 20 employees. The Revenue Commissioners say this money has to be paid, plus the interest, which is another £70,000. There is no way that company can afford to pay this money and the only alternative they have is to go out of business. The result is that the Revenue Commissioners will lose and the employees will lose everything. If the Minister had somebody to go into a company who owe money and say "forget about the interest" and write down the debt to a reasonable amount the company can pay because of their orders and so on they could continue in business and be in a position to pay their debts in the future.

How would the competitors of that company who have been paying all their taxes on time react to that? Would the Senator make a distinction between the company's own taxes, such as corporation tax, and money like PAYE and VAT which the company are only collecting from other people as an agent?

Yes, I would. The reason is they have used the money because the banks have put a ceiling on their payments. They have returned the cheques that were due to the Revenue Commissioners. It was a case of paying the Revenue Commissioners or continuing trading and pay the money owing to the suppliers. The banks decided which course of action was to be taken. I agree with what the Minister says but overall it is better that a company should stay in business. There is a reason for not doing anything and there is a perfectly logical reason why the Minister should adopt that policy. The reason he should not adopt that policy is that the company will go out of business. If he adopts the policy I mentioned that small company could develop into a big one.

The Minister might consider issuing a trading licence to companies so that if they do not pay their VAT and PAYE they will not get a licence and if they cannot obtain a trading licence then they cannot operate. I am involved in a small company of accountants and I have yet to get a communication from the Revenue Commissioners for money that is owed, yet if I owe £10 to a publishing company, they will be on the telephone every week hounding me for that money. In all cases the Revenue Commissioners are forgotten about and companies go further and further into debt.

That is true.

There are many areas I should like to cover. I agree with what the Minister said in his speech. It is seldom I praise Ministers but we are fortunate to have Deputy John Bruton in the Department of Finance. The Minister's attitude to small business, to saving and to the production sector is second to none. It is a pity his ideas do not perlocate down the line. They do not get to where they should and people do not go along with him and create a structure in business. The Minister has identified the problem but we have all got to be together to solve it. We have to work together in order to enjoy together but we cannot do this unless we all come together. The package of incentives that are given out are second to none.

I agree with the Minister's whole attitude to business, and particularly to the small business. The future of the country is in small businesses. We should have a positive attitude like he has and that should percolate from him down through his Department. The officials do not always get the message through. What the Minister is saying should be conveyed to all sections of the community. Then we would have a more positive attitude to business and to employment as a whole.

I congratulate the Minister on the way he has spoken about the social aspect and the effect on the poor. When I started work in the company for whom I work there were many poor people working there, cleaners and so on, and they all felt part of the firm. When we talk about shareholding and share diversification, we talk about not only the rich, but a combination of the rich and the poor. This is a positive attitude and I am glad that the Minister mentioned it.

I support this motion which has given us food for thought. In his speech the Minister has given great encouragement to many people. He reminded them of the facilities and the provisions that are available to encourage them to invest in their own future, in their own job place and in the economy of the nation as a whole. For some time the papers and the media in general seem to be saying that we are in a state of malaise, that people seem to grope around almost without hope. Yet, as the Minister has so clearly pointed out, more and more people are availing of the provisions of this year's Finance Act which are of substantial financial benefit to them.

During the past few months many people raised the issue of the DIRT under very many headings. Most people seem to forget that this is not just an Irish taxation provision. It has been operating in Northern Ireland and in the UK for a decade or more. There is no guarantee that if people shove their few shillings from one jurisdiction to another while they may escape paying tax here they will not be caught elsewhere.

I share Senator Conway's view that the Minister has made an enormous contribution in encouraging companies, especially small companies and small family concerns, to develop. The small family company, with the help of these provisions, will become more and more an extended family manufacturing firm. I come from the midlands which does not have a great industrial base. Unfortunately the industrial base in the county of Laois is less than what it was in 1924, if we are to look at the ordinary statistics of people in manufacturing industry. That is unfortunate and it is one of the reasons those in public life try to put forward the claims of our area for additional industrial investment. We have suffered since 1957, since the late Gerard Sweetman brought in the industrial export tax relief and the Industrial Investment Act. If people wishing to establish industries move 20 or 30 miles west across the Shannon, they are into a 60 per cent or 70 per cent grant situation.

That dates back to Arthur Balfour and the Congested Districts Board.

With respect, the point I was making was that, if people are content with the lower rate of grant aid, they just stay near the eastern ports, near Dublin or Kildare. That is one of the reasons we have such a low base in the midlands. In our experience the firms who give the greatest service and who are very conscious of the living and working conditions and the future of their workforce are the old traditional family firms. A big multinational firm who move in have absolutely no sentiment. They are in business with the sole idea of making as much profit as possible. They have no allegiance to old brand names, to areas, or to traditions. That militates against the small areas in particular.

I passionately believe that this country must have a future and that the people and the workers, skilled and semi-skilled, given the incentives and given the opportunities, will be dedicated to their firms and their place of work. There is a question of leadership involved. Last week I accompanied the Minister for Industry and Commerce on a tour of factories in County Offaly, in Birr and Tullamore. I was very impressed by the high standards and the happy workforces we met, which I had not expected. This reflects great credit on the individual manufacturing companies and on the management and staff in all of those six factories we visited. I wish them continued success.

There are a number of points I should like to make on this. The Minister has been very clearly encouraging workers to invest in their companies. I support that 100 per cent. There is also the question of the lame dogs and the people who find themselves in great difficulty. The Minister for Finance and the Revenue Commissioners should take equity or some shares in concerns that may be in difficulty. If a firm owes the Revenue Commissioners either VAT or taxes, why do not the Revenue Commissioners, through the IDA or some other semi-State organisation, take equity in that firm to that value, and give the firm a chance rather than close it down.

That is what Fóir Teoranta are there for.

There is no tie-up between Fóir Teoranta and the Revenue Commissioners.

Both are owned by the Government.

Both are owned by the Government but they certainly do not act like brothers.

They work together as far as possible to help companies out. Fóir Teoranta will help a company when they are in difficulty and sometimes that will involve a deal with the Revenue Commissioners in regard to arrears and so on.

I am not saying these semi-State organisations are not playing their role and doing what they can. Nevertheless, in a county with a very small industrial force — because there are so few we know them all — one can count on one hand — the number of firms where these agencies have moved in and, for one reason or another in the way they do their sums, have not found it possible to support those firms. A number of firms have just gone out of business. In so far as small family industries are concerned, there should be a greater percentage of risk capital. By and large the IDA have done a marvellous job. The number of failures is proportionately very small. People tend to talk about the larger concerns which have not succeeded. There should be a greater risk investment where small enterpreneurs are involved. If we are to widen our industrial base we should be prepared to give a fairer crack of the whip to the ordinary Irish man down the street who has an idea and gets a few pounds together.

May I make a point? The Senator is talking about companies who get into difficulties. If companies take in shareholders from outside, as this tax incentive provides, they are less likely to get into the difficulties the Senator is talking about. That is the time to deal with the problem, not when they are on their death bed.

I accept that, but the Minister should also give the lead to a greater extent by having his own agencies do exactly what he is prescribing for the ordinary worker. Nevertheless, the Minister's speech is one that we can study. It certainly gives a tremendous boost to people who, for one reason or another, do not see the sunny side of the development this year.

The Minister told us that ten companies received £1.5 million in investment in 1984-1985. This year he anticipates that 150 companies will receive something like £15 million under this scheme. That is a great boost and it is a great act of faith on the part of the Minister for Finance who has brought in this scheme. I know from the very dramatic growth rate in the take-up of the provisions and of the incentives offered that this scheme will play a significant part in revitalising many industries.

I hope the Minister will continue to place his hope and trust to a greater extent in the small private sector to provide the kind of environment that will sustain very many more jobs in the manufacturing and service industries. As far as exports are concerned, while transportation amounts to something like 17 per cent or 18 per cent of our GNP, it is unfortunate that the EC has not addressed this problem. This country needs a proper transport policy which would take account of the fact that we are so far removed from the profitable markets in central Europe. I hope when he wears the European hat he wears from time to time, the Minister will press for a meaningful transport policy. It was one of the few headings included in the original Treaty of Rome almost 30 years ago.

I compliment the Minister on his foresight in nuturing this scheme in which I have great faith and which I am sure will provide the job opportunities that are so badly needed in the years ahead.

Debate adjourned.