Finance Bill, 1990 [ Certified Money Bill]: Second Stage.

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

The purpose of this Finance Bill is to give statutory effect to the taxation changes announced or foreshadowed in this year's budget. It also provides for a number of other important changes which I have drawn up since the budget.

The Bill is a lengthy and complex one. Unfortunately, there is no way of avoiding this, given the complexity to the matters with which the Bill is dealing. I hope, however, that this House's discussion on the Bill will be facilitated by the revised Explanatory Memorandum which I have now circulated and which reflects the changes made during the passage of the Bill through Dail Eireann.

The Bill contains a number of very fundamental reforms to our tax system. These build on the changes I introduced last year. The essential objective is to bring us further down the road towards a fairer and more efficient tax system and to help develop the economy by encouraging more growth and more jobs. The key changes are: the reduction in the standard rate of income tax to 30 per cent and the reduction in the top rate to 53 per cent; the reduction in the standard rate of corporation tax to 40 per cent and the associated measures to increase the corporation tax yield; the extension of the 10 per cent rate for manufacturing industry to the year 2010 so as to create greater certainty for investment planning and job creation; the extension of the urban renewal incentive package to 1993; the reduction in the standard VAT rate which has already taken effect and is helping to reduce inflation; changes in stamp duties to further encourage the development of the financial services sector; the abolition of the 60 per cent rate of capital gains tax which has been an inhibiting factor on investment; and the introduction of the current year basis of assessment for the self-employed as part of the development of the self-assessment system. Before outlining the significant provisions of the Bill in more detail, I would like to take this opportunity to review briefly the present economic position and prospects which provide the overall framework within which the measures in the Bill must be assessed.

The primary goals of Government policy are to maximise economic growth and sustainable job-creation and to achieve greater social equity. By implementing the right policies we have achieved a major turnaround in economic fortunes over the last three years. Gross National Product has risen by an average of 3½ per cent annually over this period. Real benefits are coming from the improvement in economic performance.

First, more people are at work. The most recent Labour Force Survey confirms that some 30,000 extra jobs emerged in the private sector, excluding agriculture, in the two years to April, 1989. More recent indicators suggest that employment is continuing to expand.

Second, people at work are better off. While we have had moderate pay increases under theProgramme for National Recovery, there have been major income tax reliefs and low inflation. This combination of developments has been putting real money and purchasing power into workers' pockets —in contrast with the situation for most of the 1980s.

Thirdly, those outside the workforce —whether retired or unemployed—are also sharing in economic advance. Growth has made it possible to provide real increases for welfare recipients. This is only as it should be. It would be a poor form of progress if the disadvantaged were to be denied a fair share.

Finally, and most importantly, the foundation for further economic and social advance is being laid.

The overriding concern of the Government remains the creation of additional jobs. More jobs would cure many of our social as well as economic ills. Unemployment is root cause of poverty. While progress has been made on this front, I readily admit that it is not adequate and that much more remains to be done. We can, however, feel encouraged by what has been achieved in a short space of time.

Competitiveness is a factor of vital importance in all of this. It is essential that we maintain the improvement in our relative costs over the past few years. Indeed, with our employment needs we should think in terms of progressively improving our competitiveness. The aim must be to price more people back into work.

The presentProgramme for National Recovery represents an eminently sensible arrangement as well as a potent force for progress. It protected living standards of workers through a combination of pay increases geared to give us an edge on our competitors and reliefs in personal taxation which enhanced real take-home pay. We have got away from the ridiculous situation of former years where we had large money increases, which undermined our competitiveness but proved worthless to the majority of employees when inflation and taxation had taken their toll. Worst of all, these increases pushed a minority right out of work.

The formula in the present programme can be a model for the future. The wider terms of any new agreement must be consistent with our growth needs. It must deliver both stability and competitiveness. Our exchange rate policy is a virtual guarantee of low inflation over the medium term but we must recognise and live up to the disciplines which this policy entails. In this year's budget, the Government have made a substantial contribution to lower inflation. We are on course for a significant reduction in inflation — to a little over 3 per cent in 1990 as a whole, with the annual rate slowing down to about 2½ per cent by the end of the year.

I am confident that, despite some moderation in growth internationally and in particular the weakening in the UK, we can again achieve this year a growth performance on a par with that of the past three years. GNP should continue to expand, by 3½ per cent or better. With inflation falling — and provided we let this carry through into our costs and our prices — we can anticipate further solid export growth. Rising investment and exports, and the capacity they offer for higher personal consumption, should all have a strong positive effect on jobs. A net increase in non-agricultural employment of 16,000 can be achieved this year.

While international trends inevitably affect us, the Government are doing everything possible to promote lower interest rates. Domestic market conditions have shown considerable improvement in recent months, as evidenced by the recovery of the official external reserves from £2,282 million at end-February to £2,458 million at end-March with further improvement since. Interbank interest rates have also eased considerably from their peak levels during March. Against this background, the Central Bank is more optimistic about the general trend of domestic interest rates than was the case last February when it issued its 1990 Monetary Policy Statement.

I am not alone in the belief that we are on the right track, policy-wise, for the longer term. Last week's update by the ESRI of their July 1989 Medium-Term Review suggests that Ireland could achieve GNP growth of near enough to 4 per cent annually, through the 1990s. While I may not subscribe to all of their expectations, their broad thrust seems sound, but they also clearly indicate that this potential progress, while plausible, is conditional. The authors do not see this scenario as enabling soft options to be taken. To cut further into the overhang of Government debt, and to reduce the drag on economic activity which the debt poses, their assessment is that fiscal policy over the medium term will have to be tight. Despite economic growth at almost 4 per cent each year over the period, tax cuts or increases in public services will, in view of the ESRI, have to be on a more limited scale than this year. This is a clear message that despite the progress to date we are in no sense out of the woods in so far as the public finances are concerned.

They also indicate that even this rate of advance, if sustained for a decade, will not resolve all our problems. Encouragingly, they see unemployment and emigration declining in the next few years. However, they see both threatening to rise again from mid-decade. This is because the ESRI anticipate that growth will prompt demand for pay increases of an order which, in turn, will slow expansion in the trading sector. Unfortunately, this has too often been our experience in the past. We must not let it happen again.

There is of course a significant element of trade-off between income and jobs. As a society, we have to make choices. If we wish, we can give overriding priority to expanding employment — which is the best means for tackling poverty, and the only answer to emigration — but this will involve considerable restraint on the incomes front, or we can regard increases in living standards for those at work as the higher priority but this would, inescapably, curtail the prospects of those disadvantaged through unemployment.

In summary, I welcome the ESRI update of its view of medium term prospects for two main reasons. First, because it confirms the appropriateness of the broad economic strategy which we have adopted and, secondly, because it puts the key choices we must face in the future firmly on the agenda for discussion. That can only be in all our best interests.

A key ingredient in our improved economic performance has been the strict fiscal stance adopted by the Government over the past three years. I am pleased to report to the Seanad that the Exchequer returns to end-April indicate that the results to date this year are running broadly in line with budget expectations. The Government will continue to monitor the trends closely over the remainder of the year so as to ensure that the budget targets will be achieved.

I would emphasise to Senators that the Government are fully committed to reducing further both the level of annual borrowing and the debt/GNP ratio. Specifically, the aim now is to achieve broad balance on the current budget by 1993. By the same deadline, it is intended also to maintain a significant rate of progress in reducing the debt/GNP ratio towards 100 per cent, down from its end-1989 level of 121 per cent. Our medium-term objectives are far from being soft options. They will require that tight control is maintained on current expenditure and that borrowing for investment purposes continues to be subject to rigorous scrutiny. It is all about difficult choices and priorities but there is no going back to an era of fiscal laxity. Any attempt to do so would be self-defeating since it would undermine the basis on which all our progress has been secured.

As I have already indicated, tax reform has a major part to play in encouraging initiative and promoting more jobs. Last year was a watershed. I was able then to begin the process of reducing our high rates of personal taxation. This year's Finance Bill continues the process of major tax reform notably through the significant new reductions in personal income tax for all taxpayers to which I have referred; major further development of the self-assessment system by placing self-employed taxpayers on a current year basis; further significant reform of the corporation tax system; initial steps to reduce our indirect taxes so as to help lower inflation and to bring our rates closer to European levels in preparation for 1992, and new steps as part of the Government's determined efforts to curb tax avoidance and ensure greater equity in the system. Tax reform is, and will continue to be, a major priority with the Government.

I would now like to turn to describe in more detail the more significant elements of the Bill.

Chapter I of the Bill deals with the important income tax changes. I am pleased that we have been able to make further progress this year in reducing the burden of income tax.

I have again extended the standard rate band by £400 for a single person and £800 for a married couple, in order to keep at 63 per cent the proportion of taxpayers on the standard rate. I have again reduced the standard rate itself to 30 per cent and the top rate to 53 per cent. I have also further improved the exemption limits which are of particular benefit to those on low incomes: I have increased the general exemption limit for a single person by £250 and for a married couple by £500 and I have increased to £300 the special child addition to the exemption limits which I introduced last year. I addition, I have reduced to 53 per cent the marginal relief rate which applies where income does not greatly exceed the relevant exemption limit.

The reduction in tax rates — which means that five percentage points have been taken off both the standard and top rates over the past two years — will be of benefit to all taxpayers.

The increases in exemption limits will be of a substantial benefit to low-paid taxpayers generally, not just low-income PAYE workers but also small farmers and low-income self-employed taxpayers. Overall, the package of measures for the low-paid should exempt an estimated 31,000 taxpayers with 58,000 children from tax altogether, while a further 65,000 taxpayers with 123,000 children will benefit from marginal relief. The Revenue Commissioners, at my request, have taken practical measures to bring these changes to the notice of low-paid taxpayers: they have conducted a publicity campaign about them, and have also sent an information leaflet, incorporating a short application form, with the tax-free allowance certificates issued to low-paid taxpayers in recent months. I will be circulating to Members of both Houses of the Oireachtas as soon as possible leaflets giving details of the income tax exemption scheme, so that Members can send them to low-income taxpayers who should be benefiting from the scheme.

Overall, the income tax changes introduced in recent years have, on a cumulative basis, cost over £800 million, compared with the £225 million commitment contained in the 1987Programme for National Recovery.

The Government are, of course, committed to further progress on income tax by way of further reducing the standard rate to 25 per cent by 1993 and by moving towards a single higher rate of tax.

In addition to the main changes in income tax, Chapter I of the Bill contains a number of other provisions. There are three new provisions which were added to the Bill in the course of the discussion in the Dáil. Section 4 doubles, from £2,500 to £5,000 the allowance granted to a taxpayer where he or his wife is totally incapacitated and he employs someone to take care of the incapacitated person. Section 5 exempts from income tax the investment income arising to a totally and permanently incapacitated taxpayer from a court award or out-of-court settlement of his personal injury case. While the actual awards or settlements themselves in such cases are already tax-free, the investment income arising from them has been liable to income tax up to now; this section will exempt such income from now on. The exemption applies where the investment income is the sole or main income of the taxpayer; in other words, where he or she is mainly or completely dependent on such income. Section 7 exempts from income tax, payments made by the Haemophiliacs HIV Trust. Senators will be aware of the sort of circumstances which these sections are designed to deal with and I am sure they will receive wholehearted support.

Section 6 deals with life assurance relief. Senators will recall that last year I restricted this relief to 80 per cent of the amount which previously qualified as a means of obtaining a small contribution from the income tax code to the substantial measures of relief provided by the 1989 budget. This year, I am reducing this figure further to 50 per cent. This restriction, which will yield about £13 million in the 1990-91 tax year, must be seen in the context of the overall budget package of income tax measures. Even taking account of the restriction of life assurance relief, these measures will cost in total £200 million in the current tax year. The restriction of life assurance relief also reduces distortion in financial investment.

Section 10 extends the business expansion scheme to the construction and leasing of advance factories in areas which are in particular need of development and of the creation of employment opportunities and where the construction is promoted by a local community group.

Section 10 has two other purposes. It removes an anomaly under which the BES applies to certain international services in respect of which an IDA employment grant has been made but does not include such services for which the financial assistance was received from the Shannon Free Airport Industrial Development Company or from Údarás na Gaeltachta. The section ensures as well that activities being retained in the 10 per cent corporation tax scheme by section 41 of the Bill are also retained in the business expansion scheme.

Of course, while anxious that the business expansion scheme should be available in respect of these important economic activities, I am conscious that the scheme has been the subject of substantial abuse in recent months, despite the measure I took last year to try to preserve the scheme as a scheme for providing real risk capital. Accordingly, I am taking new measures in section 34 of the Bill. Under this provision BES relief will not be available where arrangements exist to guarantee the investor's share-holding regardless of whether or not the company he has invested in is successful. BES relief will not be available where an arrangement exists which can reasonably be considered to eliminate the risk that shareholders might be unable to recover an agreed amount in respect of their investment within an agreed period. In other words, no longer will guaranteed investments qualify for BES relief. This section also counters similar type tax avoidance investment schemes in other areas which were devised last year.

Section 11 is also concerned with the BES, and is aimed at preventing the possibility of investors getting interest relief on loans taken out by BES shares, as well as the BES relief itself on the capital invested under the scheme. Such interest relief could be available where the investor is an employee or director of the BES company. However, I see no reason why an investor, having obtained tax relief on the capital he has invested through the BES, should also be able to obtain tax relief on the interest he pays on a loan taken out to enable him to acquire the BES shares. In short, he should not be able to get relief on both the capital and the interest.

Chapter II of the Bill gives effect to the change in the basis of assessment for self-employed taxpayers. This represents an important new step in the development of the self assessment system which has proved such a success since it was introduced in 1988.

As a result of these provisions self-employed taxpayers will, with effect from the present tax year, have their liability for tax based on the profits of the current rather than the preceding year. This major change is necessary if the momentum of progress under self-assessment is to be maintained. A pre-requisite for further progress is that all sources of income — trading income, investment income and so on — should be assessed for tax on the same basis: at present some income is assessed on a preceding year basis and other income is assessed on a current year basis. This gives rise to considerable confusion and, in effect, necessitates the submission of two years' returns before the liability for a particular year can be finalised.

The switch to a current year basis of assessment for all income is, therefore, the next logical step in the progress towards a full obligatory self-assessment system where taxpayers would be required, in due course, to compute and pay their tax themselves. The switch will bring greater certainty and efficiency to the system and in particular will result in: a lower compliance burden for taxpayers and their advisers; better service from tax offices and the intensified pursuit of tax evasion through better use of resources.

Details of the legislative arrangements for the new assessment regime are set out in the explanatory memorandum to the Bill. The main features are as follows: For the 1990-91 and subsequent tax years all income will be charged to tax on the basis of the income in the year of assessment. In the case of trading profits of the self-employed, which are computed by reference to annual accounts, the charge to tax will, as I indicated previously, be based on the profits of the accounting period ending in the current tax year. Preliminary tax will now be due on 1 November in the tax year and, to avoid an interest charge for underpayments, the taxpayer must pay not less than 90 per cent of the current year ultimate liability or not less than 100 per cent of the preceding year's actual tax liability. As a result of the switch to a current year basis this year, accounting periods ending in 1989-90 will not now form the basis for an assessment. A transitional measure is included so as to reduce any hardship that might arise, as a result of a significant fluctuation in income between 1989-90 and 1990-91. The Bill provides that where the profits for 1990-91 exceed the profits for 1989-90 by 50 per cent or more, the assessment for 1990-91 will be reduced to the average profits of the two periods. Marginal relief will be available where the profit increase is between 25 and 50 per cent. Farmers will, of course, continue to have their general averaging option available. Transitional provisions are also included to deal with the treatment of capital allowances in the changeover year 1990-91 in the case of unincorporated business. Notwithstanding that 1989-90 will not form a basis for an assessment, a return of income for the period will still be required. This is necessary to settle outstanding matters relating to 1989-90 tax liability and to ensure that no one is taking unfair advantage of the changeover to transfer income into the period which would not form a basis of assessment. The tax return filing date is being changed from 31 December in the year of assessment to 31 January in the year following the year of assessment. Provision is made to retain the existing arrangements as regards crediting of tax deducted in the preceding year and the operation of the interim refund procedures under the scheme of withholding tax on professional fees. There are certain other mainly technical consequential provisions.

While these measures will bring the tax treatment of the self-employed closer to that of PAYE taxpayers, I would emphasise that important differences still remain and the chage does not provide any justification for extending the PAYE allowance to the taxpayers affected.

I would like to underline once again the importance I attach to this change in our continuing efforts to have a simpler and more effective tax system. Much has been done in this regard in recent years and we can now go further. The proposals were, in general, well received in the Dáil and I commend them to this House. A simpler and more efficient tax system will bring considerable benefits to all concerned.

Sections 30 and 31 in Chapter III give effect to the budget decision to extend, from 31 May 1991 to 31 May 1993, the time limit for incurring expenditure which qualifies for the urban renewal tax reliefs in the designated areas. This measure will enable many pipeline projects to be completed and will give a major boost to the pace of development and renewal in those areas. In tandem with this extension, sections 32 and 33 are directed at removing the opportunity for certain abuses and unintended uses of these urban renewal tax incentives.

The Bill continues the process of reform of the corporation tax system with a significant new package of measures. The aims are: to broaden the corporation tax base; to encourage more employment — especially in the services sector, which is such an important source of new jobs — by reducing the standard rate of corporation tax, and to refine and extend certain important incentives. The changes are in line with the approach of the Commission on Taxation, which recommended a lower tax rate on a wider tax base. They are also in line with international trends.

Turning to the individual elements, the reduction in accelerated capital allowances which is provided for in Chapter VIII will remove the excessive bias which has existed in the tax system in favour of capital intensity rather than extra jobs. The current level of 50 per cent accelerated capital allowances will be maintained up to 1 April 1991 and will then be reduced to 25 per cent for a further year, before being eliminated on 1 April 1992. This gives adequate notice of the change to taxpayers and will enable them to plan accordingly. I would point out that the normal annual capital allowances are not affected and can be applied to the balance of any expenditure not written off under the accelerated allowances. As was the case in 1988, the 100 per cent accelerated capital allowances are being maintained for qualifying service companies in the Custom House Docks area, Shannon customs-free airport and in the tax incentives package for the urban renewal areas.

Specific provision is being made to cater for two categories of pipeline projects. These are projects which are approved for grant aid by the industrial development agencies on or before 31 December 1990, and hotel and other tourist accommodation projects where the construction contract is signed before the same date and where Bord Fáilte registration is subsequently obtained. The current 50 per cent level of accelerated allowances will continue to be available to these pipeline projects.

Section 46 in Chapter IV implements the budget proposal to reduce the volume of domestic-sourced section 84 loans. The effect of this is to disallow all new loans of this type from budget day except where the total loan volume of the lender does not exceed 75 per cent of his loan volume as of 12 April last. I have introduced a special transitional arrangement for certain loans for new manufacturing projects which were under negotiation with the industrial promotion agencies as of budget day. This will enable up to £170 million to be given in section 84 loans to such projects in the period 31 January 1990 to 31 December 1991 where the relevant qualifying conditions are met.

Another important change is the restriction in section 41 of the definition of manufacturing for the purposes of the special 10 per cent tax rate. As Senators will no doubt recall, I announced in my Budget Statement that I was concerned about the fact that the 10 per cent rate for manufacturing now applies to a wider range of activities than was originally intended when it was introduced in 1980. As a result of a series of court and appeal commissioner decisions within the last ten years, the concept of manufacturing has now been extended well beyond the ordinary everyday meaning of the term so as to include activities which are not really manufacturing operations at all. This is obviously quite costly to the Exchequer because the profits in question are charged to tax at only 10 per cent instead of 43 per cent. This situation has to be remedied and section 41 accordingly introduces new provisions to restrict the definition of manufacturing to what was originally envisaged. These provisions will achieve their effect by excluding certain categories of activities from the scope of the 10 per cent rate.

However, I would like to emphasise that the changes will not impact on genuine manufacturing activities. The vast bulk of activities which now qualify for the 10 per cent rate for manufacturing will not be affected. In order to provide further reassurance on this point, I introduced a number of drafting amendments on Committee Stage in the Dáil. These amendments made clear the intention that for an activity to be excluded from the definition of manufacturing, it must primarily fall into one of the five excluded categories specified in the section. In addition, the industrial buildings test was deleted because it had given rise to considerable uncertainties about the status of some genuine manufacturing activities. Also, fish-processing and certain computer equipment activities are not specifically mentioned as qualifying for the 10 per cent rate. These amendments give greater clarity regarding the application of the section without undermining the basic objective.

All these provisions — in respect of accelerated capital allowances, section 84 lending and the qualifying manufacturing activities for the purposes of the 10 per cent rate — will broaden the tax base.

poration tax package is the reduction in the standard rate of corporation tax from 43 per cent to 40 per cent. This will take effect from 1 April 1991 and will mean that in the period since 1988 the rate will have been reduced by 10 percentage points.

As I mentioned earlier, a number of specially targeted incentives are being extended or introduced. The major incentive being extended is the special 10 per cent rate for manufacturing which was scheduled to expire on 31 December 1990. The termination date is now being extended by ten years up to 31 December 2010. This special low rate of tax is the key incentive for attracting mobile international manufacturing investment, which has provided very large numbers of new jobs throughout the country. The fact that the incentive is now guaranteed for the next 20 years will be a tremendous help to the IDA and the other industrial promotion agencies in continuing to attract vital new foreign manufacturing investment. The decision to extend the date follows a study by an international consultancy group which compared Ireland's competitiveness for internationally mobile investments with that of other regions in the EC. At a time of increasing competition for investment funds from all over Europe it is vital that we have an effective incentive package.

The business community was invited in my 1989 budget speech to launch an initiative aimed at creating jobs and alleviating poverty in areas of particular need. The business sector has responded to that invitation by creating a trust for community initiatives, which will receive corporate donations and use these to assist suitable projects. Section 45 provides for tax relief on donations made to the trust in the period 20 April 1990 to 31 March 1991. This will encourage companies to contribute to the trust, and will enable the trust's work to commence at an early date.

The idea here is that in blackspots, in very poor areas or areas of diminishing economic activity, companies could make donations into a trust fund that will be allowed as a write-off against tax at the corporate tax rate applicable and at the same time be non-refundable to the companies. It would serve as a revolving fund, where they will provide and seve capital for projects that are short of it and cannot get off the ground, thus providing a back-up to the enterpreneurial scheme for new projects I introduced in last year's budget or indeed for any community-based project that would increase economic activity and help in alleviating poverty and deprivation.

The special incentives being introduced include the extension of the 10 per cent rate of corporation tax for shipping to offshore supply vessels which are engaged in taking supplies and personnel to and from drilling rigs and production platforms at sea. This measure will assist Irish vessels to compete successfully in this area and to develop their potential for further business in the spin-off expenditure associated with exploration activity offshore. We have not got any slice of the whole North Sea servicing area. We should be in a position to do a particularly good job on our own and this gives an opportunity to the very small number of Irish-owned companies to put them in a position to compete for a slice of that business.

A brand new incentive is being introduced under section 39 to encourage scheduled mineral exploration activity. In future, Irish prospecting companies will be able to set off their exploration expenditure in Ireland against their other income or gains with the exception of income which is subject to deposit interest retention tax. The ten year time limit which formerly applied to the carrying forward of abortive exploration expenditure is also being removed. These changes in the taxation treatment of exploration expenditure of scheduled minerals will help to boost the current momentum in that sector.

Chapter IX of Part I of the Bill deals with capital gains tax. In addition to providing for the abolition of the 60 per cent rate, I am making further amendments in relation to certain areas of the tax. Included among these are provisions which extend the relief available on disposals of certain business assets by individuals aged 55 years or over to disposals of shares in holding companies of trading groups.

Parts II and III of the Bill implement the budget reductions in excise duty and VAT, as well as certain technical changes aimed especially at bringing our law more into line with European requirements. The reduction of two percentage points in the standard rate of VAT from 25 to 23 per cent will make a significant contribution to lower inflation this year.

I am postponing, at no cost to the Exchequer, the introduction of VAT on telephones until 1 January next to allow Telecom Éireann time to complete the installation of their new billing system. There will be no additional cost to the consumer. It is purely an administrative function that has to be carried out by Telecom Éireann and we are facilitating an amendment in this situation.

All the measures I am taking are consistent with what is required of us in the context of 1992 tax approximation. While developments on this front are moving slowly, progress is being made, especially in regard to the elaboration of the VAT system to be put in place when frontier controls are taken away. Detailed proposals as to how the new system will work are now emerging from the Commission and the Irish Presidency intend to commence work on these as soon as they have been presented formally to the Council of Finance Ministers at our next meeting in June. It is important that early decisions are taken so that businesses have time to plan for the major changes ahead.

I would also mention specifically the question of increasing the VAT on ESB up to 10 per cent, again at no cost to the consumer, as I said at budget time.

The basic questions of the precise rates of VAT and excise to apply after 1992 and the goods which will qualify for the different rates of VAT have still to be settled. The timetable set last year does not envisage decisions in these sensitive areas until next year but we are trying to make as much progress as possible during our Presidency.

By reducing our standard VAT rate this year we have shown that we are willing to play our part in advancing tax approximation, despite the very serious financial implications for this country. Following the request which I made last year, the EC Commission are at present studying our problems. I hope that this study, which I expect to be completed shortly, will help to indicate solutions to some of our difficulties in this area.

Part IV of the Bill deals with stamp duty. Sections 108 and 109 deal with two stamp duty levies. The bank levy is being renewed for 1990 and will yield £36 million, the same amount as last year. The 3 per cent levy on investment in life assurance linked funds is being extended to investment in unit trusts and similar investment funds, so as to remove a tax distortion between these two categories of investment media.

What is happening at the moment is that unit trust funds were being marketed into this country out of Luxembourg. They enjoyed a competitive edge here and would seriously damage the sale of our own unit-linked funds. This is basically a balancing factor. I, therefore, introduced amendments in Part IV of this Bill which rationalised rate bands under various headings. These changes would clarify and simplify the way stamp duties are applied.

The Stamp Duty Act is almost 100 years in existence and the types and methods of transactions, especially in the financial services sector, have changed over the years. I have, therefore, introduced amendments in Part IV of the Bill which rationalise the rates bands under various headings. These changes will clarify and simplify the way stamp duties are applied.

I have also made provision for an exemption from companies capital duty for collective investment undertakings which come under the UCITs directive. This measure is at section 115.

As I announced in my budget speech, provision has been made, at section 112, for the charging of full stamp duty on certain expensive new houses which could previously avoid duty. This measure will not become operative until 1 September next in order that persons who signed contracts prior to my announcement may complete their transactions. Basically, what is involved there is two separate contracts — one for the site and one for the house — and you pay stamp duty on the site and nothing else. It was an abuse of the stamp duty and was certainly totally inequitable when compared with the sale of a second-hand house in the same bracket or category where stamp duty would have to be paid at the full rate.

Part V of the Bill deals with residential property tax. In addition to a number of technical amendments which will facilitate self-assessment of this tax, I have made provision at section 125 for the restoration of child relief in respect of the tax. Which had been taken away some years ago.

Part VI of the Bill deals with capital acquisitions tax. Since capital acquisitions tax was introduced in 1976 it has undergone a number of amendments which impinge on the exposure to this tax. This exposure arises roughly once every generation and unless provision is made to meet it the resources of a taxpayer can be diminished. Special insurance policies can be taken out to cover inheritance tax liabilities. The amendment at section 130 of this Bill will enhance their popularity. Section 127 of the Bill provides for an exemption from tax for gifts taken by one spouse from the other.

The Bill also provides for the indexation of the capital acquisition tax thresholds which have remained unchanged since 1978. These thresholds will, in future, be indexed in value each year and this should give useful relief in certain cases. The revised thresholds will apply to all gifts and inheritances taken on or after 1 january 1990.

In this opening address I have concentrated on the key provisions of the Bill as well as outlining general Government policy on the economy and on tax reform. The Bill also contains additional measures to counter tax avoidance as well as other provisions of a mainly technical nature and these items can be discussed on Committee Stage.

I commend the Bill to the House.

On the Order of Business it was proposed that time limits should apply. They are that spokespersons for the individual groupings will have 30 minutes each and all other Members will have 15 minutes each. I call Senator Doyle.

I would personally like to thank the Minister for his comprehensive address to the House here this morning on the Finance Bill, 1990. As he pointed out to us, this is the annual ritual whereby the Houses of the Oireachtas give statutory effect to any taxation changes for the year in question, particularly those foreshadowed in the budget of the year in question, in this case this year's budget.

There are many points I welcome in the Bill. All of us must welcome the reduction in VAT, the reduction in income tax, rationalisation in taxation areas and we welcome also the changes in section 84. I personally am very pleased with the trusts for community initiatives and I hope that industry now responds. We see some on-ground results from that, particularly in the more remote and isolated areas. I welcome very much the amendment introduced yesterday to section 5 — the income tax exemption for the permanently and totally disabled on the income accruing from their court awards and compensation generally. They must be welcomed. They are positive measures which will improve conditions and improve the situation for the different sectors.

Above everything else there is one question I, and my colleagues, would like to ask the Minister, and I hope the Minister will answer frankly and honestly. Why did you not try to balance the budget in 1990? Why this missed opportunity? Why wait until 1993? You are in a time of waning political consensus for further budgetary restrictions, for further belt tightening. We are now getting into an era of increased demand for spending when it will be generally harder for politicians, and for the Ministers for Finance of the day, to keep the rein on public expenditure. Over the last couple of Governments, helped by the very responsible role of Fine Gael in the Tallaght strategy, I think public opinion was conditioned to resolving our budgetary and debt problems to balancing the budget. We had managed to bring, albeit with some screaming and shouting in certain sectors, the vast bulk of the responsible public with us in what we were trying to do. I do not think we will be able to hold that line with them for too much longer. I would love to have seen — and the Fine Gael Party would love to have seen — this opportunity that you have now missed, grabbed, taken, balance our budget and, once and for all, get the very difficult problems we have had in terms of the budget behind us.

I cannot understand your reasoning and yourrationale in your response to that question over the last few months. When I read the views of the Governor of the Central Bank and the various other economic reviews and reports on the budget and on subsequent months, I see that they cannot understand either why you missed this great opportunity. Above all else that hangs over the Bill we are talking about today — it is the budget of the great missed opportunity, Minister, and it must hang around your neck.

That is what you think.

No, Minister. I know it and others, with far more experience in this area than I, also happen to concur and have offered their views. You had an over-reliance on buoyancy in your budgetary figures. This fact, combined with the very poor and what in fact are very disappointing first quarter Exchequer returns, must make us look again at what you are trying to achieve. I do not buy, Minister, your reference to the first quarter Exchequer returns. It was a nice bit of diplomacy and nicely worded. The fact is, if we are honest with one another, the first quarter Exchequer returns were extremely disappointing; and you recognised that fact to us and no amount of smooth talking will take away from it. With that, and with the buoyancy figures you included in the budget, there are serious questions to be asked as to how the targets are to be met this year. We only have to look at the recent reduction in sales in the used car sector, holiday sector, the reduction in new mortgages and so on and use these as indicators as to how your buoyancy figures will not be met in terms of Exchequer returns.

Minister, there is a lot yet to be added up and a lot of questions that we have to have answered by you. I hope, when you are replying to Second Stage, that with the overall sums of the budget you will be very frank and indicate exactly how you expect your targets to be met in all the different areas. I would appreciate if you would indicate what contingency measures you have when the targets are not met. You referred to that vaguely in your speech. You stated "The results to date this year are running broadly in line with budget expectations". Therein hides an awful lot, Minister —"broadly in line with budget expectations". You went on: "The Government will continue to monitor the trends closely over the remainder of the year to ensure that the budget targets will be achieved". Could the Minister tell us what he will do if they are not achieved? There is a feeling in the economic sector and in the financial sector that those targets will not be achieved. They are not my views. They are not my words. I am borrowing from the wise and the experienced when I quote that fact. Minister, what are your contingency measures when your targets fail to be met?

We have difficulty in this country in terms of competitiveness. One of the greatest contributors to this area are the present interest rates. Over the last 12 months or so we have had four different rises of interest rates on different occasions. We are out of line with the D-Mark, even though we are in the EMS. The cost of money is a crippling factor in terms of investment and in creating jobs. It is one of the major factors in preventing us becoming more competitive as we face the Europe of 1993.

Could the Minister tell us more about his new debt management office that he is going to have in the Department of Finance? Apparently we need legislation for it — or do we need legislation? I believe you have indicated that. But have we seen any sign of the draft legislation, or has there been any legislation circulated? When will we have this legislation? When will we have it enacted? If you are going to save £35 million, as you indicate, this year with that new debt management office we would want to be getting it into operation very quickly — we are half way through the year, June starts next week. What are your plans in this area? Could you please tell us exactly how and why £35 million can now be saved, whereas the expertise you have had in the office all along and the excellent, committed people you have had in the Department of Finance all along have not been able to save that to date? A lot needs to be explained in this area.

The Governor of the Central Bank is on record saying that your borrowing targets were too soft, so interest rates will have to remain high. Minister, not my words, I borrow from those whom I presume know what they are talking about. I do not pretend at all to have the experience of——

One minute ago you were talking about the interest rates being too high so——

The interest rates are so high because of your borrowing. The interest rates are high and cannot be reduced, we are being told by the financial pundits out there, because the borrowing targets are so soft. As long as your policy is wrong and as long as you have not held the policy that we had hoped you would have held, interest rates cannot come down. That is the view of those in the Central Bank and those in the area who, in fact, govern interest rates. They are not my views, Minister. I am just quoting what I have read extensively about. I am quoting the concerns of the industrial, commercial and general private sector in this area.

We know what a brake on economic activities generally high interest rates are. However it must be achieved, Minister — and you paid little attention to interest rates in your speech — I would like to know what your plans are to ensure that your policies are such that interest rates can be reduced and to remove this unnecessary brake on economic activity in our country.

The whole target of reducing the debt to GNP ratio apparently has to be looked at again. The Minister appears to have had a rethink on that, too. We all support the Minister in what has been the ambition of all concerned and serious politicians in both Houses, to get the debt-GNP ratio down to one as quickly as possible. One hundred per cent of GNP by the year 1993 is what the Minister has promised us in this area but, again this is considered too soft a target, another missed opportunity. We wait for the Minister's explanation on this. We need to be at 75 per cent — the Minister need not brief his colleagues until I am finished talking. I did not get a brief while he was talking. The Minister can brief his colleagues to reply to me later on when they get up to speak.

We do not need briefing.

Will the Senator tell that to the Minister?

It sounds so ridiculous. Will the Senator tell the House how she will raise the £2 billion in taxation to achieve the 75 per cent. That is what it amounts to.

The Minister has the experience to understand that he has the opportunity of a reply to Second Stage. Am I correct? The same procedures will hold today?

I will be here.

I will be here, too. There is no need to reply to me now. As I go along there will be a further opportunity——

Unfortunately the Senator appears to be looking for the answers now.

No, not really. I know the Minister is coming back to me.

Acting Chairman

Will the Senator please continue?

The Acting Chairman must know questions are a normal format in the House in addressing the Minister. We need a target of 75 per cent of GNP by 1993 and not the 100 per cent. We would like to hear the Minister's figures and his reasons why he has taken the soft option when we had political consensus. That political consensus may wane by 1993. Why did the Minister not run with the ball when the support was there to do it this year?

The Minister's figure for growth for 1990 was 4.5 per cent but even if we take a 3.5 to 4 per cent growth in GNP over the next few years, while maintaining the same level of Exchequer expenditure, that would achieve the Minister's target in 1993. If we maintain the same level of Exchequer expenditure, growth in GNP will achieve the Minister's target for 1993. The Minister is not adding anything to what we can naturally expect to happen. Again, a tragically missed opportunity. Fine Gael believe the Minister's target in this area to be unacceptably soft and we accuse him of missing this golden opportunity. In 1982 when Fine Gael-Labour Coalition took over Government, inflation was running at 21 per cent. When we left office in February 1987 the inflation rate was 5 per cent; a year later, with the Minister's predecessor in office, it was down to 3.5 per cent and under the present Minister's guidance this progress continued.

The whole benefit of the strong punt in relation to sterling has not been passed on to the consumer. Could we please, perhaps, have some of the secrets from the Cabinet table on this? Perhaps the Minister would let us into the secret why the Minister for Industry and Commerce is not being even more radical. He stepped in last autumn and, after many months of consumer resistance and consumer outcry, and he questioned in certain sectors but we still have appalling problems. The time of response and the time lag before the consumer gets the benefit of the present exchange rate is far too long. In the book and magazine sector, for example, we are still paying 40p, 50p and 60p more than the sterling price for the average magazine, at a time of virtual parity between the two currencies at the moment. There has to be a reasonable lag for forward ordering and for processing orders but at the moment the lag is unacceptable.

Consumers deserve to be told why they are not benefiting from the virtual parity between the pound sterling and the punt. When it goes the other way and when the differential increases, prices go up very quickly but when there is good news the prices come down very very slowly. Why is there this discrepancy? Why can consumers not benefit now when they have had to pay the price on imported goods for so long? Is there a question of cartels and monopolies in this area generally? Can we expect legislation? I understand from the Minister for Industry and Commerce that maybe we can expect legislation and that there are actual problems preventing a free open market in this area at the moment. Perhaps the Minister could indicate to us the intentions of the Minister for Industry and Commerce to allow us to benefit from the anti-monopoly and anti-cartel provisions of the Treaty of Rome.

Another matter that was raised in the other House was the liquidity problems in banks and building societies. Apparently the Minister feels there is no problem in this area at all. The House would benefit from his explanation on that response. The insurance companies, as we all know, are attracting more savings than the other financial institutions at the moment. Consequently, there is a possibility of a credit squeeze in the banks. What is the whole position in this area particularly at a time when we have come to expect huge investment from the Structural Funds? Investors in this country must be able to go out and borrow to match, hopefully, pound for pound or at least one third to two thirds, the moneys coming from Europe so that we can fully benefit from this once-off bonanza of European money. If there is a credit squeeze when our developers and investors want it now, the Minister will be held responsible in years to come for this country not being able to benefit fully by the proper and productive investment of the Structural Funds. Apparently on this point the Central Bank will only allow a 10 per cent expansion of credit this year. What is the Minister's response to that? Does he think that will be sufficient to ensure that we do not restrict the proper and productive development of the Structural Funds moneys in this country.

On the general taxation issue, the Minister knows that when his predecessor was in office, and again during the Minister's term, Fine Gael endeavoured to get an all-party taxation committee established in relation to taxation reform. The Minister refers in his contribution to taxation reform. There is none. There are welcome changes in certain areas but they are the same type of changes that have been made over the years.

The Minister is not alone in not being radical in relation to taxation reform. No Minister has picked this one up and run with it, perhaps for very obvious reasons in recent years. When there was a political consensus and an offer of an all-party committee to sit down and have a serious look at taxation reform and integrated social welfare and taxation code, it is tragic that the Government have not taken that opportunity as it was offered. It will be very hard for any Government, even a Coalition Government, in the years to get through measures that will have the political and popular consensus we will need in this most difficult area. I ask the Minister to look again at that request to see if there is a role for an all-party committee to examine the integration of the taxation and social welfare codes and reform in both of these areas together.

The Minister mentioned the changes made in relation to corporate tax and, indeed many are welcomed. An interesting point is in relation to the extension of the 10 per cent manufacturing tax rate to 2010. I am prompted to suggest that the Minister might have jumped the gun in announcing this. I am not saying I object to it. I can see some very good reasons why we have to look to it but there are two questions I ask the Minister to answer when he is responding in this area. Why this announcement now without waiting for an overall review of industrial policy, why a unilateral announcement of this particular aspect of industrial policy? We have got to have incentives but the Minister has apparently jumped the gun. Maybe it was his Cabinet colleague, maybe it was getting back at the Minister for Energy jumping the gun at the Progressive Democrats party conference on another Cabinet issue that was announced last week. I know the Taoiseach confirmed it was Cabinet policy and had been agreed by Cabinet, but under pressure and under questioning from different sides of the House.

The Senator should return to the Finance Bill.

Is the Acting Chairman in the Chair?

Acting Chairman

Yes.

I am not in the Chair but as a Government Senator I am asking the Senator to keep to the Finance Bill. I was here before her and I will be here when she is gone, too.

The Acting Chairman is entitled to call me to book any time he wishes. That is his job, not the would-be Cathaoireach's job.

Acting Chairman

I will. The Senator should return to the Finance Bill.

With regard to the extension to the year 2010 of the 10 per cent manufacturing tax rate how does this fit in with Commissioner Schrivener's view of harmonisation of taxes? I hope it fits in and I hope we have no problem in selling this to out colleagues in the EC but it would seem to fly in the face of all that we have heard about the harmonisation of taxation levels across the board. That fact and the fact that the Minister has anounced it outside an overall review of industrial policy requires an explanation. I would like the Minister to explain his thinking on those matters.

The 10 per cent manufacturing tax and the definition of the manufacturing industries that qualify are ill-defined. Is there a statutory definition for manufacturing? If so, I have not found it. I thank the Minister for confirming that I did not think there was. The Minister and his officials should make a greater effort to define exactly what he means by manufacturing. We are preparing a field day for the legal profession. I can see them going straight to court as soon as this Bill is enacted, one after the other, and even though the Minister blamed the courts and the appeal commissioners of one type or another for extending the original intended definition of it, it will be back to court again and off we will go again with more of this. As long as the Minister has this ill-defined definition it will be very hard to satisfy the different interest groups. He will have comparable manufacturing industries; some will come within the definition but others will be outside it.

I will give one example in this area and the Minister is well aware of it. The whole industrial process of grain drying satisfies all the criteria necessary for the definition, such as we have, of manufacturing. As the Minister has confirmed, we have no statutory definition of manufacturing, so what do we then do? We turn to the Oxford dictionary or some equivalent source to advise us. That dictionary defines manufacturing as "to work up into forms suitable for use".

We have also legal precedent in this area and I am sure the Minister is aware of it. That concerns the whole business of McCauslandversus the Ministry of Commerce in Northern Ireland on the rye grass issue. It would be even harder, in my view, to consider the rye grass issue manufacturing than it would be our industrial grain drying process down here, yet that was defined as manufacturing after lengthy legal consideration. When the Minister looks through that and the legal justification and judgment that was given on the issue at the time, it would be very hard for him to exclude the industrial grain drying process in this country and the various other manufacturing industries.

The Wexford barley lobby.

The malting barley industry is extremely important to Wexford and I will not apologise for defending it. The tillage industry is under siege, as the Minister knows. The tillage section in agriculture has a few very bleak years ahead of it. This will put another nail in the coffin of an indigenous industry that creates a great deal of employment. We have an increasing export potential in malting barley. Therefore, I appeal to the Minister to look at the legal precedent, what is already on the books, and not give the legal profession a field day. Let the Minister define exactly what he means by "manufacturing" and let us discuss and debate it so that we know what we are talking about. It is very hard, effectively, to do so at the moment.

The Minister spoke at some considerable length about the business expansion scheme. Again, woeful abuse was occurring in this area. The Minister heralded changes last summer but it took him until the budget and until now to put those into effect essentially. I fully support his view that unless it is genuine risk capital being invested it should not benefit from the various taxation freedoms that have been granted in this area. The Minister has removed the area of guarantee for any moneys that have gone in here. I support that measure.

There is a lot more in the BES that we have to look to, even some of the projects now qualifying. I have a big question mark over agricultural production. Either all of it goes in or none of it goes in. There is no problem with processing manufacturing and marketing. That is what it is all about. However, we certainly have agri-business areas gone in a minute, where they are competing with BES money, very favourably, or rather there is unfair competition in this area with the average farmer who is producing the primary product on the land. The Minister probably knows the type of thing I have in mind. I feel we are being ripped off as a State. This must be watched very carefully. I suspect the Minister might agree with me on that. I know we will not get into individual cases but there is something afoot that I do not like, the farmers do not like and the farm organisations do not like.

The farming organisations do like it.

Not what I am referring to. The Minister knows what I am referring to. We have to be absolutely sure that risk capital is used for what it is intended and that it is not used in unfair competition against primary producers who have to use ordinary commercial rate money and where the normal competitive factors in the market place apply to them. We must watch this carefully and stamp it out rapidly if our suspicions are confirmed, which, unfortunately, I believe they will be.

We support the move to tax on a current year basis. It is a natural progression from the introduction of self-assessment. It is, as the Commission on Taxation suggested initially when they mooted self-assessment. The Commission on Taxation also suggested that the same allowances for the self-employed and Schedule D taxpayers that now apply to the PAYE sector should apply on the introduction of self-assessment and current year assessment. Again, none of the Minister's arguments for not doing so are sustainable.

It is very hard to understand how he can take the line he takes now in this area, particularly when a former colleague of his, the Minister for Finance in 1980, stated in the Official Report, volume 313, column 73 that the purpose of the PAYE allowance was:

to take account of the fact that self-employed generally have, at present, the advantage of paying tax on a previous year basis.

The justification at the time for the introduction of the PAYE allowance was because of the benefits enjoyed by the self-employed of not being taxed on a current year basis. If that was justification for the Minister at the time — we all took that at face value and in good faith — how does that lie side by side with the reference in the Minister's speech today as follows:

I would emphasise that the important differences still remain and that change does not provide any justification.

The justification was the lack of current year assessment for the self-employed sector back in 1980. The Minister now says he has changed that and that they are on current year assessment, but there is no justification for extending the PAYE allowance to taxpayers. That does not add up. I hope on Committee Stage we can develop that much more fully.

The levels of indexation for the thresholds for CAT are paltry. Let the Minister remember the tragedy of death duties and the reason there were changes to inheritance tax. We must look at those levels and, in fact, make them realistic. On Committee Stage I will also be appealing to the Minister with regard to the retention of the accelerated capital allowances. There is no mention of the continuing PRSI anomaly for the self-employed aged over 56. What are the Minister's plans in that area?

While we talk about the different areas in which we have interests, some personal interests, others general interests, we forget one area where the Minister for Finance has failed, that is our contribution to ODA, overseas development aid. That was always relative to the GNP in the country. We have reduced our overseas development aid yet again this year. It is now equivalent to 0.158 per cent of our GNP in a year when the Minister's words are that "the GNP is increasing by 4.5 per cent". While we selfishly look at our problems at home and all give our examples of what personally affects us and our constituents, could the Minister please justify why we cannot be more generous to the developing countries and to the countries where there is continuing war and famine? There is no justification, to balance our contributions here today, for accepting that; it would be a general all-party view of the Houses and the Irish people as a nation are extremely generous. If we can take that as a yardstick we know what their wishes are in this area.

This is a complex and long Finance Bill, with 133 pages added to our tax law. We must ask the Minister for plans for consolidation of the tax code, a very difficult issue, but we have to have it sorted. As we await the outcome of the multilateral trade negotaitions under the auspices of the GATT and as we await the advent of the Single Market in 1992, and all the difficulties that will accompany that event we must look to the Minister, above all Ministers, to answer the questions to which the country requires answers. I look forward to those answers.

I welcome the Minister to the House. I thank him for giving his time to ensure the safe passage of what I would call a very complex and, at the same time, a very expansive Finance Bill. I also welcome the progressive comments of Senator Doyle relative to the reductions in taxation. Might I use the opportunity to ask the question: what for four and a half years were Fine Gael doing in terms of taxation when they had the reins of government?

There is a suggestion in what the Senator said that the economy is faltering. My understanding of it is that car sales are up 20 per cent this year; I know for a fact that retail sales are up 7 per cent this year and that there is a 10 per cent increase in employment in the construction sector. Yesterday the Minister of State responsible for Trade and Marketing, announced that the trade surplus was at a record high of £54 million. All of these seem to suggest that what the Senator is saying is not in fact correct.

No. They have taken a downturn since Easter. Will the Senator check the figures?

Let me also take up the question of an all-party committee on taxation. This sounds to me ironic because when an all-party committee on the review of local government was offered to Fine Gael, they refused it. Such a review would have financial implications of funding for local authorities.

On a point of order, that was not what was offered. It was local taxation and financing of local government only. It was not an overall review.

Acting Chairman

Will the Senator let Senator O'Keeffe make his contribution without interruption.

I find it ironic that this would be suggested. The Senator also suggested that the debt ratio should be 75 per cent of GNP by the end of 1993. The Minister might correct me if I am wrong here, but that to me would seem an extraordinary adjustment. I understand it would give the Minister two options, to reduce public sector spending by £2 billion or, alternatively, to raise that £2 billion in taxation. The question must be asked, is that what the Senator is proposing?

The Finance Bill has to be welcomed as a further broadening of the tax base and the simplification of the operation of the tax system. While there are many technical matters in the Bill, the main thrust is to improve the system and to ensure that the burden carried by the various sectors, such as PAYE, is distributed much more fairly. In conjunction with the substantial social welfare improvements that were granted in the budget, the main features of this Finance Bill must be looked upon as another example of the Government's deep concern for the less well off members of our community, while at the same time ensuring that the incentives and the reliefs are there for the purpose of generating economic activity and creating jobs.

The higher than inflation social welfare increases together with such a welcome innovation as the carers' allowance, taken in conjunction with the reduction in income tax, the basic rate going from 32 per cent to 30 per cent, and the increase in income tax exemption limits, are a clear indication of the Government's concern for those who are genuinely on low income and those in need of assistance from the State. The widening of the 30 per cent tax band, and the reduction of the top rate of income tax from 56 per cent to 53 per cent are further proof of the Government's commitment to reducing the income tax burden on the personal taxpayer. This is further evidenced by the reduction in the top rate of VAT from 25 per cent to 23 per cent. These adjustments must be seen as positively supporting the Government's basic objective of keeping inflation at an extremely low level but at the same time encouraging confidence in the economic climate by ensuring that people have more disposable income.

I refer the Members to the section of the Minister's Budget Statement where he invited the business community to launch an initiative which would alleviate poverty and increase employment. I am glad Senator Doyle welcomed that initiative. It is also to be welcomed that the business community itself should respond to this by setting up a trust and operating it. As a Corkman I welcome the decision of the Power group of companies to give 1 per cent of their profits. I am particularly pleased that a group caring for the elderly, an extremely deserving charity, will reap some of the benefits from that amount of money. I also welcome the challenge that the Power group have laid down for other top companies, who can reap the benefits of a tax write-off for doing likewise. This, in my view is another example of the Government's commitment to the less well off in our society and to the generation of economic activity within unemployment black spots.

The reorganisation of the business expansion scheme will help to ensure that funds raised under it are applied for the purposes for which the scheme was originally intended, that was to create employment and to generate activity in areas which might not otherwise be attractive to investors. Developments over the past number of years for quite a number of these schemes were seen to be nothing more than tax shelters for those in a position to avoid tax. This is now being restricted. That has to be welcomed by everybody in this House.

The basic principle of the issuing of ordinary share capital in any company is that this capital carries a risk. The Government, in providing incentives for the issuing of such shares, cannot be expected to support the elimination of the risk attached to such shares. This became widespread with the BES scheme and other such arrangements. The tax relief granted to the taxpayer must be balanced by the element of risk to which he is exposed. We had, up to now, the ridiculous situation of no risk investments. Persons who were determined to become involved in a risk undertaking could not get money due to the fact that it had been swallowed up by people involved in no risk investments. It is great that this has been eradicated, and the tax relief granted to the taxpayer must be balanced by the risk to which he is exposed. The BES scheme was never intended to be purely a tax sheltering exercise.

The amendments to the urban renewal scheme have also helped to ensure that such schemes are not abused. Undoubtedly, the availability of various reliefs under urban renewal has led to substantial improvements in the appearance and the activities within such areas. We have to look at the major cities in this country to see what refurbishment and generation of activity this urban renewal has brought to date. The centres of many of our towns and cities have improved, the extension of the urban renewal scheme to other areas recently announced by the Minister is also welcome.

Some of the specific sections in the Finance Bill dealing with certain arrangements which could be considered abusive to the scheme are now to be altered. With both urban renewal and BES, the Government have indicated clearly that they wish to support economic activity and development and are willing to do all in their power to support such development. However, it is also clear that the Government do not wish such schemes to be used as purely tax avoidance methods. The Minister in his budget speech indicated that manufacturing relief is to be extended to the year 2010. Unlike Senator Doyle I welcome this extension. It was called for by the CEF and in attracting major industry into this country, one can only see it as being positive.

I welcomed it but the Senator was not listening.

I listened very attentively to Senator Doyle. Manufacturing relief over the years has again become something of a lawyer's and a tax practitioner's realm, in that its application now extends far beyond those companies originally intended by the Government to benefit. Steps taken in the Finance Bill to redefine qualifying activities for manufacturing needs are to be welcomed and it is important that we ensure that genuine manufacturing activities are not excluded from the relief because of the wording of the Bill. I share some of the concern Senator Doyle expressed in relation to this matter because without a definition of manufacturing, there is cause for concern.

I welcome the Minister's decision to limit the ambit of what can be considered manufacturing. However up to now we have had all types of spurious activities, such as banana ripening, fast food chains and coal grading, regarded as manufacturing. Obviously, this was not the spirit of the 10 per cent corporation tax. The original intention was that the 10 per cent corporation tax would instigate labour intensive manufacturing activity geared to exports and, certainly, geared to import substitution.

Obviously, as I am from Cork, I welcome the amendment relating to the computer industry because without that amendment the Bill would have had serious effects on companies such as Apple Computers, Western Digital and other companies in Cork. That being said, I would like to call the Minister's attention to other areas that may be anomalous. For example, in the clutch and tyre industries — I call them processing industries — there is a total dismantling and complete reprocessing giving 100 per cent added-value and providing import substitutes. These industries are grant aided by the IDA on the basis that they are a manufacturing process. I suggest that where there is total reprocessing, where there is 100 per cent added value to products, where the process is satisfying the IDA's manufacturing criteria and fulfilling an import substitution, such activities might be regarded as suitable for the 10 per cent corporation tax. The Minister should have regard to those facts.

Under capital taxes there are a number of elements in the Bill which remove unfair anomalies and provide a much needed simplification of our tax system. For example, it has always been claimed that capital allowances are a disincentive to creating employment. Indeed, many people have been critical of the IDA who have pursued this policy with foreign investors, that is machines replacing men. This Bill has substantially reduced capital allowances, a move that must be welcomed by all sides of the House. An example is the extension of the retirement relief for capital gains tax purposes to family holding companies and the removal of CAT liability on gifts or inheritance between spouses, which are particularly welcome. A most welcome feature of the entire capital acquisition tax code is the indexation of the threshold. While it could be said that that it is not enough, it certainly is a step in the right direction and has been welcomed by everybody. The number of people coming within the ambit of capital acquisition tax has increased substantially over the past few years and it is only right that the thresholds should be increased.

I would like to spend a few minutes on the film industry. The Government have been accused in the past of dismantling the film industry by, for instance, selling Ardmore Studios. I reject that criticism totally. In doing so I am mindful of the international achievements of the film "My Left Foot" with Irish actors, directors, producers and film crew. We now have an opportunity to create an indigenous industry and one might ask how the Government are helping in this process. The Government are helping by including the film industry in the business expansion scheme, by specifically targeting the film industry for the 10 per cent corporation tax and by allowing companies to invest up to £200,000 per annum, which can be written off against tax. We should never under-estimate the value of television and radio as a generator of expertise and consequent new employment. Our writers and producers have achieved international fame and this with the above Government incentives, give people an opportunity to come together to build on the achievements of the past and to make this industry into a major job creation vehicle. This Finance Bill provides an opportunity to continue this process. The introduction of the current year basis of assessment for the self-employed is a further simplification of the total income tax system. There is general recognition that this change should simplify and improve the administration of the tax system with benefits for the self-employed, taxpayers, their agents and the Revenue Commissioners. This procedure was introduced on a voluntary basis in 1988 and was such a tremendous success that further development was essential if the momentum and progress were to be maintained. The essential element of this procedure was that all sources of income, from trading or investment, should be assessed for tax on the same basis. At present some income is assessed on a procedural basis and other on a current year basis. This obviously causes considerable confusion and, in effect, necessitates a submission of two year returns before the liability for a particular year can be finalised. Benefits from this procedure will mean a low compliance burden for taxpayers and their advisers, greater efficiency and therefore a better service from tax offices. It will also mean that there will be an intensified pursuit of tax evaders and better use of resources, something which all sides of the House desire.

A reduction in the number of rate bands for stamp duty from 14 per cent to 6 per cent and the reintroduction of child allowances and residential property taxes are further indications of the attempts by this Government to bring as much simplification and equity as possible into our taxation system. The Bill contains many technical provisions but its overall thrust is to attempt to simplify certain elements of taxation, remove anomalies within the various taxes and ensure that the various incentives and reliefs granted by the Government are used for the purposes for which they were initiated and to respond to areas of general hardship. Overall, the Finance Bill must be seen as a positive instrument in the Government's stated aim of generating employment and economic activity, while at the same time reducing the burden of taxation. I welcome the Bill and I recommend it to the House.

Cuirim fáilte roimh an Aire. Ceann des na rudaí maith a dheanann sé ná go dtagann sé anseo agus go bhfanann sé anseo go minic chun éisteacht le cuid mhaith a deirimíd.

The Minister is very welcome. It is nice that he has the time to stay here and listen to us. All I can tell him is that what he is going to hear from me will be totally different from what he has heard so far. I will start with a few throw-away things. One of the nice things the Minister did in the budget, which was of particular benefit to young people, was to reduce the excise duty on records and compact discs. However, if the Minister toured the retail premises which sell those products he would not be so sure that there has been a substantial reduction in excise duty on those items. My admittedly less than expert understanding of excise duty is that it is a fixed cash value. When I see a number of compact discs standing together, half of which have been reduced by £1 because of the abolition of excise duty and the other half reduced by £2 because of the abolition of excise duty, I think somebody is being ripped off because it is a fixed rate of excise duty. People are being codded and I believe this has a rip-off factor built into it mainly because the consumers are relatively unsophisticated young people one of whose major interests are in this area. They are a captive audience, they cannot travel far and they are being ripped off. I ask the Minister to carry through his good intention and ensure that excise duty reductions, like the ones he introduced, are passed on to the consumer and do not make the companies and the retailers better off?

There is much reference to enterprise, in discussions on taxation. I would like to invite the Minister, Senators Doyle and O'Keeffe to tell me what sort of enterprise was involved in buying Carysfort College for £21 million and offering it for sale again for £29 million, a profit of £8 million for simply buying and selling property in an opportunistic fashion. What tax will be paid on that masive capital gain? There will be a sugestion that tax should be paid but the probability is that none will be paid. There is an extraordinary capacity to rip off consumers by masquerading enterprises which neither create wealth nor do anything else except make a certain group of individuals — who happen to be in the right place at the right time — rich, for doing nothing. That is not enterprise; it is not initiative, it is simply the capacity to be in the right place at the right time, with no real vision of any new product.

The Minister has provided an incentive to encourage community initiative which is to be welcomed. I agree with what Senator O'Keeffe said. However, the Minister should look at the extraordinary anomalies in the general area of covenanting as they apply to income tax. This was drawn to my attention by the contradictory position under which most charities cannot benefit from the covenanting of personal income tax and normal corporate taxation while a private fee-paying school in my own city can encourage people to covenant money to them and get the full benefit of covenanting. Apparently, charities which look after the poor of this country are not deserving of covenanting, but a school which looks after the children of the rich is. That is social equity turned on its head. The whole thing should either be abolished or be made, in some way, to reflect the realities of life.

I want to challenge a thesis, that is almost taken as holy write here, that is, that we must reduce taxes to encourage enterprise which, in turn, will stimulate growth and, consequently jobs. That is what the Minister implies and, knowing the taxation policies of the Fine Gael Party, in particular, I am sure they would not disagree with that thesis. It is a thesis based on the assumption that that cause and relationship exists. However, being a well-trained scientist I believe that any theoretical model should be challenged or tested by the evidence available, not because it feels good, sounds nice or is very easy to put together. The real test of any throry is how it works. That should not have to be said but in the area of economics, one has to keep on saying this because most of the economics I have read are based on the assumption that we work out a theory and then change reality to conform to our theory, rather than the reverse, which is to work out the theory and then test it against reality.

I would like to have a look at that theory about the relationship between levels of taxation, enterprise, and so on, because there is a lot of evidence available. It is common practice to look at the growth rate and at all taxes as a percentage of gross national product. Paul Tansey inThe Sunday Tribune of 17 January 1988, whose source, I am sure, was the Department of Finance, said: “... 34.2 per cent of GNP was taxes in 1982 and 44.3 per cent in 1987”. I gather it has gone down slightly since then, down to around 40 per cent. Apart altogether from the less than complete fairness of using gross national product, given the extraordinary relationship between GNP and GDP here, taxes have increased. The argument is that they have increased and have stifled enterprise. The argument, therefore, is that we must reduce them in order to do something about enterprise and initiative. We have been told that these tax levels, as introduced here, stifle initiative, discourage enterprise and, indeed, in the most ludicrous of all the these, we have been told that the levels of personal income tax are encouraging emigration. We have been told that people are leaving because of the high levels of taxation. There is not, let it be said, a single scrap of empirical evidence to justify the these that people leave this country because they are highly skilled and income tax rates are too high. There are many anecdotes but no demographer who has studied emigration has come up with a single, tenable piece of hard information to prove a relationship between the emigration of highly skilled workers and our levels of income taxation. There are good reasons there is no such evidence because it is probably not true.

We have been told that taxation stifles development, etc. The first thing to be said about percentages of gross national product and gross domestic product as taxes of the percentage of those things in that what is hidden in those figures over the early part of the eighties, from 1980 to 1987, or the first three-quarters of the decade, is that at that time, a very significant change in the ratio of gross domestic product to gross national product took place. One can play wonderful games with changing numbers about percentages. Without boring the House, because the Minister knows more about the relationship between GDP and GNP than I do, in most countries the gross national product exceeds the gross domestic product. We have worked ourselves into a position where the gross domestic product is greater than the gross national product because of the substantial transfers of funds. We then beat our breasts and blame ourselves for this peculiar position and we talk about it all in terms of interest payments. A substantial part of the reason our gross domestic product is actually greater than our gross national product is the re-patriation of profits by multinationals.

Let me say something that is not very socialist, or classically so: the function of industry is to create wealth, not to create jobs. If the industry we have is exporting most of the wealth it creates, it is not fulfilling its primary function and is of doubtful long-term benefit to the country. What we are getting ourselves into is an inverted, peculiar and almost Third World situation where we are prepared to pay any price for jobs which probably cannot last if they are not jobs which are generating reinvestment and modernisation, which means the reinvestment rather than the repatriation of profits.

I wish to continue on the the theme I want to develop, that is, the alleged relationship between enterprise and taxation. We have been offered a considerable amount of evidence to support this thesis. My good friend, Senator Raftery, spoke at length about one country, the United States, and the wonderful success that lower taxes had there. There are a couple of things to be said in this regard. We have been offered a number of models of this and the United States was one. I do not have either the time nor the inclination to keep the Minister by going on too long about this but I could refer him to an article in theScientific American in May 1987 which demonstrates that half the jobs created because of the tax regime in the United States gave people an income less than the official poverty rate in that country. I do not regard that as an achievement. I regard it as a loading of the dice against the poor in favour of the rich because that is what happened.

I will come back later to deal with what happened within that model and within that alleged limited success, to the incomes of those people. As Jesse Jackson said, half of the jobs created were poorly paid — hamburger turners and so on in MacDonalds and places like that. There is no evidence of real substantial job creation. It needs to be said that the United States, as a result of its determination to reduce certain levels of taxation and, at the same time, to finance a spiralling defence budget, has run up an enormous budget deficit which is concealed by the deliberate theft of money out of the social security fund to fund the current day-to-day expenditure of the United States Government. The budget deficit would be enormously bigger if they were not sneaking funds out of the pension funds of the old, the sick and the elderly to finance day-to-day Government expenditure. On top of that they have a trade deficit which is staying stubbornly large and with that there is the savings and loans fund which has to be rescued and which costs the State 130 billion dollars, according to the Director of the Federal Reserve. That is one country which, we are told, is a model for enterprise. The truth is there has been no significant enterprise. They have a trade deficit, a budget deficit, massive poverty, poor housing and the worst health service in the civilised world.

There was a time when the United Kingdom model was fashionable. I do not think I need tell an Irish Minister for Finance that the United Kingdom experiment of the last ten years has been something of a disaster. They have a trade deficit and if they did not have the most savage retrenchment of a modern welfare State anywhere in the western world they would have a budget deficit too. They have also managed, as Neil Kinnock pointed out last week, at the same time as they were doing all this to increase the tax burden on the average family all through the Thatcher years.

We are not talking about a taxation which is based on the problems of ordinary people, we are talking about certain people's taxes being unacceptable to them. Other models developed. When we got beyond the United States, Denmark became fashionable. I have two articles, one written in August of one year and the other written in September. One was written by a journalist forThe Sunday Tribune and the other written by a journalist for The Irish Times. The journalist in The Sunday Tribune said that the reason Denmark got its public finances under control was because of massive and substantial cuts in public expenditure. The journalist writing a month later in The Irish Times said the reason Denmark got its budget deficit under control was because it increased taxes and, at the same time, there was a consumer boom which reduced unemployment dramatically and, therefore, reduced social welfare. One journalist told us the cutbacks caused the benefits and the other journalist told us the opposite, that the cutbacks were caused by the boom which reduced public expenditure. It is true that if we could reduce unemployment from 250,000 to 50,000 the Government would no longer have a budget deficit.

It is interesting to work out how it was that the Danes managed to have increasing taxation and, at the same time, a booming economy in which there was a consumer boom. I appreciate there were problems later but the Danes have a good record over the past 40 years of managing to deal with economic problems and holding a good and far more liberal and generous welfare State than we have. I would not use Denmark as an example of this alleged relationship between enterprise and taxation.

The modern fashionable model over the past six months is Germany. An eminent academic from the Limerick region spoke about his graduates preferring to emigrate to work in Munich than to work in Ireland. He maintains it is because of the the levels of tax and PRSI they are being forced to pay in this what he called, "pink country with its pink Governments". I have accused the Minister of a lot of things but I would never accuse him of being pink, either physically, metaphorically or any other way. He develops an elegant tan but I would never accuse him of being pink. This particular individual has been joined by the host of a wellknown modern radio programme who ran into a love affair with the United States for a while and told us about low taxes there and another television host, who developed a love affair with Australia, and told us about tax there. The thesis always is, (a) the taxes are lower in these countries and (b) that this produces enterprise.

The one country that is an unquestioned success economically in the western world is West Germany. It is a successful, booming economy. Only a booming economy would consider taking on a bankrupt state beside it, which is about one-third of its population; a bankrupt state which called itself a democratic state.

A socialist state.

I never accused it of being democratic and, therefore, the Senator should not accuse it of being socialist. I define my socialism quite satisfactorily to myself and Senator Raftery need not bother interrupting me. West Germany is so prosperous that it can do that.

Let us look at the thesis that somehow the West Germans are enterprising because of the levels of taxation in West Germany. I would like to quote post-budget figures courtesy of an article inThe Irish Times on 1 February written by an individual who works for Ernst Young. He quotes Ernst Young's offices in Dublin, Melbourne, Munich and Paris as the source of his information and his article was all about the United Kingdom but I do not think he looked entirely at his own figures. He said that a single person in Ireland on £10,000 a year would take home £7,100 and a single person in Germany on £10,000 a year would take home £6,700. That is £400 a year less in enterprising, vigorous, powerful, economically successful West Germany. According to these figures a single person in Ireland on £15,000 will take home £9,199. The reason I pick £15,000 is that it is the average salary an engineering graduate of the kind we produce in the Regional Technical Colleges would expect and, similarly, graduates from the Institute in Limerick, are so worried about emigration would expect. In West Germany a single person will take home £9,520. Are those people emigrating for £8 a week to live in Munich? Who is kidding whom in the discussion about income tax being a disincentive?

When one goes through the figures and stop's at the salary of £75,000 which is larger even than the Minister's salary, or at least his income from politics, there is a difference in net salary of £3,000 a year. Is somebody telling me that top-class Irish enterpreneurs are emigrating so that they can pay £3,000 less income tax on a salary of £75,000 a year? If a person is worth £75,000 to any Irish company — and some people perhaps are — they will happily pay him an extra £10,000 to make up the difference in his take-home pay between what he gets here and in Germany. There is not a scrap of evidence to support this fashionable thesis that if tax is reduced, enterprise will increase, or that there is some correlation between levels of public expenditure and enterprise or between levels of personal income tax and enterprise.

In that table, and I admit I quoted the two examples that suited me, there are other variations. For people on low incomes, for example, £15,000 downwards, there is no significant difference between the overall level of take-home pay here and in most other countries, with the exception of the United Kingdom where there is a lower tax band. Most other countries reduce income tax and push up social insurance contributions. This has happened in the United States and allows for this wondrous reduction in personal income tax which is being paid for by pushing up the average worker's social contributions dramatically.

There is no low tax bonanza because welfare states have to be paid for. Most countries are profoundly reluctant to sacrifice the welfare state they have, or want or aspire to in return for reductions in taxes. This has been done, and done badly, in the United States and it has not done ordinary people any good. The average family in the United States is paying proportionately more of their income tax than they were 13 years ago, after eight years of Ronald Reagan's tax cuts. This is what bothers me about the whole thesis. The thesis about reducing income tax is not based on the concerns of the 96 per cent of taxpayers whose income is less than £25,000 a year. I was astonished to discover that I am in the top two per cent of income earners. I know I am not but I know that the 96 per cent who declare their income to the Revenue Commissioners are earning less than £25,000 a year.

Four thousand four hundred earned over £50,000.

I do not earn over £50,000. The Minister is in an even more elite group than I am. For the 96 per cent of Irish PAYE workers who are earning less than £25,000 a year there is no enormous difference, with the exception of our nearest neighbour and we know the way that country has gone regarding the levels of income tax. Let it be said again and again that the most successful economy in Europe has not been based on low taxes. It has been based on the ability to organise the workforce efficiently, to organise research efficiently, to develop proper modern industries based on a huge reinvestment of profits in research, based on a banking system that recognises that a long-term loan is ten or 15 years, not four or five like the Irish banking system, and that does not demand property based security for loans for new ideas, which is prepared to assess the quality of an idea, not the quality of security, when it decides to lend money. These are the sort of issues we need to encourage enterprise. I reject completely the idea that if we halved our income tax we would suddenly produce a whole nation of enterpreneurs. I do not believe a word of that. The evidence is there. The most successful economy in Europe taxes people——

What about the eastern European economies?

The most successful economy in Western Europe is the West German economy. They pay as much in income tax as we do, or the differences are insignificant when one adds social security contributions. That is the myth. In this country people have a justified perception that the tax system is unfair and that there are people getting away with murder. The groups that I would identify are particularly the farming population who pay buttons relative to their total net, after costs, income. If the average farmers, earning the same income as I do, had to pay the sort of tax that I have to pay they would squeal so loud that they would put any Government out of office, because they are ruthless, unpatriotic and self-centred in the sense of their own self-interest. The farming community are the most unpatriotic, unnational, unwelfare-orientated group in our country. They think of nobody else but themselves. They do not think of the nation. They do not think of the welfare of the State. They do not even think of the fact that their taxes should be paying for their children's health, education, housing, etc. The farming community are totally and utterly selfish. They would shoot down any Government that would attempt to have them pay the same amount of tax as the rest of us.

That is the first big inequity. The second big inequity is the increasing——

That is a totally unscrupulous attack on the farming population.

——public perception of the incompetence of successive Governments in their capacity to even assess how much tax certain groups should be paying. The first was the DTRT tax, which was estimated to bring in about £50 million and in one particular year it brought in £300 million, which was a magnificent fourfold increase. It is going up fast again now because of interest rates going up. One of the few benefits of interest rates increases is that the Government's revenue increase quite dramatically. Fianna Fáil were going to abolish that tax until they discovered it was too substantial and too lucrative. It did not drive capital out of the country. It did not stifle enterprise. It did not do any of those things. It caught a lot of people who were fiddling their income tax and had their money stashed away with the connivance of various banks and other institutions, as emphasised and as underlined by the advertisement that an account is totally confidential. Confidential from whom? Who is the only person who would be interested in it? Confidential from the Revenue Commissioners. There is something very, very malodorous about allegedly reputable financial institutions offering confidentiality to crooks who want to fiddle their income tax. It is rotten. It stinks. It has nothing to do with enterprise in this country.

The Minister made an extraordinary decision to reintroduce child allowances for the poor hard pressed payers of residential property tax, earning £26,000 a year at least and owning houses worth at least £85,000. He introduced tax allowances for them when the average male industrial worker on £12,000 a year cannot have them. For whose benefit is this country being run? I know for whom it is being run. It is being run for the rich, the powerful, the vocal and the articulate, because that is the centre of the tax campaign. It has nothing to do with enterprise, nothing to do with initiative and all to do with greedy people in this country earning large incomes — the sort of income that I earn — who resent paying a reasonable level of tax and who resent paying a West German level of tax. The genius who wrote this article said that the reasons West German taxes are so high was because West German social welfare benefits were so high. I have lost patience with the income tax lobby in this country. It has nothing to do with the average citizen and an awful lot to do with the rich.

I would say that if the Minister wants to release enterprise in this country then he should grasp the Stalinist bureaucracy for which he is responsible within the Department of Finance and let us have genuine decentralised power and decision-making. There is a belief in his Department about the power of central government that no eastern European Stalinist would stand over, not to mention people who claim to believe in individual enterprise and initiative.

There is taxation that is never talked about because perhaps it does not come under Revenue, but it is taxation and that is what we do to people on very low incomes and on non-contributory social welfare. For instance, if I win the Lotto — which I will not do because I never buy a ticket — it is tax free. If I invest it the interest will be taxed at whatever my rate of income tax at the top rate is. If I am a non-contributory old age pensioner and I win the Lotto they will take all my income off me, which is 100 per cent tax, and they might well take my medical card off me as well, which means that the marginal tax rate to an old age pensioner who wins the Lotto is about 110 per cent. That is the highest marginal level of taxation which is paid by very poor people who actually make some money. It is the same with people on non-contributory pensions who work. Once they go above the minuscule threshold they are actually taxed at the rate of 100 per cent. For each pound extra they earn their income is reduced by an equivalent amount. That is the most penal and savage level of taxation in this country.

I bet this is the first time it has ever been mentioned in either House of the Oireachtas. We do not think of those sort of penalties. We do not think of the people at the bottom of the heap. I know the Minister is not responsible for welfare, but he has a hand in how it is funded. I would suggest that if ever there is a disincentive to people to do anything, it is the fact that they are taxed at rates in excess of 100 per cent when they actually earn a little bit of money.

Finally, on those particular anomalies the Minister did something that was generous, humane and spontaneous about people who benefit from substantial damages and who would be paying enormous amounts of income tax on those damages; I am glad he did this. It is typical of his good sense to deal with this quickly and immediately. Let me remind him that for somebody on social welfare in a similar position, his social welfare stops immediately if he gets damages from something like that. If one is on a means tested level of welfare and gets damages, income from welfare will stop. This happened to an elderly relative of mine who had a non-contributory old age pension. She got a small sum in damages — about £30,000 — and her non-contributory old age pension ended, so she got no compensation for her accident. She simply started paying for herself again out of the damages she had got. She got no compensation. That happens to anybody on a non-contributory welfare allowance, whether it be unemployment assistance or old age pension. If such people get damages from an accident the Department of Social Welfare will assess their income on the basis of the attributed income from that investment and they are taxed at 100 per cent. On the other hand if I got damages I would be taxed at 50 per cent at the very most on the interest paid. I do not think that is right. There is an area of unjust discrimination in terms of take-back by the State, which effectively is taxation, and which is the most savage in the whole of the taxation system.

On behalf of the Progressive Democrats, may I welcome the Minister to the House here today. At the very outset, may I say that I find words like, "ruthless" and "unpatriotic" in relation to the farming community offensive and totally out of order. The Senator belongs to a privileged society. It was pointed out to us last week that the 60 people who are here have responsibilities to the State and that very many people would like to be here.

I earn my money here.

I can tell the Senator that there are very, very many farmers and non-farmers in this country who would be only too happy to earn the income which he earns for being here, which in itself is a modest enough income. Unfortunately, I do not have the figures in front of me but I think it is correct to say that the average income for a farmer in the west in regard to cattle production is of the order of £2,300 a year. It is patently obvious that there are huge numbers——

(Interruptions.)

You have had your say and I will have mine.

That is exactly what I was doing.

Acting Chairman

The Senator, without interruption.

There are people in this country who do not have a taxable income. I congratulate the Minister on excluding more of those who were previously in the tax net. It is quite obvious that they do not have a taxable income. It is quite obvious that there is immense poverty — silent, dignified poverty — in rural Ireland. I regard the remarks which the Senator has made as being totally offensive. I do not for one moment support any people in any sector, whether they be in farming or otherwise, in using devices which allow them to avoid and evade their proper tax bill. I realise fully that the Minister and the Revenue Commissioners are fully committed to ensuring that every citizen pays the tax for which he or she is liable.

I also find the matter of quoting Germany as rather curious. Certainly we may point to the tax rates in Germany, but we should also point to the income levels in Germany and what the take home pay is.

(Interruptions.)

Unquestionably, there are people in the average income levels in Germany who are immeasurably better off than people in the average industrial income levels here. What really concerns us and what this budget is all about is to ensure that the take home pay of people is improved. In that regard I am quite pleased that some of the things which the Progressive Democrats have been speaking about for several years have been taken on board by the Minister and his colleagues in the agreed Programme for Government. They are to be implemented over the lifetime of the Government — over the entire and, I hope, full lifetime of this Government.

I would like to join with Members of this House and of the other House in congratulating the Minister on the way he responded to the matter of permanently and totally disabled people in granting the concession in this Bill. The Minister is to be congratulated on the speed with which he responded to that need. There is a lesson there for all of us. If this Oireachtas could respond more quickly to some of the needs of the people in the country and, indeed to some of the things that press for discussion in this House and do not always get on to the Order Paper, then the House would be very much more effective than it is.

One other matter that needs to be raised is in relation to the contribution from Senator Doyle, who spoke about the virtues of the balanced budget. It was rather amusing to hear the commitment to that type of a budget coming from that side of the House. History will teach us that there has not been a dramatic commitment to the balanced budget from that side of the House.

They are in theGuinness Book of Records, going in the opposite direction.

I must say I do not see any objection, in principle, to budgeting for a modest deficit, provided that it leads to growth and employment and provided the country can afford it. I do not see any particular objection to a budgetary deficit although, of course, it would be preferable to have a balanced budget. The progress which we have made in this budget and which we hope will continue to be made is one, of course, in which my party has a very close interest. For the first time in the history of the State, it is fair to say that we have charted a four-year programme for tax reform. For the first time there is a commitment to establishing a two rate income tax system. For the first time we are on course for the establishment of a 25 per cent standard rate of income tax. I am glad that modest progress has been made in bringing down the rates from 32 per cent to 30 per cent and the higher rate from 56 per cent to 53 per cent.

When we first argued this case in relation to income tax it is fair to say that very few people agreed with us. Now it appears that not only is it part of the Government programme but people on the other side of the House seem to agree with it as well. Their conversion in this respect has been quite dramatic. I also agree with what the Minister said in relation to the fact that the economy is by no means out of the woods yet, and that prudence is required in relation to the way we manage our economy if we are not to lose the very significant advantages which have accrued to us over the short lifetime of this Government.

It is gratifying to note that our GNP is rising by 3.5 per cent per annum, that economic growth should increase by 4 per cent, and that 30,000 extra jobs are being created. It is unquestionably a fact that reductions in the levels of income tax are central to the generation of growth within the economy. We need to be careful, not complacent. The achievement of the 25 per cent tax rate can only be judged in relation to the span of income which it covers. I was very glad to hear the Minister agree that tax reform has a very major part to play in encouraging initiative and in promoting more jobs. Really, that is the bottom line. We must encourage our people to go out, to be enterprising, and to work.

Some of the things that were being done under the business expansion scheme should be referred to. That scheme was devised to encourage people to take risk. In fact in some cases they were using devices under that scheme to avoid taking risks. I do not see how people can be guaranteed an income from money which they invest in the business expansion scheme.

It is not necessary to remind the House that the 30 per cent tax rate applies only to the first £6,500 of taxable income for a single person, and that with a single person's average tax allowance it follows that many workers earning about £9,500 are paying 48 per cent income tax and seven and three-quarter per cent PRSI on their marginal earnings. Putting that in a different way, somebody well below the average industrial wage can expect to pay in tax and PRSI more than half of any extra earnings which they get from overtime pay. A single person on the average industrial wage pays nearly twothirds, or 60 per cent, of any extra pound earned by him or her.

It is asking a lot to expect people to go out and undertake extra work if they are going to take back only £1 out of every £3. It is obviously fundamental to the creation of jobs. It is fundamental to the expansion of the economy that people be rewarded for effort. People who are prepared to put their money on the line and provide their labour should enjoy a reasonable degree of comfort. The State has a responsibility to them in that respect. We need to contrast our position in this country with that of the average Irish worker in London or, indeed, in Derry which is nearer to us, who has a 25 per cent tax rate the whole way up to £19,000. Even with their social security payments taken into account, they would never be docked more than one-third of their marginal earnings. I am glad that Senator Upton has arrived in the House. Through the Chair — and I am sure he is well aware of this already — Senator Upton knows that the Labour Party in Britain are proposing to reduce that 25 per cent rate to 20 per cent.

Are the Progressive Democrats on their way to the left?

On taxation matters, we are all in favour of reform, I am glad to tell the Senator. I apologise to the Chair. The problem is that many people in this country regard work and effort as some sort of luxury when, in fact, we all know — and I know the Minister will agree — that it is a dire necessity. My reason for concentrating on the rates of tax is just to show how far the process of tax reform must go before the fiscal disadvantage of employment in Ireland is countered. The 25 per cent tax rate linked with the rate of income to which they apply is a critical factor in all that. I do not think we can ignore PRSI from our considerations. Certainly in my own view PRSI is just another form of income tax for very many of our citizens.

I know there has been talk of fixing the upper rate of income tax at 48 per cent. That is certainly a rate I would not agree with and many of my colleagues in the Progressive Democrats would not agree with it either. The reason is that, combined with PRSI and income tax it suggests that the ordinary single worker would be paying more than half his marginal earnings in tax and PRSI. There is no question whatsoever that those tax rates smother ambition, kill effort and create despair. They do nothing for business, except perhaps for the business which we all regret and which has been too frequent in recent years, and that is the business at the passenger terminals at our airports.

I am asking the Minister to take his courage in both hands and to continue on the road of even more imaginative tax reforms. There can be no denying that Irish people at home could achieve just as much as Irish people seem to achieve overseas if they were given the incentive. It is a very curious factor that our citizens seem to be able to succeed when they go to America and other countries. I keep wondering why it is we cannot do at home what we seem to do so very well when we go abroad. A lot of it is to do with the fact that we do have the capacity to work hard but we must be given the incentive to work hard. If we had that incentive here at home the country would be transformed. I realise there are risks involved in going a long way quickly in terms of tax reform, but I believe that the rewards for the country would be immense.

There are precedents in other countries; for instance, in New Zealand in relation to those matters. I fully understand that there can be inflationary pressures and so on, but with prudent management and provided we do not print too much money, those inflationary pressures can be resisted. For both reasons, we regard the 25 per cent standard rate of tax and a single 48 per cent upper band on the present system of tax bands as unacceptable as a final goal. I am saying that now, I do not think it would imply penal taxation on below average earnings. There is a colossal leap in taxation of 25 per cent to 48 per cent, a 23 per cent jump. That is a major disincentive to effort.

I do not think we can cross the bridge in just two or three steps. We are talking about radical tax reform and I am appealing to the Minister to go down that road of radical tax reform. He has taken one or two steps and I encourage him to take big bounds. A faint-hearted approach to taxation or to public spending can be easily blown off-course. Ireland needs someone of courage to act on this matter. As I have said, the economic achievements of New Zealand should be a lesson for a Minister for Finance in this country.

I referred to the inflationary fears. I believe they can be allayed. The document which the Progressive Democrats published in 1988 shows that the upper rates of tax and PRSI can be brought down to around 40 per cent without inflationary pressures if it is done in the context of major reforms in allowances and extension of the PRSI. I believe the step of setting our a four-year programme of tax reform in the agreed Programme for Government has already created a sense of confidence in our future. There is a more optimistic mood in the country. The identification of clearer targets for the upper tax rate, the reform of PRSI and the structure of allowances and bands should strengthen that confidence and accelerate economic growth. The fiscal distortions between the manufacturing and the service sectors is damaging. It is unjustified by any criteria whether it be employment or the interests of the Exchequer.

The combination of all the payroll taxes and the differences between payroll taxes to employees and take-home pay is, of course, what we all call the tax wedge. I would submit that is where the basic problem lies. The Minister, said that unemployment was the root cause of poverty and I fully agree with that sentiment. I believe, fundamentally, that one of the most effective ways of tackling it is to make it rewarding for people to take risk and to work.

I realise in relation to reaching agreement on theprogramme for National Recovery that one of the things that must be stressed is the need for restraint in wage demands to copperfasten the progress which we have begun to make. We can contribute to increasing take home-pay on the taxation side. I hope that in reciprocation for that the people who are negotiating show restraint in relation to the size of the demands which are made. As the Minister has said, we are on a very delicate course, and it would be very easy to be thrown off it. We must not throw away the advantages which we have begun to gain. The process of lifting the tax burden off income up to the average industrial wage, the reform of allowances and the reform of PRSI must be made part of our new Programme for National Recovery.

Before the arguments and the negotiations about indexation go too far the tax wedge and PRSI should be taken into account. Everyone's eyes should be fixed on the issue of real take-home pay. The Bill is a compicated document and it requires very detailed study. The explanatory memorandum which the Minister has given us goes a long way to making it a clearer document.

There are a few matters in the Bill which I would like the Minister to look at. One of them is in relation to capital acquisitions tax. I congratulate the Minister on the indexation moves he has taken. It has now got to the point where a quite modest family farm with a dairy herd finds itself very quickly coming into the capital acquisitions tax net, even taking agricultural relief into account. We are now looking at a farm of maybe 80 or 90 acres coming into the capital taxation net. I do not think it was ever the intention of the capital taxation legislation that that type of property should be liable for large capital taxes. That is something that needs to be looked at. Above all else, we must never get to the point of having to split up holdings which are of quite modest acreage — certainly by international standards. We must never get to the point where it would be in the interest of their financial management that farms would split up. We did that years ago in different times, and I hope we never have to return to it again.

The other matter which, perhaps, the Minister might look at is in relation to accelerated capital allowances. I agree with most of what he has done but there is one area which is causing concern within farming which he might consider, that is, in relation to investment to control pollution. There has been a lot of talk — and rightly so — about the need for farming and, indeed, industry in general to clean up its act. Many farmers were encouraged to invest money at different times and to put money into buildings for livestock and developing their farms. Now we are being faced with measures to make sure that the investment which they were encouraged to make by the State and advisers went out and showed them what should be done — are being followed by other measures to make sure that these facilities are "environmentally friendly".

I realise the difficulty of making distinctions between enterprises in relation to accelerated capital allowances, but in terms of environmental aspects alone and in terms of making sure that the country is as we desire it to be, I think this is a matter which should be looked at and that the accelerated capital allowances should be made available for investment in pollution control. I understand that 20,000 people have applied for assistance under the schemes for pollution control. Even if that accelerated capital allowance period were extended for a year, I think at that stage a lot of the investment would have taken place and the Minister would have done a good day's work.

In relation to the manufacturing activities which are eligible for the 10 per cent rate, I think I am correct in saying that fish processing has been included as a manufacturing activity. Other areas could be considered, one of which is grain drying, where there are very modest margins; and I would submit that it does make a material difference to the product that it is dried. Certainly, if grain is left undried we all know what happens to it, it will just rot. I think milk pasteurisation is another area which might be looked at.

The other matter relates to VAT. The Minister again is to be congratulated in going down the road towards 1992 and reducing the rate from 25 per cent to 23 per cent. My hope is that we do not find ourselves at the very last lap having to make very big reductions in VAT to harmonise with the rest of the Community because it would place an intolerable burden on many of our businesses. I know the Minister in this budget has taken it into account and I hope he continues along that road so that we do not find ourselves at the last hurdle having to make very dramatic adjustments.

The final matter relates to inflation which I mentioned earlier. I think we can contain inflation. People keep citing what happened in England and say that if we were to do something similar on the taxation side it would lead to the present levels of inflation in England and which, thankfully, we have been spared. I do think that it is not about the taxation reform measures in England; it is to do with printing too much money. It is as simple as that. We must make every effort to ensure that inflation is kept under control, that interest rates are kept at reasonable levels, levels which people can afford, levels which encourage investment and levels which do not make people put their money on deposit in banks and leave it there, which is of no use to us and it is no use to generating any growth in the economy. I am sure that the Minister will take these factors into account. I congratulate him on the broad thrust of his budget and we look forward to continued progress over — I will not say the temporary arrangement — but the long lifetime of this Government.

At the outset it is nice to see that the marriage is working well, that the happy couple still love one another and that they are prepared to publicly declare their love for one another. I am, as they say, reassured——

Jealousy gets you nowhere.

We have not been making overtures, as far as I know. At the outset we have to be very critical of this Bill. There are two main fundamental criticisms. First of all, it does not look as if it is going to solve the awful problem of unemployment; and, secondly, it does not look as if it is going to address in any sort of fundamental way the great problem of poverty. These are the two great issues which are facing this country at present and, as far as I can see, this Bill simply makes minor adjustments to those two fundamental considerations.

More specifically, there is a number of items we would be very critical of. There is the question of how the self-employed are going to be assessed in relation to the year 1989-90, which is not going to be used as an assessment period and creates a loophole which, of course, can be exploited by these people to give themselves a very rewarding once off little present. There is also the question of the BES scheme, and that is widely acknowledged now by pretty well all sides to have been a failure. I am glad to see that there has been some tightening up done in relation to the scheme. However, it is not going to be adequate. What is really needed now is to scrap that scheme and to replace it with new schemes which will be devised to maximise investment in truly productive enterprises.

We are, it appears, facing into a period of sustained economic growth. One ERSI report talks in terms of growth on average of 5 per cent a year over the next five years. That, of course, is very encouraging; but if does raise the question as to how this growth will be distributed — in other words, who is going to benefit from it? That is a fairly fundamental question and, it is in relation to the approaches and the answers to that, that we would have to be very critical of this Government.

We feel strongly that that growth is not going to be shared in anything like a fair or equitable manner for the vast bulk of the people. We feel that the rich, will get richer while the poor will continue to be as it were cast aside and written out of the equation. In other words, we feel that the essential principles of social justice will not come into play in determining how that growth is going to be distributed.

What we expect to see, and what we fear, is that emigration will continue to be the great problem that it now is. There is no doubt but that whole parts of this country are being absolutely devastated by emigration; and it seems, I am sorry to say, that that is to be allowed to continue in this Bill by virtue of the lack of action contained in it.

We are also seeing at this stage a polarisation of our society. We are seeing a two-tiered health service, where those who can afford to get treated and those who cannot do not. I speak in terms of a two-tiered health service on the day I have heard that this child, one of the quintuplets, could not be treated short of a critical four day lag period because of inadequacies in the facilities which are available to treat such children. I understand it is going to be all over this evening's papers for anyone who has an interest in the details. There is, of course, the virtual collapse of public housing. There is the elimination of free education and there is the dismantling of many social welfare schemes. Equality and justice are now issues which no longer rate as essential items on the agenda. They have been pushed aside in preference to matters like profit, efficiency and so on. These are the new buzz words; justice and equality are from yesterday.

In relation to the whole question of jobs, here again we are facing another series of disasterous failures. The jobs simply are not coming. The solution that is being provided for that lack of jobs is essentially one of emigration, where those elements of society who are not privileged are simply pushed aside and ultimately forced out of the country. We, as it were, export our problems; they are written out of the equation. That is a terrible commentary on any notions of social justice and equal treatment for all people in this country.

The main areas of growth, as I see them, have been in multinational companies' profits and in profits in the financial services sector. Many Irish companies have not been doing well and have not been a part of this growth process. We do not seem to have adequately addresed the question of how Irish industry can produce adequate levels of value added to Irish products. It is that inability to add to Irish products in this country that I think is one of the fundamental problems in relation to our inability to create the types of jobs that will be sustained over a long period; and we still do not seem to be making any real effort to face up to that. We are not, to any meaningful extent, talking in terms of creating full employment; and that has to be a matter of great regret. We are talking in terms of this continued process — admittedly, with some reservations in later times — of multinational investment from abroad.

Multinational investment is all right but only in a context of a strong domestic industrial base. We are not working to develop that strong domestic industrial base to anything like the degree to which we should be. To do that, inevitably you are talking in terms of very major public investment in generating large corporations, Irish owned, and whose first loyalty is to this nation. We are not setting about doing that in anything like the manner that is necessary. The whole drift of industrial development is towards corporations becoming larger and larger. We are talking here in terms of very substantial investment; and I do not think we are facing up to those issues. We are still going to be dependent on these multinational companies. They will come, they will do their thing and, as soon as it suits them or as soon as the weather changes, they will toddle off again back to where they came from. A lot of the time those people have not any fundamental commitment to the Irish economy. They are multinationals, they are globe-trotters, they are all over the place. They will clear out again as soon as it suits them. Irish industry is a different story. We have to face up to this business of building large Irish companies so that we will be able to look after ourselves in the very unpleasant market realities of the present day world.

We should be doing a lot more in terms of creating a financial stake for workers in their own employment. There should be various employment funds and so on generated. There must be great scope here for increasing workers' commitments to companies by providing those types of opportunities for them.

I want also to address the business of privatisation. "Privatisation" is a new type of buzz word, admittedly it came from across the Irish Channel where most of the ideas in this country originate. Privatisation seems to me to be some type of new contagious disease, which has almost become an epidemic in recent years, and its symptoms are many and alarming. Certainly, one of the symptoms of this disorder is the commissioning and the production of consultants' reports. We should have one last great consultants' report that would deal with the value and the genesis of consultants' reports. We have had the consultants' report about Irish Life. I believe there is one on the Irish Sugar Company, on the Great Southern Hotels, on Irish Steel and God knows how many more that we do not know about. Certainly, the disease is spreading. It seemes to be mainly originating from some public houses not that far away from here; certainly it seems to be spread in these places. At the end of it all, what are these reports contributing to the genesis of Irish jobs, to the elimination of poverty, to addressing the great issues of the time in Ireland? I would like to be informed how these reports have any real value in relation to solving and providing answers to those great questions. It seems as if we are on a treadmill and we will get more and more of them. Certainly, I do not see that they have anything much to contribute to the solution of our problems.

On top of that we seem to have some public company managers who, to be fair about it, have their own problems in relation to the way the Government Departments have sought to influence them, to restrain them and bind them over the years. They have a legitimate complaint when they have to compete with other companies who do not have anything like those type of restrictions on them. But, at the same time, some of these people seem to be excessively enthusiastic for this whole business of privatisation. Ultimately, these people work for the Government. Certainly, if people in private industry took up the same sort of public positions on issues that relate to how their companies are run, then they would certainly be hearing from their managers as to whether it was expedient and wise for them to go on in the way they do. In many ways, if these people want to get into that kind of value, that kind of meeting, the place for them is not business; it is politics. If they do want it, then so be it. In my view, that is the way the game should be played rather then to have briefings for journalists, leaking information, and all the rest of that kind of carry-on.

Privatisation has become a sort of new panacea, a new suggestion, that will solve everything. I reject that. Public companies were established for a very difinite purpose: they were established for the most part because the private sector would not be prepared to do that job. Taking one thing with another, public companies have served this country very well. They are a fundamental part of the whole structure and they have served the country exceedingly well over the years. I think they have a very valuable role in continuing to serve the country and, indeed, in providing jobs and answers to many of the problems with which the country is now faced. I would welcome a White Paper on the role of State companies. Indeed, I would welcome a White Paper on how the role of State companies should be enhanced so that they could contribute in a more effective way to the genesis of jobs, which is a fundamental matter facing this country.

Moving to the issue of poverty, there is the Conference of Major Religious Superiors — I like coming back to this statistic. There is still talk of the million people who are poor; we have the high unemployment, the low pay, and increasing number of people on part-time and casual work who are simply exploited in an appalling manner in some cases; we have changes and cutbacks in essential services like health care, education and so on. In particular, there is the awful problem of the exploitation of part-time workers. These in many ways are the weakest, most disparate, most disorganised of the labour force who are exploited by very many unscrupulous employers who simply rip them off in a disgraceful manner.

We also get from the forces of the Right talk about social welfare payments being too high. The reality, of course, is that it is not that the social welfare payments are too high — in many ways they are too low — but, when people talk about disincentives and all that sort of thing, the basic problem is that the competing pay is not adequately high. It is a problem of low pay not excessive levels of social welfare. Anyone who doubts this notion that pay is too low or, for that matter, anyone who agrees with the suggestion that social welfare payments are too high, has only to look at reality; that for a child you get something of the order of £10 a week, when it would cost twice as much to clothe and feed a child. There are 350,000 children in this country who have to exist on social welfare. Anyone who has any knowledge or experience of these people could not be of the view that the levels at which they are being funded are anything other than too low.

Most of the benefits in this Finance Bill are going to the wealthy; the poor have done badly out of it. They have, to a large extent in recent times, been written out of the whole equation; and this Finance Bill, as I see it, is simply another part of that trend.

There is also the question of housing. We are still talking of housing in the aftermath of the death of the late and much respected Willie Birmingham. This year we can expect perhaps 500 or 600 houses to be built in this country, when, we are talking in terms of a need of perhaps 25,000 houses. Those are the kind of numbers which are on the list. The amount of Government funding available for public authority housing is of the order of £6 million and that would build 250 to 300 local authority houses in all the country. That is totally inadequate. The idea that local authorities can build as many houses as they like provided they get the money — to a large extent, is not a particularly high standard to set. Anyone who is familiar with the problem knows that this is inadequate.

There is a housing crisis, we are back to the way we were 15 or 20 years ago in the sixties and seventies when we had an earlier housing crisis. This whole problem of housing and all these inadequacies have led on to some areas becoming almost ghettoes. There are areas where you are talking in terms of perhaps 75 per cent of the people there being unemployed with all the attendant social problems. That is a very serious matter and something we can disregard only at our peril.

There is the question of the financial services sector and how they conduct their business. There is the question of adequate levels of information on financial charges and so on. Again, that is an area that would have been very interesting and useful for the Minister to have taken some initiatives on so that the average person who deals with these institutions would know exactly what they are paying by way of charges on those services, whereas for the most part now the whole thing is confused and they do not know what they are contributing or what they are being charged.

With regard to the BSE scare and so on, if anybody doubts the necessity for branded value-added products in international markets, it has been illustrated with the greatest of clarity over the past few days when Irish beef on the British market is sold there in the same way as Sainsbury's beef, or some of these chain stores so that there is no way for the consumer to distinguish between Irish beef and British beef, or God knows what other type of beef happens to finish up in the British market. A great opportunity is being missed now when Irish beef would have a very definite advantage over these other products. Yet we have not the capacity to brand Irish beef and identify it for the consumer in Britain so that we would be able in this country, at this time of opportunity — indeed, also a time of crisis for the whole beef industry — to exploit that. However, we are simply boxed in and cannot do anything. We are going to have to face the wrath, as it were, that is going to be dished out to British and indeed to beef in general and that has to be a matter of great regret. It arises because of an inability and a failure to put the investment into branding products, into developing new products and so on.

I do not want to suggest for a second that that is simple or easy; or, for that matter, that it is cheap. I know only too well that it is very expensive, time-consuming and that you have to be prepared to accept an enormous number of failures for success in the end. You are talking in terms of 5 to 10 per cent of new products or branded products making it, and that is probably an optimistic figure. However, the only way you can do it is by being big enough. That is what I am talking about when I am saying that the Irish State should be putting in the investment so that they are big enough to be able to soak up the failures which inevitably will arise because of the fact that they are sample size and the whole effort or organisation will be so big that the pluses will cancel out the minuses and that, rather like the insurance companies, you can work with a reasonable degree of confidence on a certain level of success. The great failure over the years has been that we have been, as far as these things are concerned, into the politics of the next five minutes, a quick fix, the attitude of off we go and as soon as we can unload it why would we worry any more about it?

There is a big educational job still to be done in bringing home to Irish people, and particularly to Irish farmers, the necessity for that type of long-term investment. It bothers me when I look around and see the dairy industry which, I am happy to say, is still for the most part co-operative dominated, not coming together to get that critical mass which is absolutely essential for these players to be able to compete and hold their place with the type of players they are playing with on the international markets. To be honest, I suppose I have been part of factions in some of these things in my past — I see the Minister, Deputy Daly, smiling at me, a man who knows much more of the nitty-gritty of how these things arise than I would and has much more experience of it in the past 20 years or so — but unless people sink their differences and get that capacity together, then we will simply be brushed aside and we will be selling into these places and we will not basically be at the races at all.

There are two other aspects of the Bill about which I have had a great concern. First, there is the question of the facilities and resources which were made available to the mentally handicapped. Indeed, I see Senator Honan in the House and I acknowledge her own contribution over the years, particularly in relation to the mentally handicapped. It bears comparison with the best.

Senators

Hear, hear.

I speak with some deference in the Senator's presence on this matter. However, I think it is appalling that we have not been doing more as a Government. I do not want to get into the statistics, but they are not acceptable in a civilised society. The mentally handicapped have been described as special and so on. I wish that special description related to the special privileges and the special effort that was made for them. Certainly, that has not been the case.

Finally I want to allude to the question of homelessness, particularly the question of homeless children in this city. There are at present, approximately 1,000 children homeless in this country and approximately half of them are located in the Dublin area. It is an appalling commentary on the values and standards in this society that we have not been making money available to deal with that problem.

Acting Chairman (Mr. Farrell)

I have to remind the House that by agreement, each speaker from now on will have 15 minutes.

I hope that was not meant personally in any way; I am sure it was not. Our spokesperson on Finance, Senator O'Keeffe, made a very comprehensive contribution here this morning on the complex Bill before us, so I will deal only with certain parts. It is a most unique Bill and we have an extraordinarily complex piece of legislation. There are 137 sections, nine Schedules and the Bill makes reference to 62 other Bills or past legislation. I am going to take the advice of somebody given to me long ago; I will just speak on certain parts of it because you could well speak yourself out of here — something that I would well nearly be doing in recent times, but I am sure I will survive.

I would like to pay a well deserved tribute to the Minister, Deputy Reynolds. I have found him to be one of the finest Ministers for Finance this nation ever elected. I have also found him absolutely human in the approach to problems and finance and he has time to listen. It is a lesson some of his colleagues could take. When senior Ministers do not give time to constituents and persons elected to listen to their problems and the deep concerns of their families, it could be serious.

I would also like to pay a tribute — this is not usually done, but I am going to do it anyway — to certain staff in the Department of Finance for their advice and help at all times to me with regard to problems in constituencies. My constituency is not like that of the Minister here present, Deputy Daly. My constituency is the nation, Deputy Daly's is Clare. In his presence here I pay tribute to the Minister, Deputy Daly, as Minister of State at the Department of Finance. He has not been given the high profile for the amount of work that he has done in the Department of Finance, but other people will judge him on another day and then the results will be seen. I understand he will be making a major announcement regarding part of his own constituency in the Burren in north Clare. I wish Deputy Brendan Daly and Deputy Albert Reynolds every success for whatever length of time they serve in Finance.

If the Minister, Deputy Reynolds, was asked what he saw as the finest part of the contribution during his Presidency of the Council of Ministers of Finance in Europe, he might well turn and say that it is the best Exchequer return in 40 years for his nation. That I am sure is what the Minister would reply even though one might ask him the question at a European level as he is President of the Finance Ministers of Europe.

The whole process of correcting financial imbalances is not on its own. One result of it has been to restore confidence among the people and in the workplace, and that was badly needed. I know that there is still much to be done but the Minister for Finance and his Minister of State are confident that we will succeed in that regard.

It is excellent that, as the Minister has promised, leaflets will be prepared setting out details of the budgetary provisions as they affect low income tax payers. Such an innovation is not surprising, though — it is typical Reynolds style.

Since becoming Minister for Finance, Deputy Reynolds has got the Government strategy going to create jobs. Exchequer borrowing has been kept well within the targets of his programme. The income tax and VAT changes announced in the 1990 budget will reduce costs and inflation rates, thereby further strengthening our competitiveness. The public capital programme for 1990, I understand, is up by 20 per cent. I hope that all this will result in strong recovery in private investment. We are now well ahead on our targets. It is not just consumer spending that has increased. Much more has happened and much more is to come.

New building output increased by 16 per cent in 1989, and I believe a similar rate or thereabouts could well be on target for 1990. The amount of new building activity and the number of new homes to be seen around us in Clare and elsewhere is extraordinary. It is marvellous to see the amount of employment and job creation that the construction industry has provided for tradesmen and the many others engaged in this industry, either directly or indirectly.

I should like to comment on a reference made recently regarding the Minister and the Central Bank. As this is a Finance Bill, it is better to put the record straight. The reference was that the Minister said that at times he likes to pass over his problems to the Central Bank, that he does not have the responsibility for interest rates. That is not his choice. The Dáil has given the statutory powers to the Central Bank to regulate the monetary policies for this nation and the Minister has not the power, and the House has never given a Minister for Finance, the power to direct the Central Bank to either bring down interest rates or increase them. Let us get the record right when people start talking about what powers Ministers have. That is the power which the Oireachtas gives to Ministers for Finance or does not give, whichever way one likes to put it.

The economy is doing very well. Anybody who says otherwise is not being honest. As one who has served for a long time in politics, I say sincerely that we must not get back to the madness of the seventies and overspend. We will have to remember that never again can people with power or who want to get into power, make promises just to get votes. The economy is going well now and we must all behave responsibly. Reference was made this morning to the fact that there is more closeness within all our parties, much more common sense and less of the political bashing that went on before and which really benefitted none of us. We should watch the control the Minister has put in place in finance and support him on it.

I am glad to refer to sections 25 and 28 because they are directed towards urban renewal. The incentive packet is being extended by two years from 31 May 1991 to 31 May 1993. I welcome this excellent iniative. Clonmel and many other places that I know well have benefited greatly from urban renewal. I have travelled a good deal, though I hope, for certain reasons, that I do not have to do so again soon, and I have looked very closely at Waterford. Urban renewal has transformed Waterford City into a magnificant place. The overall effect of sections 27 and 28 is to curb excessive levels of tax benefits — such benefits were never intended under the package for the designated areas — by reducing the potential of excessive tax gains but enabling market forces to operate more freely in regard to rental levels. I sincerely hope that the urban renewal schemes that have been put in place in the past will be extended to other towns and areas.

Someone, in an address recently said he was worried that urban renewal would give unequal advantage to business coming into a newer area of a town. I am in a position, firsthand, to contradict that. I sit on a council where we have just been sanctioned for urban renewal, I am well aware, because of the conditions laid down for us, that the renewal has to be in the heart of the town, in other words, in the old area of the town. The same applies to Clonmel. The rules are steadfast, they are tough, they are laid down for us. There is no question of new investment coming in and having an advantage over old businesses. As a person sitting at the council table, I would have strong views on this. I say that, too, as one who has been in business for 26 years. I would have to support the businesses. New people coming in and investing in urban renewal do not have an advantage over well-established businesses.

I ask the business people to co-operate absolutely and fully with us and I ask the Departments of Finance and the Environment to do everything possible to make this scheme a success. Risks may have to be taken but I suppose that is a factor of life for us politicians. Limerick city is another example of where urban renewal has been a success. Perhaps Senator Raftery will refer to that area.

I warmly welcome the Minister's major income tax reliefs and also that the standard rate of tax has fallen from 35 per cent to 30 per cent and the top rate of tax has been brought down from 58 per cent to 53 per cent. I appeal to the Minister to take a look at the Nursing Home Bill, which is in the other House at the moment, which might be relevant to the Finance Bill. An elderly person staying in a nursing home costs health boards over £200 a week. There is a maximum subvention of only £40. I appeal to the Minister to increase that suvbvention to £60. The reality is that people with the £60 allowance will be able to acquire a place in a nursing home but people with £40 will be unable to do so.

The tourist industry is a key industry in the development of our economy. It is a labour intensive industry with enormous growth potential. It is estimated that in 1989 tourism supported 74,000 jobs throughout the economy in a wide variety of activities and sectors. While talking about tourism I would like to tie in the Office of Public Works, the Department of the Minister of State, Deputy Daly. When we talk about success stories in one place perhaps times we forget about another Department that has also played a major role in a success. Tourism is the one area where jobs can come on stream. Side by side with that, the Board of Works under Minister Brendan Daly has played a major role and does not always get the credit.

I am grateful to Senator Upton for his kind remark about my role in the area of the mentally handicapped. As a person who has had the privilege of being elected six times on the nomination of the National Association of Mentally Handicapped of Ireland, I am delighted to put on the record that the budget made provision for an extra £2 million to fund day care centres for people who are mentally handicapped.

The way the Minister for Finance reacted and amended the Finance Bill in relation to the Dunne child deserves to be commended and portrays the human side of the way he carries out his work. It was enlightening to hear on "Morning Ireland" the father of the Dunne baby paying tribute to the Minister. We do not get many tributes and certainly the Minister does not get any these days. I do not remember a Finance Bill being amended so rapidly on a request. It was staggering to learn that £300 was going to the Department of Finance and only £30 to the Dunne family.

I welcome this Bill. I look forward to keeping today's confidence in the financial sector. There is a lot more to be done. The Minister never pulls punches or pretends that he can do all things in one year in Finance. I hope he will be in Finance for several years to come. That may not be what he would want me to say. I congratulate the Minister again and warmly welcome the Finance Bill.

My comments were on areas of the Finance Bill that I understood and that had to be said. Other people with greater expertise in finance will make their contributions only on finance. Everything I said was relevant to the Finance Bill.

I would, first of all, like to place on record my appreciation of the Minister coming here this morning and spending so much time with us. I am sorry that he has left us but I appreciate that he has many pressing duties. Before I begin to comment on the Finance Bill I would like to comment on Senator Ryan's contribution — I am sorry he is absent — since he dragged my name into it, and not for the first time misquoted what I had to say, and not for the first time disagreed with me on issues. He said there was no evidence that tax is driving people out of the country. I do not think he is living in the country I am living in. He has only to consult his past students and my past students to find that not all of the people who emigrate today are unemployed. Some of the people with the very best jobs in the country are emigrating because of the tax problems thy have to contend with.

It was in relation to the United States, he referred to me, I certainly do not say the US is perfect but I argue that it has a spirit of enterprise and work which is to some extent attributable to its taxation system. Senator Ryan has such a phobia about the US that he reminds me of the late President Khomeini who referred to the US as the great Satan. I put it to him that they must be doing something right in the US since they nearly have to put an iron curtain around that country to keep out millions of people including thousands of our own, whereas the countries he so admires in Eastern Europe had to put up an iron curtain to keep the people in. That is the reality, I wish he would see the facts as they exist.

With regard to our nearest neighbour, Great Britain, which he referred to in scathing fashion, let it be said that Great Britain took and continues to take the people we are unable to employ. That is partly due to the success Mrs. Thatcher has had in turning that economy around. Not everything is right there. I believe they moved too rapidly in changing their taxation system which has contributed to the present inflation problem and balance of payments deficit.

He then referred to West Germany. West Germany has an extremely successful economy but to take just the personal taxation in isolation from all other taxation and compare one country with another is giving a very unbalanced picture. For instance, he made no reference to the low levels of indirect taxation in Germany. One has only to look at the price difference between motor cars in Germany and Ireland to see a huge gap. One can be selective with figures and prove anything. The Senator really went off the deep end when he became hysterical about the farming community and made unwarranted, disgraceful accusations about farmers in general. I repudiate that. I would remind the Senator that 70,000 family farms have to survive on a family farm income of less than £5,000 a year. If the farming community are not contributing a lot of tax it is primarily because the farming community, by an large, are not enjoying good incomes.

Senator Upton spoke about Irish companies becoming big, and so on. Of course, that is true. He was very critical of multinationals that we have imported here. I would remind the Senator that the moment Irish companies get big they become multinationals too. That is a good thing. I would further remind him that without the 80 or so multinational companies we have here we would be a few thousand worse off as far as unemployment is concerned. I wholeheartedly agree with him when he says that workers should have more of a share in the profits. I have been advocating that for years. I can see companies like Kerry Foods moving in that direction. It is the direction in which we must move.

The Senator spoke rather scathingly about privatisation. Sometimes the Left in this country have a blind ideology that prohibits them from seeing realism and pragmatism. He talked of it as a new disease. I would remind him that that new disease has caught on more strongly in the socialist governments of the world than it has in the capitalist governments. The New Zealand privatisation programme would make Margaret Thatcher's look rather modest. The Spanish socialist government within two years of gaining power had privatised 22 publicly owned companies. When the Spanish Minister was asked by a British socialist why they had gone this route, or how did they reconcile it with being a socialist government, he gave the perfect reply when he said, "Sir, we are interested in results, not in ideology". If our socialists became interested in results and forgot their ideology we would all be better off.

The Senator referred to the Major Religious Superiors' figure of one million people in poverty. I dispute that figure and I make no apology for disputing it. I have disputed it with the Major Religious Superiors. I happen to know that the Hierarchy are more in line with the figures I give than the figures given by the Major Religious Superiors.

Senator Upton quite rightly said that Irish beef should be branded or that Irish food should be branded. That is certainly very true. There is something else we need as a nation and as a Community: we need some kind of impartial objective, independent body to give facts in relation to food and drugs. We are now in a situation in the Community where it is one scare after another, most of it without any foundation, scaremongerers in the media and in politics. That is doing irreparable damage to the food industry in Ireland and in the Community as a whole.

We need the kind of body which the United States is lucky to have, the Food and Drugs Administration, which enjoys the confidence of over 70 per cent of consumers in the US. It has certainly earned that confidence but as long as we have regulatory bodies under the control of Ministers in Governments all over the place, we will have this lack of confidence, particularly where Ministers for Agriculture are responsible for food quality. They will be perceived as being more interested in farmers than in consumers. That is a difficulty that we have to get over.

I am sorry the Minister has departed because I have a few things to say to him as well. The last time I shared a platform with the Minister for Finance, the other Coalition were in power. The efforts of that other Coalition were derided. That Coalition were accused of being monetarist, of being Thatcherites, of fiscal rectitude, of bookkeeping government, and so on. It is amazing what a Mercedes and a Department of Finance can do. The Minister's conversion to financial rectitude in a short period of time makes the conversion of St. Paul on the road to Damascus seem like a minor event. Let us be grateful for it, because he is moving in the right direction.

I remember some years ago chairing a lecture in UCC when the late Dr. Roy Geary said that Governments had very little power to do good for an economy but enormous power to do harm. If anyone wants to see the truth of that statement one has just to look at the record of this country over the past 12 or so years and to see that in a few short years in the late seventies we did enormous damage to the economy. It has taken a hell of a lot longer to put right the mistakes we made then.

Let me give an example of the kind of things that happened. In 1977 we had the cheapest electricity, the cheapest post, the cheapest transport, the cheapest communications in the whole Community. Five years later every single one of those was significantly dearer than in any other Community country. That is what we got as a result of financial recklessness. I am glad to hear Senator Honan refer to parties becoming more responsible. I would add that parties need to be responsible in Opposition as well as in power. I hope when Fianna Fáil find themselves in Opposition again that they will behave more responsibly than they did when in Opposition in the eighties.

With regard to taxation, on which the Minister dwelt for some time, I liked a lot of what he had to say. Any taxation system must be not only effective and efficient, but must be seen to be equitable and, of course, it must also provide incentives for savings, investment, risk taking and hard work. We are moving in that direction. I am not sure if our collection method is efficient or even effective but I am certain that it is not seen to be equitable. That is a big problem.

A commission on taxation which were set up produced a marvellous report. It seems that no single party are prepared to take on the job of reforming the taxation system. The taxation system has become so complicated that thousands of consultants and accountants are making a good living out of helping people to avoid or evade the tax system, when these people should be using their time more productively in helping businesses to run their businesses better.

I am suggesting that our taxation system must be simplified; the base must be broadened and it must be seen to be equitable as between all sectors of the community. In that respect, I have to say the PAYE sector see themselves as paying an unfair share of the burden, and perhaps they are. I am a PAYE person too. On the other hand, farmers are seen as not paying their fair share. A lot of that has to do with the reckless leadership of one farm organisation in the late seventies. When a presidential election was coming up in the farmers' association they went out on a limb scaremongering about taxation and attacking the late George Colley about his proposed taxation for farmers. Lack of income and not income tax was the real problem for farmers then as it is now and they did no service to the farmers then or now by that behaviour. In fact, they discouraged many farmers from developing their farms, from increasing their milk output and so on rather than encouraging them to increase output. If they had gone along the right road, gone along the road of increasing farmers' incomes, not concerning themselves with income tax, we would have had a decent national milk quota by 1984, not what we have now, which is a rather inadequate one for our farmers. The two gentlemen involved subsequently took the Fianna Fáil soup and have become very silent in the meantime, even though the farmers' plight is a lot worse now than it was then.

One issue which was not referred to in the Minister's speech, and which is very important, is the poverty trap. Those on low incomes who are being taxed often find that it is not worth while going to work. That issue must be tackled.

In relation to taxation, and to income tax in general, we should have an all-party approach to it because it is such a difficult matter and it is important that we get it right. An all-party approach is highly desirable.

The Minister dealt with corporation tax and I am delighted to see that the 10 per cent manufacturing tax is being extended to the year 2010. How he got by the Commission on that, I am not quite sure. He referred to inheritance tax and said it is now going to be indexed but, in fairness, it should be indexed back to the figure we started with in 1978. Inheritance tax is becoming a major problem for many people and it should have been indexed from the beginning.

With regard to indirect taxes, VAT and excise duties, I fear the Minister has not moved far enough. We have only two more budgets before 1991, when we will have to bring our taxation more into line with that of our neighbours, particularly with the one neighbour with whom we have a common land border. Much has been made about the loss of revenue we will suffer as a result of harmonisation or convergence of taxation. That is exaggerated because it takes no account whatsoever of the enormous amount of goods being smuggled from Northern Ireland to Southern Ireland from which we are getting no tax at all.

Interest rates, of course, are too high and the Minister did not pay much attention to that. They must be reduced because they are a disincentive to investing and borrowing for productive purposes. The Minister quite rightly made adjustments in the BES. It was ridiculous that people could borrow money and get tax relief on it, and invest it and get tax relief on that also. In relation to taking the risk out of the scheme, the whole purpose of the BES was to get money into venture capital.

I disagree with Senator Ryan's comments on residential property tax. Many people, who are not wealthy, have extended their homes because they have large families and wanted to give them a decent standard of living and then found that they could get no tax relief. That was certainly discriminatory.

In general it is a cautious Bill. It is moving in the right direction but there are many other things we would like to see done. I would particularly like the Minister to do something in the near future about interest rates because they are a terrible brake on the economy, particularly in capital intensive industries.

The Finance Bill, which gives detail to the budget, is an opportunity for us to take an overall look at the position and one has, first of all, to say that there has been great success. It is a marvellous success story. In the past three years there has been a transformation from the very deep gloom and pessimism which spread through many sections of the population. There was almost a universal view that things were bad and that there was no real hope of improvement. Students coming out of school or graduates coming out of technical colleges or universities all said there was no hope for them here and that they would probably have to go abroad. Their parents were very worried for them, and rightly so. Blame for this would be easy to apportion in an immediate political sense but I am not attempting to do that. The Minister has taken a personal interest in what has happened and has had a major input to it as well as the Government and, indeed, his colleague the Minister of State.

There has been a quite astounding record of success in turning around the economy, and our reputation abroad but, most of all, in giving back hope to the community. Without that hope and optimism we will not have any improvements, jobs, or future for ourselves and, more importantly, for young people following us. This is not a complete success story or anything like that. The tide has been turned, but there is a long way to go. There is no way we can let up on the various measures that have been taken but at least now we know that there is a future ahead.

The Government cannot do this on their own. One must pay tribute here to the trade union movement, to farmers and all sections of the community who have joined in a combined effort which is essential for success. Countries that have been successful — those which spring to mind are Germany, Japan, Singapore and so on — are where there has been a combined effort. The Governments of these countries set the conditions for success and the people in industry, in the unions, in the universities and in various other sectors have combined to work towards that objective.

Success does not only mean economic success. There is a cultural and an environmental aspect to success. Yesterday, we had a debate in relation to Irish, one of the classical languages, with Greek and Latin. We think of Greek civilisation and how marvellous it was. We read about it and, if we are very fortunate, visit the Acropolis and read the various classics, Socrates and Plato and so on. We do not realise, as the economists and philosophers of those faroff days would quite openly say, that that culture was based, effectively, on a slave economy. That tiny group of people lived in an extremely civilised manner, they had the opportunity to write books on philosophy, to lay the foundation for medicine which exist to this day and to construct those marvellous architectural wonders but they did that at an appalling cost to the vast majority of people living in the Greece or in Rome of that time.

We have not entirely got away from that. Here I sympathise with speakers on the opposite side and on my own side. There is a proverty trap and we have not achieved a balance between people who are genuinely in need and are not getting the support we would like to give them, and people who are successful and, at times, are exploiting that success in one form or another in an unjust manner. As the Minister said, if we really do want to do something about poverty here, and if are genuine about eliminating it, as opposed to just making speeches about it and condemning it, then we have to take the sort of economic measures we are taking. The way to abolish poverty is to have jobs and riches in the country and there are only two ways to do that. One is to have the good fortune of certain countries in the Middle East, of finding themselves, by chance, sitting on a huge economic resource. They had their own problems in gaining control of that resource but, having gained control they could afford on a massive scale to subsidise their population. Even there, there are countries where there is poverty far beyond the experience or the imagination of most people living here. The other alternative if we want to abolish poverty is to ensure that by Government policy and individual and other success we are in a position to enlarge the cake so that we can give to those who deserve it but who through no fault of their own, are unable to look after themselves and we should be able to give them the support and services they deserve.

There have been very practicial improvements. There have been 30,000 extra jobs created in the last two years. The idea of creating that number of jobs in the private sector would have been ridiculed and laughed at if it had been said four years ago. At that time it was being said was that the private sector had failed but there had not been an increase in Government jobs, in fact there had been a reduction and yet there was that increase in jobs. I am delighted that many of those jobs are in the high technology areas which have hope for the future and which have a long term gain for this country. If we are to succeed, we must succeed in the up-market niche, in the top 10 per cent, in the quality of goods, products and services. If we are going to compete on a mass basis we can forget about it. We can subsidise industry at enormous expense for a very brief period but then be far worse off than we were before.

I am glad to see that despite our severe economic circumstances, we are still trying our best to emphasise the importance of education and providing money for it. We have a talent for and appreciation of education, if we get the chance to be educated. If we are to have up-market high technology we must have the basic educational training and opportunities.

We have had this period of successful fiscal correction, of economic and investment growth in industry. Capital utilisation last year was at the highest level in our history. We have growth of exports of goods and services and we have a significant trade surplus. People do not often realise that, for example, we have a trade surplus with West Germany, and a very substantial one. One of the great things about the union of East Germany with West Germany is that we are going to have an enlarged market, and there are very positive aspects to that. There are one or two difficult signs, one or two warning signs as it were. An internal one is, perhaps, a fall on the order books. This concerns one a little and I hope it will be corrected later in the year. Another difficulty, which we will deal with very effectively and of which the Minister is well aware, is the possibility of a rise in German interest rates as the Deutsche Mark takes responsibility for the Ostmark. That, in turn, could put pressure on our currency which has done extremely well, either to have some form of increase in interest rates or some form of realignment within the EMS. What is far more likely to happen is that the United Kingdom, will, for its own good reasons, some of them very political connected, perhaps, with the next election, will probably join the EMS and this should be very beneficial from Ireland's pont of view. Our companies deserve some degree of credit for the way, despite the EMS and the value of sterling, they have succeeded in maintaining and even recently increasing, exports to the United Kingdom, something which seemed almost impossible bearing in mind the difference between the a rates of the two currencies.

There has been a lot of success, very crucial success. Without that sort of economic success we could not alleviate poverty, maintain the environment, provide education, halt unemployment, allow people to emigrate if they want to but not feel they have to do so and give people hope. There has been a great success in setting this new climate which is so much better than that of a few years ago. In company terms, the improvement in optimism encourages business confidence, encourages companies to come here, encourages Irish companies and companies already domiciled here to invest and to expand and that has been very beneficial. Then there have been partical measures — changes in corporation tax, a gradual reduction to 40 per cent and the definition of "manufacturing" for the purposes of the 10 per cent rate has been changed. I was concerned when I first saw the Finance Bill and I am delighted that the Minister — a considerable part of this was his innovation — looked at this definition of manufacturing and introduced the amendments which are, of course, included in the Finance Bill which has come to this House from the Dáil. Those are very important, crucial and beneficial amendments and I am delighted they have been included. I have an interest in the general idea of shipping, and I have always felt we, as a country, should be more involved in shipping. As an island nation we have an advantage over other countries and I am delighted to see that matter is being attended to. Many Norwegian students often ask me why this country, an island, has no shipping industry and they have.

It is not mandatory in this House to declare interest, but I have and declare an interest in mineral exploration. I have no hesitation in welcoming the changes which have been brought in by the Minister in relation to mineral exploration activity, but beyond the direct company benefits it must be clearly understood that, of course, one cannot discover anything. We were all told as children that there were no minerals here. There are; we have one of the largest base metal mines in the world and the likelihood is that we are going to have others in due course. We cannot discover any minerals without exploration. Therefore we must have a regime that encourages it.

There have been a number of other provisions in the Bill that I was delighted to see, for example, advanced factory building, the clarification of the business expansion scheme, the section 84 provisions, the unit trust provisions and the harmonisation which has been brought in. I am glad the Minister is addressing so effectively the tax position in 1992 which will, certainly, have major implications for VAT and many other aspects of tax. I am sure we will deal with them very effectively but these major changes are coming.

I was interested to note two small points. It is high time that the Stamp Duty Act was looked at. The united Kingdom Stamp Duty Act, 1891 has been the basic Act here and will be until this Bill is passed. I was glad to see it revised. I should like to draw attention to the Succession Duty Act, 1853, a very ancient United Kingdom Act. Perhaps, at some stage, we will have a new Bill — we have already had some modifications — which will bring this into a modern era. Again, congratulations to the Minister on his truly impressive success, and that of the Government, in transforming our economic climate and giving us all a basis for hope.

I am glad of the opportunity to speak on the Bill at a time when economic activity, especially in the retail sector, is slowing down and when the farming industry is coming under threat. It is clear that by the end of this year farming incomes will have dropped substantially. The price of milk has dropped by 20p per gallon since the start of the year and this will be seen in the amount of money available to farmers to spend. Beef is still in crisis and there is no move to assist that sector or to get it out of the disastrous state it is in. In fact, this is likely to be compounded by the BSE scare which will be debated this evening. It is incumbent on everybody to realise that one of our main industries, agriculture, is under threat. Action must be taken to head that off.

Some provisions in the Bill are important to the farming community. The personal allowance has been discussed at length but it bears further mention. It is obvious now that there is discrimination against farm families in that they have lower personal allowances than the PAYE sector. This must be terminated. When the PAYE allowance was introduced in 1980 the justification given for it by the then Government was that it was to offset the disadvantage suffered by the PAYE taxpayers because they were then the only taxpayers taxed on current year basis. In the 1980 Budget Statement the Minister said the PAYE allowances were given "to take account of the fact that self-employed generally have at present the advantage of paying tax on a previous year basis". There can be no justification for the continuation of such blatant discrimination. The non-availability of the PAYE allowance, and the PRSI allowance, is very significant in terms of the tax liable on the farmers incomes. Some farm families, in effect, have to pay the equivalent of a 5 per cent surcharge on their incomes by way of additional income tax in comparison to the PAYE sector.

Another matter of concern to the self-employed, especially the farmers, is inheritance tax. This may seem not to be an issue in most cases but having spoken to many farming groups and attended farm organisation meetings, I am aware that this raises its head on almost every occasion tax is discussed. It may not be a problem for the farmer on any one day but they all fear it, and rightly so. The Minister should have amended the law on inheritance tax to take account of the increases in the value of property. This is a particular worry to farmers, and increases in the value of land over the past five years are bringing people into the inheritance tax net. The tax was never designed for them or meant to encompass such people.

In the transfer from a parent to an immediate family, say, a son or a daughter, assets up to £156,000 in value will be tax free. Agricultural relief applies in the case of farmers lands. Farm buildings and the farmhouse are valued at 50 per cent of market value. The result is that farms up to £312,000 market value can be transferred from a parent to a son tax free. Increases in the value of land which I have already mentioned have brought the value of many holdings above this level. This leaves the young son or daughter who is inheriting the land with two options: either to borrow to pay the tax and involve themselves in high interest rates at a time when farm returns are dropping or to dispose of part of the land and part of their livelihood to pay the tax. This problem is very urgent and should be considered by the Government before the next budget.

Transfer between relatives is extremely onerous and, I believe, unfair. Take a case of two brothers who live on a farm: one of them dies leaving the surviving brother liable for the full whack of inheritance tax. In many cases that person has no option but to sell the land to pay the tax. The same applies to people outside the farming community. I am referring to people with a business such as a bar, a shop or any family business valued for inheritance tax in this fashion. The thresholds for this tax have not been raised in line with inflation since 1978. This is of immediate importance and should be taken on board by the Government.

I welcome the Minister's statement on sections 30 and 31 which give effect to the budget decision to extend from 31 May 1991 to 31 May 1993 the time limit for incurring expenditure which qualifies for the urban renewal tax relief in designated areas. I compliment the success of this scheme. I am talking from experience and noting the results the scheme has achieved for the city of Limerick. It has changed the profile of our native city. Compliments should be paid to Shannon Development and, indeed, to Limerick Corporation for the excellent work they have done in the city of Limerick.

I would request the Government to consider the extension of that scheme to a town in County Limerick — Rathkeale — for particular reasons. The scheme was recently extended to cover other towns and cities, many of them not much larger than Rathkeale. A special case can be made to consider Rathkeale for the scheme and I will briefly outline it. We need to ensure that the centre of the town is returned to commercial activity. In Rathkeale the shops and other business premises throughout the town are being bought by members of the travelling community and turned into antique goods stores. When I say "travelling community" I am not talking about itinerants; I am talking about wealthy, successful, multi-million-pound business people known locally as the Hiace or Volvo brigades. Their activities are killing economic activity in the centre of the town. If an urban renewal programme was applied to that town, it would create an incentive to change the use of those premises and return them to the use for which they were originally built. It would develop economic activity within the town. I have made quite a detailed proposal to Limerick County Council on this and, in fact, got advice from Shannon Development who are very keen on the idea. They recognise my argument because of the special circumstances. If the Government look at the town and see the circumstances they will not create a similar state in any other town in the country. Such circumstances do not exist elsewhere. I would also like to refer to the opportunity which is being lost for the development of economic activity along the estuary in County Limerick. Two hundred acres are in the ownership of Shannon Development for development in Askeaton. I would urge the Minister and the Government to use their influence with Shannon Development to bring industry to that site. It is urgently needed and would halt or reduce the level of emigration and unemployment in the immediate area, and especially emigration from further west in the county and from Kerry.

I would also like to refer to the opportunity that is available for the creation of employment and the development of economic activity in Foynes Harbour. At the moment there are 350 jobs at Foynes Harbour for which there is a £19.5 million development plan. That is about to commence. They have asked the Government to match as far as possible up to 50 per cent of the funds of the harbour trustees to ensure that that development takes place without delay. If the Government decide to grant from £6 million to £8 million in Structural Funds to Foynes it will change the economic life of the area and double the number of jobs now in existence there. I am sure the Minister knows quite well what is happening in Foynes.

Can you sell it to the estuary authority?

If you wish me to speak on that, Minister, I am quite happy to do so. The Minister and his predecessors have tried for 25 years to introduce an estuarial authority. The arguments for and against that have been debated at length between us all. It is obvious that the decision has come down on the argument that Foynes must remain independent. It will remain independent and will develop to a level, which I have already mentioned, with the help of the Government in granting us the Structural Funds which we deserve on the basis of the plan which is outlined. It is 100 years this year since Foynes Harbour was established. The only investment made by the State in that 100 years was £500,000 made by the then Minister for the Marine, Deputy Jim Mitchell, in 1985.

I am glad that I have had the opportunity to discuss these issues. I urge the Minister and the Government to consider them.

I welcome the opportunity to speak on the Finance Bill. I would like to give particular thanks and praise to the Minister for introducing this Bill and indeed, to the Minister of State, Deputy Daly, for being with us today. It is indicative of the seriousness with which the Government and the Ministers concerned are taking this particular piece of legislation.

I would like to endorse what some of the previous speakers have said, particularly the words used by my learned collegue, Professor Richard Conroy, in relation to the upsurge and economic success of this Government and their predecessor in the past three years. There has been an economic renaissance over the last three to four years. Despite some criticism from the opposite side of the House, Fianna Fáil and the current coalition Government are achieving what Fine Gael had hoped to achieve in past years but in which respect they failed miserably. We appreciate their support as outlined in the Tallaght strategy. I am sure that is continuing ——

It turned the economic activity around.

I welcome a number of important items in the Bill which I support wholeheartedly. I will be making some comments which may appear to be critical, but I trust that the Minister will take them as constructive criticism and nothing else, and something that may be looked at at a future date.

Initially, as a person in business I can say that the increase in the stamp duty exemption from £1,000 and £5,000 is very welcome. I would even go so far as to say that we should in future consider increasing all of the bands. There should be a minimum of £10,000, so that below that figure there would be no stamp duty applicable. The other bands where 3 per cent and 4 per cent rates of stamp duty are payable could be improved. The purchase of a house now for £50,000 or £60,000 as a family home is a quite frequent occurrence. In modern terms that is not an expensive purchase. For many years there has been a high rate of stamp duty. That, too, is something that could be looked at.

I would also welcome the fact that there is provision in this Bill concerning all transactions or transfers of property between spouses. There is a total exemption from stamp duty where the transfer creates a joint tenancy. This, too, is welcome. Up to now, it merely applied in relation to the family home situation. The broadening of this device is to be lauded.

I would like to compliment the Government and the Ministers concerned in not reducing further the mortgage interest relief. It was feared that the level of the relief would be reduced again in this year's budget but the Minister, quite rightly, having regard to some increase in the interest rates over the last two or three years, realised the difficulty and left the mortgage relief untouched.

Having welcomed the Bill, there are a number of matters which I would like to touch on. First, the relief available to disabled persons is not what I would like to see. Disabled persons, because of their inherent disabilities and particularly those of them who have not the back up or possibly an award arising out of an accident or otherwise, should not be taxed as single persons. They have no free travel and must adapt to their disability sometimes on a long-term basis. There is room here for certain additional concessions, in particular to people in wheelchairs and who are dependent on others and on society to help them.

I also welcome the extension of the manufacturing tax relief into the next decade. I compliment the Minister on the swift and efficient manner in which he moved in relation to the Dunne case, which was particularly laudable and, hopefully, will meet with total and unequivocal agreement from all sides of the House.

Some Opposition Members have referred to the cumbersome and possibly difficult way in which our tax is collected. There is need here for this Government, and indeed all Governments, to continually review the methods of collection and the administrative side. There are certain anomalies. This administrative sector is somewhat top-heavy. One particular matter on which I have practical experience is that there are small farmers who are obviously not in the tax net and who, on a regular basis, get tax assessments, etc. Where it is clear and obvious that a farmer is ekeing out a subsistence living, there should be some method that possibly once every five years would be a sufficient period of time to investigate his circumstances, and not on an annual basis.

The VAT band is too low and should be looked at. I am particularly concerned that at the moment if you want to register for VAT it cannot be done, particularly in the south of Ireland, in the Cork office where there is a huge tax office in O'Sullivan's Quay. There is a huge administration there and yet if one has to register for VAT in the county or city of Cork — and I presume in other counties as well — one has to go to Dublin. This is an administration aspect which I would query. I hope, without in any way being critical, that this will be taken on board by the officials of the Department of Finance.

I welcome the increase in the thresholds concerning capital acquisitions tax, particularly in relation to inheritance tax. I would broadly agree with some of the points made by Senator Neville, that certain difficulties exist in this area. The increase is welcome but it is not sufficient. There are certain anomalies within the CAT liability that should be rectified. A situation which I frequently encounter is where a farmer or some property owner wishes to leave property to a nephew or nice. The threshold there is inadequate and it is something I hope will be looked at. I welcome the new initiative whereby there is now no CAT liability in relation to transfers or inheritances between spouses.

There are certain anomalies in the position regarding capital acquisitions tax. I quote a practical example which I recently encountered where a couple about seven years ago transferred their family farm on their son. In the intervening period the father died and about 12 months ago, tragically, the son was killed in a road traffic accident. The mother, who is in her eighties now, inherits that property by virtue of the provisions of the Succession Act and is now faced with a substantial capital acquisitions tax bill by virtue of the fact that she, in getting this property back as a result of this tragic accident has only an exemption of £20,800. Possibly you can double that if you give the agricultural relief, but at any rate the liability, having regard to the value of the farm, farm buildings, capital, etc. in excess of £150,000, that this old lady is faced with is a bill of £10,000 or £15,000. I urge that in such situations the converse should apply and that where property reverts to the original transferor — in this case, the mother or, possibly, a father — the full exemption should apply, and that it should be £156,000 and not £20,800.

It is not a unique instance. In the past two years I could quote another situation where a young man in similar circumstances, who was unmarried, had cancer and died at the age of 36. The property reverted to the parents, not that they wanted it back but that is the way the law works, and they had to face a CAT bill. I do not think that was what was intended under the capital acquisitions tax legislation and I ask the Minister and his officials to have a close look at it. I believe it is one area which, without creating too many ripples or too many problems, can be tackled successfully by the Government. Next year, when the Finance Bill and budget is being prepared some of the points I made may be taken on board.

I would like to say clearly and unequivocally that, as a businessman, I have been the practical improvements that have been created by the economic renaissance and the success that has been generated by Fianna Fáil after 1987 by the current Government. I wish to see this continue. I believe the Government, with the support of the trade unions and the people in agriculture, can certainly bring the economy of this small national back on its feet. At the moment, in industry and commerce, in the property markets, etc. there is a great resurgence. There is a belief that we are doing the right things and that is very important. It should not go unnoticed that over the past 28 or 30 months each month our balance of payments, our exports over our imports has been excellent. this is the direction this Government is going, and one which must be lauded.

I would like to say "well done" to the Minister for Finance and the Minister of State at the Department. Keep up the good work. Hopefully, the problems of emigration and unemployment will gradually be eroded. We are going in the right direction. I am delighted to see that sort of resurgence.

I welcome this opportunity to contribute to the debate on the Finance Bill. Bearing in mind, the time constraints we are adhering to, I will confine my remarks to a few matters in the Bill and will suggest some changes which the Minister might consider.

The Finance Bill obviously gives effect to many provisions in the budget. Some of them are technical and will be discussed further on Committee Stage. First, I stress the importance of getting people back to work. Certain progress has been made in this regard over the past few years. Part of the progress was due to the constructive policy and attitude taken by Members on this side of the House and, in particular, the members of the Fine Gael Party. It is important that Member's on the other side recognise that contribution. In facing up to the problems which the country has, and continues to have, we need a combined effort.

In relation to unemployment and job creation, and rewarding initiative and risk takers, we must go further down the road. As the Minister says, unemployment is the root cause of poverty. While certain progress has been made, he admits that it is not adequate and much remains to be done. We have all to work towards getting more of our people back into employment by helping to create the climate that is necessary for jobs for the many young people who are at present doing examinations. There are probably going to be fewer people going into training. More openings must be provided through our position in the EC. We have got to reward people who are prepared to take risks, prepared to take initiatives and to put up money in order to give employment. All we have got to do in relation to that is extremely important. There is the whole situation of job creation and taxation, which are related.

The moves made to reduce our penal tax rates are welcome. I would like to see the Minister accelerating the progress. On the tax rates here one can quickly reach the highest rate of tax. People on low salaries are looking at their pay slips and wondering which is the tax and which is the net amount they are going to take home. We have got to ensure that if people work hard they take home a satisfactory amount of money. Friends of mine and other people who go to London would like to be back here working if the jobs were here and if the tax rates were more equitable.

There has got to be commitment towards reducing tax down to a standard rate of 25 per cent, the higher rate being somewhere between 40 per cent and 50 per cent. It is criminal that a person has to pay over 50 per cent of his wages, after a couple of allowances. It is no wonder people are finding it very hard to make ends meet.

Interest rates have risen alarmingly and have become a heavy burden over the last 12 months. This time last year, interest rates were approximately 8.25 per cent. Today they stand at almost 50 per cent more, so they are at 12.4 or 12.5 per cent. This extra increase in interest rates is placing an intolerable burden on people who have committed themselves to buying their houses, and who now have this noose around their necks in relation to mortgage repayments. On an average mortgage, which is about £30,000, an extra £1,000 in repayments has to be found. Most people enter into mortgages on set guidelines. They have only so much money for food and house hold bills, running a car, education for their children, and maybe putting a little bit by for a holiday. Having to find, as they are having to find at the moment, an extra £1,000 or more, is really choking people. They are literally on the breadline because of mortgage interest increases.

It must be remembered that mortgage interest relief had been reduced from 100 per cent to 90 per cent, down to the present 80 per cent. While I suppose we ought to be thankful it was not reduced any further there was a case this year for restoring a certain amount to try to relieve the present situation. The Minister should look at the situation again. There is no immediate prospect of interest rates coming down. Thankfully, they have not gone up any further, even though that was threatened some time ago. The reality is that they are going to remain very high for some time. The Minister should look at this. Many people make a very big commitment in relation to their mortgages. It is breaking some families at the moment. I ask the Minister to keep it under consideration and to do everything he can to see that the rates are reduced. It is a crippling burden on many young couples. What is happening is that more and more people are getting behind in their repayments. There may come a time when the houses have to be repossessed and these people will arrive back on our housing lists.

In relation to the whole question of property tax, in the area that I represent it does not take a very big house now to have it on the threshold for property tax. In certain areas this has got to be looked at. I welcome the amendment providing for relief in respect of children. In this day and age it does not take a massive income into a household or a very big house to create liability for the property tax. When the property tax was introduced it was meant to be for semi-mansions or small castles. Ordinary three to four bedroom semi-detached houses are now entering into this net. People on reasonable salaries are suddenly finding themselves caught. I would ask the Minister to look at this in the light of recent increases in the house prices.

In relation to stamp duties, I would ask the Minister to consider having a tax relief base or allowance for smaller houses and possibly to have no stamp duty on houses costing £20,000 to £25,000 in order to give more encouragement to that end of the market and to regenerate that market. Obviously, there are not that many of these houses around. While people are buying some houses cheaply and doing them up, if they are sold at a later stage at an increased price, the Minister will then get his whack at that stage. This is something the Minister should consider.

I would also like to see a further reduction in VAT rates. While the reduction from 25 per cent to 23 per cent was to be welcomed, 23 per cent on people's fees is quite a substantial hike on to a bill, particularly for people who cannot reclaim it. We have to work towards getting our VAT rate down to something like 10 per cent and to try to cut out these very high rates.

I would acknowledge and welcome the Minister's initiative in responding so quickly to the call not to tax court awards to people who are either permanently or long-terms handicapped. The plight of the Dunne case, which moved the Minister, goes to show that there is a willingness in these matters. It was a case which touched everybody and I am glad the Minister was able to respond. The way he responded is to be welcomed, and in that case and other cases credit should be given where credit is due. As a result, people who unfortunately become involved in accidents which may permanently incapacitate them will now have a chance of getting by.

In conclusion, I would ask the Minister to concentrate on getting more people into work, giving them a decent wage in their jobs and trying to reduce taxation further. It is obviously the key to getting more people back to work. It is important that we do not rest on our laurels and continue to push towards getting our people into jobs, particularly our young people.

First of all, I welcome the opportunity to make a brief contribution on this excellent Finance Bill and in doing so I want to congratulate the Minister on a very complex Bill, also the Minister for State, Deputy Brendan Daly, who is here with us this today. I would like also to compliment our own spokesman, Senator O'Keeffe, on his excellent contribution.

The Finance Bill is positive and progressive and again indicates the Government's concern in regard to our tax bands. A section very close to my heart are the lower paid workers. Their net take home pay has been further reduced over a period of time by the deduction of PRSI contributions. The payments of these contributions was a major imposition on those below the poverty line. Tremendous credit is due to these people on taking up low paid employment as in many cases they would be much better off on social welfare. However, the Minister has now decided to exempt lower paid workers from PRSI contributions and this will not affect their entitlement to social insurance benefit.

Last year's budget saw the standard rate of tax reduced from 35 per cent to 32 per cent and now it is reduced to 30 per cent. The high rate in 1989 was reduced from 58 per cent to 56 per cent and again this year to 53 per cent. These changes are very welcome across a wide spectrum. No doubt this is due to the tremendous improvement in the economy since 1987. I welcome the commencement of a 25 per cent tax rate band for 1993 with a substantial reduction in the top rate of 53 per cent as at present. The widening of the income tax bands has made matters more attractive for the worker. In the case of a married couple the limit has been increased from £6,000 to £6,500. The reduction in the rates of income tax and the widening of the exemptions limits has meant that extra money has been put into the pockets of the PAYE worker.

Many critics of this Government have been calling over the past few years for major improvements in the area of taxation. Some of these critics were in a position to tackle the situation in the previous Coalition administration but failed to do so. The progress made to date since 1987 is excellent, not least in this Finance Bill. The extension of the period to the year 2010 during which the 10 per cent rate for manufacturing will apply is to be welcomed, as also is the extension to 1993 of the period during which the urban renewal package will apply. Also welcome is the reduction in the standard rate of VAT, the changes in stamp duty to further encourage the development of the financial resources sector, the abolition of the 60 per cent rate capital gains tax and the indexation of capital acquisitions tax.

I wish to make reference to the building industry, which, it is now accepted, is going through a boom period and in doing so creating much needed employment. We were told a few years ago that it would never again get back to a sound footing. These pundits have been proved wrong, and not for the first time.

As one interested in tourism, and also involved, I appreciate the efforts made by the Government since 1987 with regard to tourism. The Government over this period have given it top priority and it has certainly made a remarkable progress. The upsurge in tourism in 1989 continued and records were broken. Estimates show that the number of overseas visitors increased by over 15 per cent to 2.8 million. Foreign tourist revenue more than kept pace with this growth and was close to the £1 billion mark. In the three year period 1987 to 1989 the number of visitors increased by 900,000 while revenue increasedpro rata. This increase in tourism activity has been responsible for the creation of 18,000 jobs in that period.

This performance highlights the enormous growth potential of the industry and justifies the priority which the Government have afforded tourism since assuming office. The results have been brought about by a series of progressive and co-ordinated measures initiated by the Government. I have watched the growth in my own county of Kerry, which is considered to be the primary tourist area in this country. New hotels have been erected in Killarney and Tralee. Millions of pounds are being invested in a hotel in Kenmare. In their first venture into northern Europe, Club Mediterranean and Ryanair are investing £5 million in Waterville. Domestic holidays have increased. New golf courses are proposed at Ballybunion, Tralee, Killarney, Killorglin and Castlegregory. The CorkSwansea ferry has returned. Here again I want to compliment the Government on their allocation of a grant of £500,000 and a loan of £500,000. This is money well spent and the bookings to date show a substantial increase on the same period the last time the ship was in operation. It is an outstanding tribute to the Government and to all those concerned in the industry that this should have happened when it was believed it could not be done. Many of the things which people believed could not be done have been achieved by this Government.

Perhaps one of the most positive approaches by this Government and the previous Government was their investment in regional airports. Few would have believed a few years ago that many of these airports would have become the success they are today. The Government gave a grant of £1.25 millions towards Farranfore airport, County Kerry, which lay dormant for years. That amount was quickly matched by the business community of County Kerry. Between June and December of 1989, 49,000 passengers passed through Farranfore and projections for 1990 are that 100,000 passengers will pass through the airport. I look forward to the Government's continued support of Farranfore airport by providing the essential Structural Funds to help make it an airport of international status.

I wish to refer to the submission of the ICMSA regarding the tax allowance for farm families. The ICMSA state that the Government decision to propose a current year basis of assessment for farmers and other self-employed people removes the justification put forward in 1980 when PAYE was introduced. It was stated that the purpose of the PAYE allowance was to take account of the fact that the self-employed generally had the advantage of paying tax on the basis of the previous year. They point out that the Commission on Taxation recommended that when all taxpayers were taxed on a current year basis of assessment taxpayers should receive the same overall personal allowances regardless of the schedule under which they are assessed. On behalf of farm families I ask the Minister to ensure that an appropriate amendment is adopted in the Bill to cater for farm families. It would be an advantage to them and it would appear to be reasonable that they should be treated in this manner.

When the business expansion scheme was introduced it was considered a very positive innovation, and certainly it has created tremendous economic activity. The Minister recently referred to abuses of the scheme; but, like all good projects, it tends itself to abuse by a small minority. I am glad the Minister has addressed this problem. I hope he will continue the scheme in view of its job creating possibilities.

Section 10 extends the business expansion scheme to the construction and leasing of advance factories in areas that are in particular need of development and of the creation of employment opportunities, and where the construction is promoted by a local community group. This is a very important development, especially for towns in my own county such as Ballylongford, Tarbert and Listowel, where we need advance factories in order to attract industry.

Section 11 is also concerned with the business expansion scheme and is aimed at preventing the possibility of investors getting interest relief on loans taken out to buy BES shares as well as the BES relief itself on the capital invested under the scheme. Such interest relief could be available where the investor is an employee or director of the BES company. However, the Minister has stated that he sees no reason why an investor, having obtained tax relief on the capital he has invested through the BES, should also be able to obtain tax relief on the interest he pays on a loan taken out to enable him to acquire the BES shares. In short, the Minister has stated that he should not be able to get relief on both the capital and the interest. I agree with this.

In my constituency of North Kerry An Post have indicated that all rural post offices throughout the country will close over a period of time. To date I have experienced four closures in North Kerry. This is sad, as the post office means so much to a rural area. It is a focal point where people meet, and to close them means a further blow to rural communities. An Post should be reconsider this harsh decision. I appreciate that they are a semi-State body but they may find other ways to remedy their economic problems.

The Finance Bill contains many excellent provisions but its overall aims is an effort by the Minister to simplify certain elements of the taxation system, to remove certain anomalies within the various taxes, ensure that the various incentives and reliefs granted by the Government are used for the purpose for which they were initiated, and to respond to areas of need. The Bill is a major and lengthy one. Once again, I congratulate the Minister on his tremendous foresight in the way he has dealt with all aspects of the economy. I wish him well.

Ag labhairt ar an mBille seo ba mhaith liom tagairt don tionchar a bheidh aige ar áiteanna iargúlta ar nós Chonamara agus ar cheantair eile in iarthar na tíre, go speisialta. Thar aon ní eile, tá aicme amháin daoine sa tír seo faoi láthair a bhí ag súil go ndéanfaí teacht i dtír nó fóirthint orthu sa Bhille seo, an Bille Airgeadais.

Baineann an Bille seo le sláinte daoine nach bhfuil ar fónamh ach nach bhfuil ina ngnáthchónaí in ospidéil nó in institiúidí leighis den chineál sin. Bhí an-cion agus an-mheas ag pobal na hÉireann i gcónaí ar a muintir féin, agus ar sheandaoine, ach go háirithe, nuair shroichidís deireadh a saoil agus nuair nach mbeadh sé ar a gcumas aire a thabhairt dóibh féin níos mó. Thugadh an pobal coiteann cúnamh i gcásanna mar seo go fial agus go flaithiúil, gan ceisteanna a chur.

Tá a fhios ag an saol Fódhla go bhfuil fadhb againn maidir lenar seanmhuintir agus maidir lena sláinte. Téann an fhadhb i ndéine nuair a smaoinítear ar an líon mór seandaoine atá ina gcónaí leo féin, in iarthar na tíre, go speisialta; iad tréigthe, gan chúram ceart ná éinne chun aire a thabhairt dóibh. Le blianta beaga anuas, tá ainriocht na seandaoine seo á thabhairt os comhair aghaidh an phobail de bharr tuairiscí éagsúla ar an ábhar; tá siad i gcónái i bmaol ó dhaoine gan scrupallacha a ghoidfeadh a maoin uathu agus a ghéaródh ar a gcuid deacrachtaí, dá mb' fhéidir sin a shéanamh.

Má theipeann ar an Stát aire ceart a thabhairt do dhaoine sa chás seo, le reachtaíocht dhlithiúil ar nós an Bhille Airgeadais seo, fágtar i dtuillemaí iomlán a mhuintir féin sa bhaile iad. Bítear ag brath ar ghnaíúlacht agus ar ghrá chroí an mhuintir sa bhaile. Ní hé nach mbíodh muintir na seandaoine sásta aire a thabhairt dóibh nó go mbídís ag iarraidh iad a chur ó dhoras; is amhlaidh go gcreidtí go raibh dualgas ar an nglúin shláintiúil aire a thabhairt don seanmhuintir. Bhí súil agamsa agus ag daoine nach mé, go dtabharfaí aitheantas nó cúiteamh éigin don líon daoine sin atá ag foirthint ar sheandaoine. Tá aitheantas áirithe tugtha dóibh cheana féin ach ní leor é; de réir alt 3, feasta beidh an duine atá ag tabhairt aire do sheandhuine i dteideal liúntas de £5,000 saor ó chíos nó ó cháin. Bhí deis ann, sa Bhille seo, dar liom, chun aitheantas níos féile a thabhairt.

Feictear dom go raibh seans ag an Aire Airgeadais rud fiúntach amháin a chéanamh; is é sin, cinneadh a dhéanamh gan teacht isteach an tsaoránaigh phríomháidigh a chur san áireamh do cháin ioncaim.

Tá gach duine sa stát, idir bhocht agus saibhir, i dteideal liúntas leanaí. Tá aitheantas tughta ag an Stáit don bprionsabal sin agus bhí deis ag an Aire sa Bhille seo, an prionsabal céanna a leathnadh chun an dream daoine ar a dtugtar "the silent majority", atá ag glacadh cúram an Stáit chucu féin agus ag tabhairt aire dá seanmhuintir sa bhaile. Ní thig liomsa dhá thaobh an scéil seo a réiteach le chéile. Deir an Stát go bhfuil an uile dhuine i dteideal liúntas leanaí ach, i gcás aire a thabhairt do dhaoine atá ar a mbealach amach as an saol, is é dearcadh an Stáit ná nach bhfuil dualgas ann chun cúiteamh ginearálta a íoc. Tá cúiteamh ar fáil d'aicme áirithe daoine, le teacht isteach faoi bhun méid áirithe. Theip ar an Aire Airgeadais sa Bhille seo an deis a bhí aige a thapú chun as cás seo a chur ina cheart. Is amhlaidh go bhfuil an scéal ag dul í ndanas, mar go n-áiríonn daoine atá eilach ar an ábhar nach mbeidh ach tuairim is 2,000 duine sa tír feasta, a bhéas i dteideal faiosimh faoi fhorálacha seo an Aire. Tásúil agim go mbeidh an tAire ábalta míniú simplí a thabhairt bom ar an aimhrialtacht seo.

Ba chuma, ar bhealach, mura mbeadh an dlí á athrú i mbliana. Tá sé cruthaithe, áfach, ó staitisticí a d'ullmhaigh lucht sláinte na tíre, gur cinnte go bhfuil na milliúin punt costais á spáráil ar an Stáit, toisc go bhfuil mná pústa ag tabhairt aire do sheandaoine ina dtithe féin. Tá na mná seo lánsásta an obaire seo a dhéanamh ach is é an trua é go gcuirfear ioncam iomlán an líon tí sin san áireamh, de réir an Bhille seo. Bealach eile atá anseo le cáin a ghearradh ar dhaoine, go háirithe ar an mheánaicme.

D'fhéadfadh na daoine atá ag tabhairt aire dá seanduine a rá: "Tabharfadh an Stát aire don duine seo; cuirimís isteach in ospidéal nó in institiúid do sheandaoine í nó é". Is eol do chuile dhuine sa Teach seo an costas seachtainiúil a ghabhann le duine a choimeád ina leithéid d'áit. Meastar go mbíonn breis is £400 i gceist agus má mhéadaítear an figiúr sin faoi 50, gheofar an costas bliantúil.

Tá aimhrialtachtaí eile sa Bhille seo maidir le cáin chorparáideach, a bhí le leasú, agus déanadh amhlaidh. Chuir an páirtí s'againne leasú isteach mar gheall ar Údarás na Gaeltachta agus SFADCo i Luimneach; níor thug muintir an Chláir nó muintir Luimní faoi deara ar chor ar bith é. Chuir mé féin leasú isteach sa Bhille, tríd an urlabhraí aitheantas d'Údarás na Gaeltachta agus do SFADCo i Luimneach maidir leis an gcáin corparáideach a híslíodh ó 43 faoin gcéad go dtí 10 faoin gcéad. Bhí an tíosmhéad á níoc ag an IDA ach bhí an tuasmhéad dá n-íoc ag an Údarás agus ag SFADCo, go dtí seo.

Mar fhocal scoir, deirim arís go raibh seans ag an Aire rud fiúntach a dhéanamh i leith daoine ag tabhairt aire dá muintir. Tá a fhios agam go bhfuil sé rodhéanach anois leasú a dhéanamh ionas nach mbeadh "means test" á gcur i bhfeidhm i leith an liúntais seo nuair nach mbainean means test le liúntais leanaí. Chaill an tAire an deis agus in féidir tada a dhéanamh faoi go dtí an bhliain seo chugainn.

The Labour Party have many reservations about this particular Finance Bill, 1990. It does, of course, implement the changes in the budget. That is its purpose — to give statutory effect to taxation changes in the budget. The Minister indicated what he considered were the key proposals. When we are assessing a Finance Bill we assess it, to my mind, in the context of what is does to improve the quality of life of the people.

The key proposals that the Minister lists there are first, a reduction in income tax levels, which nobody would disagree with; second, a reduction in corporation tax level, which I certainly would disagree with our corporation levels are among the lowest in Europe; third, an extension of 10 per cent for the manufacturing industry in terms of tax reincentives to the year 2010, which again is hardly likely to improve the quality of life for the ordinary persons; fourth, on extension of the urban renewal incentive package which, of course, is done on a very discriminatory basis and is piecemeal,ad-hoc. I know from my own constituency in Dublin Central how it creates injustice through giving scope to speculative activity in prime areas and does not develop other areas. I see the Minister is shaking his head but that is the situation. I can see quite clearly in the urban area how the line of demarcation wanders and meanders around to give scope to prime speculative areas, which will be used and abused by those who have the money to do so rather than a broad approach to urban renewal, which is what we should be doing; fifth, a reduction in the standard VAT rate, which is desirable; sixth, changes in stamp duties to encourage the financial services sector — here we have 100 per cent capital allowances. Again, to what extent that will improve the quality of life is a big question mark. Then there is abolition of the 60 per cent rate of capital gains tax. All these relate to the business sector in terms of concessions; and finally, the introduction on a current year basis of assessment for the self-employed. That is an extension of the process for self-assessment which is a desirable development.

When we look at the balance of the changes to my mind it does not improve the quality of life as a budget should do. It is one thing to maintain the balance of payments, but the quality of life is what we are talking about because in the last analysis it deals with the lives and the livelihood of people. We must ask ourselves what will these changes do in the context of emigration — which remains at very high level — and unemployment, with approximately 250,000 people unemployed. What will this budget do to stem emigration and reduce unemployment which is at about 18 per cent at present, one of the highest in the EC? What will it do for the homeless when no money is being provided by the Exchequer to construct new houses and no money is being provided for the maintenance of the existing stock of houses? What will the budget do in that respect? Will it provide more section 30 residential concessions for the speculators? What progress is there towards the elimination of poverty in this budget? Does it address that point? It mentions it as a desirable target but it does not make any concrete proposals. Our education system has been hammered since this Government came to power. There is no concession in this budget for the education sector in terms of class sizes, extra personnel or resources.

What is on offer for the environment? With £3 millions for Dublin we are to have smog, pollution and dereliction eliminated. Smog will be eliminated by the end of the year. We will believe that when we see it, if we can, in fact, see through the streets of Dublin next winter. That is what we have on offer. What has the Minister done in the context of the residential investments? The extension of section 23 on residential investment is an area that should be curtailed rather than allowed to continue. What will that do for the economy? We have nominal taxation on unit linked insurance funds, which is just a device for avoiding tax. Why do we not have a reasonable level of taxation on that — 40 to 50 per cent at least? Why can we not have mortgage relief at the standard rate of tax on 100 per cent of the repayments so that the ordinary taxpayer who is buying his or her own home, will benefit?

The business expansion scheme has been an absolute disaster, totally exploited and abused. While what has been introduced here to close loopholes is welcome, to my mind the entire system needs to be thoroughly looked at before it is allowed to operate again. Instead of business expansion it was used to acquire money for schemes that were never intended and were not covered by the scheme. What about the VHI subsidising the Blackrock Clinic and the Master Private Hospital? What is being done to prevent that type of tax relief being granted, which was never intended either?

The child benefits are totally inadequate and there is no real family support here. That could have been dealt with in the context of tax relief. What is being done in the context of the banks which made a profit of half a million pounds this year with all the loopholes that are there for the accountants to help them avoid their tax liabilities. Why can we not have a more effective, system of taxation that could prevent that because we can see how easily they have avoided paying their taxes as they have been doing, over the years.

There are a couple of areas I will dwell on to some degree. One is poverty. Poverty is probably the most predominant characteristic of the constituency I represent since I became involved with the Labour Party. Nothing has changed in the last two years. We still have excessive deprivation. There are no houses being built and people are almost cutting each others throats trying to get accommodation. There is a queue of maybe a dozen to 20 people for every flat that becomes vacant and there is no programme of construction in Dublin or in the greater Dublin area and none whatsoever in the inner city which is in need of major revitalisation.

In terms of employment the only thing that we have on offer is the Financial Services Centre with its 100 per cent capital allowances and various incentives. How many local people will get employment there? The Government look at this not in terms of employment but of what can be given by way of financial incentives on the unproven basis that if you create profit you create jobs. That has been the great lie of the private sectors. What are the private sectors doing in terms of job creation? They have done very little to date. They have expatriated £2 billion in profits, which is roughly the same amount as Ireland's trade surplus over the last 12 months.

We have a booming economy in terms of exports but instead of the profits being reinvested in this country, they have gone abroad. What has this Finance Bill done to ensure that that money is productively invested, that it will produce jobs for our people as it should? All we got from the business sectors is the promise to set up a trust for community initiative. Did Senators ever hear the like? That is what the business sector is doing. The real money that could produced the jobs is still leaving the country and there is nothing in this Bill to try and prevent that from happening.

I am particularly concerned with education which has been sufferings for many years not just because of this Government but previous Governments throughout the 1980s. Teachers and the school system in general in terms of resources have borne more than their share of the brunt of the sacrifices that have been made to get the country back on an even keel and to try and deal with the national debt. In this budget or in the last budget there was nothing in terms of acknowledgement of that for teachers. At primary level and at second level we have the largest classes of any country in the EC. In relation to second level, while we have a 20:1 pupil-teacher ratio, Italy has a 10:1 ratio. We have double the ratio so we have double the workload for teachers. Obviously that has implications for the quality of schooling, even though our business sectors, and our private business sector in particular, will sell this country on the grounds that we have a fine educated youth, perhaps the best in Europe.

The Government are not ensuring that the resources are put there to maintain that quality of education that has been built up over the years in this country. How can we go into Europe in 1992 if our budget of 1990 does not address the situation where every other European country has a six year cycle at post-primary level and we have only five? Germany has a nine year cycle we have a five year cycle. How will we have a competitive edge on that type of European once we are in the greater European setting in terms of trade and of monetary and political and economic union. Why is something not done in that context? There will be no sense in wringing our hands and giving crash courses as has been stated by the Minister earlier on in relation toab initio language schemes. We need a major look at our educational system and the provision we are making in the context of 1992. If it is not done now it will be too late to do it in 1992.

There are 40 per cent of our third level applicants who have no place to go in this country. Those youngsters who want to go to third level either cannot go in this country or have to emigrate to England to do so. That is a scandal. The grants system is very inadequate in terms either of the poor people who are unable to go to college or indeed more or less middle-class people who would be PAYE earners. They are very much hit by the low income limits that are required in terms of eligibility for grants. It is an area that needs to be addressed.

The whole educational area is part of the infrastructure of any developing country and any country that hopes to be able to expand and complete in the European context. One of the most necessary requirements is that we have the skills and the education. One of the things that Ireland has always been tax in has been research and development in the context of international companies in Ireland. They do two and a quarter times more research into the products and markets than we do. Those are the multinational companies that come in and we are far behind the European countries.

I would like to say a ward about the environment. That is an area that at this time could have been addressed with much more forthrightness and given much more fundings. I have major concerns about action in the area of pollution control. Nothing has been done in that context other than making promise of a nominal contribution of £3 million to the Dublin area and no grants have been made available for the conversion of existing types of heating to smoke-free zones. How can one introduce change unless one directs people in the right direction? The right direction is through fundings or grants towards conversion.

The second area is what I referred to earlier, the urban renewal incentive scheme extended to 1993. I have grave reservations about that scheme. It is operating in a discriminatory fashion. I see it with my own eyes day after day. I would much prefer that there was an overall comprehensive approach to urban renewal. You cannot simply pick little areas and say that in this year we will designate them as urban renewal areas entitled to the urban renewal incentives while we neglect other areas. You have to look at the city or certainly major parts of the city as a unit and talk about overall comprehensive development. Otherwise all you are doing is creating disparities; certain investment comes in and you create wealth on the one hand and side-by-side with it you create ghettoes of poverty. We have had that for far too long in this country. My main criticism of this Bill is that it does not address the real problems in relation to the quality of life of the people.

I am very glad to have the opportunity of making a brief contribution on the Finance Bill, which is one of the most important debates to take place in this or in the other House during the whole legislative period.

The Finance Bill we are discussing today provides a statutory basis for the taxation measures announced in this year's budget. The reduction in the standard rate of income tax to 30 per cent and the reduction of the top rate to 53 per cent are just two of the changes made in the Bill which are now begining to reflects themselves in pay packets. Other changes made include the reduction in the standard rate of corporation tax to 40 per cent which will help job creation in the services sector.

There is the extension of the 10 per cent rate for manufacturing industry to the year 2010 to create greater certainty for investment planning. The others are the reduction in the standard rate of VAT, which has already taken effect and indeed is helping to reduce inflation, changes in stamp duties to further encourage the development of the financial services sector and the abolition of the 60 per cent rate of capital gains tax which has been an inhibiting factor in investment. Those measures I have outlined are all part of Government policy designed to prime the economy and generate employment and investment.

The annual growth in real GNP has averaged 3.5 per cent over the past three years and shows the Government are pursuing the right economic policies. In the world league we are indeed one of the top performers. That did not happen by accident but by carefull planning and prudent management of the economy. The fact that inflation is set to fall to 2.5 per cent by the end of the year shows that progress is being made on the economic front.

Progress is being made in correcting the imbalance in the public finances. In 1986 Government borrowing stood at nearly 13 per cent of GNP. As a result of the firm action taken by the Government this has been more than halved by the end of 1988 to 6 per cent of GNP. Last year there was a further significant fall in Government borrowing to 2.4 per cent of GNP.

In today'sIrish Independent we read that exports have hit a new record of £1,427 million for the month of March, a strong 30 per cent improvement over February and a corresponding 18 per cent growth on March 1989. We had a trade surplus of £314.2 million in March which is almost double the surplus recorded in March, 1989.

The CTT forecast is that Ireland's exports will rise this year by a further 12 per cent to £16.4 billion. All the economic indicators are encouraging and are proof that the Government are pursuing the correct policies. As the Minister has pointed out, the key element in our economic success over the past three years has been theProgramme for National Recovery. Employers and employees have responded to the Government's lead, employees by adhering to the moderate pay increases provided for in the programme and employers through increasing investment and job creation.

Job creation, of course, is an area of concern to everybody, I am happy to note that real progress is being made here also. The building industry, which is a fair barometer of how the economy has undergone a remarkable transformation in recent times. Everywhere one goes one can see new developments taking place, particularly in the bigger population centres. Thousands of jobs for skilled and non-skilled workers have been created. According to the CII the prospects for job creation in this sector are good. I have no doubt that that trend will continue and that we will see further improvements and further jobs created in this particular sector.

Anybody driving in or out of Dublin can see the remarkable improvement that has taken place in the road network. We read about the huge numbers of planning applications for multi-million pound develoments in this and other cities. This shows that the investors have full confidence in the Government and are prepared to put their money in to revitalise our cities and towns.

I hope that this development will spread evenly throughout the country and that the other centres will not be neglected. I am talking in particular about the smaller centres. In my constituency there is a fear that this might happen in Tuam and the north Galway area generally because development in Galway city is proceeding at a fast pace while Tuam at the present time is an industrial black spot. I ask the Minister to ensure that Tuam is accommodated and that they share in the industrial developments now taking place in other centres.

The town has been declining steadly since the closure of the sugar factory and indeed morale is very low at present. There is a genuine fear, because of the rapid development in Galway city, that Tuam might be neglected. We do not want to see that happen. I am appealing to the Minister today to make every effort to attract a major industry to Tuam. The Minister for Finance, who is responsible for this Bill we are debating here today, as well as the Minister for Industry and Commerce and the Minister for Tourism and Transport have all been made aware of the situation in Tuam, I hope they will respond favourably in the near future.

There are many issues which one could debate on this Bill. I realise that our time is limited and I want to ensure that other speakers get an opportunity to make their contribution so I will confine myself to these few remarks. Before I finish I would like to refer to the farming community, in particular to the farm families. I understand that a submission has been made by the ICMSA to the Minister regarding the tax allowance for farm families. All taxpayers are now assessed on a current year basis of assessment and, in my opinion, should receive the same personal allowances regardless of the schedule under which they are assessed. This to my mind would make the system of taxation more equitable.

I cannot understand why farm families cannot be assessed on the same basis as PAYE workers, God knows they have enough hardships to endure. Maybe there is some genuine reason for it, maybe there are other concessions that the farm families are getting that I am not aware of but I would like the Minister to spell out why the farm families are not treated in the same way as the PAYE workers. If I had that explained to me maybe I would be able to satisfy some of these people who are pressing me and other public representatives to have this system of taxation changed.

Farmers are going through a rather difficult time. The income increases of recent years have been eroded to some extent in the past six months or so as a result of decreases in the prices of lamb and milk. In addition, the market for beef is not too steady at present so farmers have many harships to contend with.

The recent increases in interest rates have created problems for mortgage holders. I was very pleased to hear the Minister's reassuring words that interest rates would not continue to rise. I hope that is so, having regard to the problems that have been created for young people, in particular, who are faced with high mortgages and in some cases with unemployment.

I congratulate the Minister and the Government on the work they are doing. They are working well as a team, they are providing the right type of leadership for this country and the country is responding. The social partners who are involved in theProgramme for National Recovery are responding well. If those policies are continued, this country will be much better and far more prosperous for all of us.

I welcome the opportunity to respond to the Minister's address this morning. Firstly, I will refer to the effect of mortgage interest relief on so many families, especially young couples taking out their first mortgage. I wish the Minister would respond and restore the mortgage interest relief when he comes in to speak to us later. The effect of both high interest rates and the added effect of reducing the mortgage interest relief is going to push more and more people on to the already over crowded housing waiting lists of local authorities. That does not apply to Dublin alone. Throughout the country huge numbers are queueing up for housing. My own local authority in Limerick who are responsible for a large county, will have 32 house starts this year. Obviously, there will be repercussions as more and more people are forced into a queue because they cannot afford to buy their own homes.

The Minister told the Dáil that if he were to restore mortgage interest relief to 100 per cent on £4,000 it would cost £55 million. He stated that it would benefit 325,000 people at an average benefit of £169 per annum. That may not sound very much but when one breaks it down to £3 per week to many people that is a tremendous amount. Senators on both sides of the House have referred to that issue and the Minister would do well to take the suggestions on board.

With regard to unemployment today, despite the upturn in the economy, despite today'sIrish Independent figures indicating a bonanza in exports, I still look at my own city where I can see black spots of 91 per cent unemployment. Of course, the creation of additional jobs is an aspiration, but I hope it will be more of a reality than an aspiration. I cannot see jobs being created. I cannot see the cycle of poverty being broken in housing estates such as Moyross and Southill. I teach children from those areas and I understand the poor start they are being given in relation to supposedly being treated equally with the children of the nation, which they are not. The cycle of poverty is, like the Third World cycle, very difficult to break.

For the last ten years I have taught students for whom there was no question of being able to say, "Tá Dadaí ag obair," because he was not, nor was Mammy, for that matter. Their whole background is two and three generations of unemployment. It is impossible to talk about a work ethic to people who have never seen their parents in meaningful employment. I am not saying they are not working in the home, but they do not go out to work in the morning as should be the norm. Therefore, I cannot accept that anything is being done by way of a realistic approach to unemployment.

Reference was made by Senator Hussey to the social partners. For the last few months we have heard what began as small ripples of indignation, but which now have become quite vociferous expressions of indignation from the trade union sector. Certainly, they are not happy with the so-called improvements in living standards of employees. There is a lot more the Minister will have to do in that area.

Senator Foley in his contribution dealt with the development of tourism. Senator Foley is from County Kerry but I could not accept his comment that Kerry is a microcosm of the tourist success in the country. That county has a long tradition of tourism and it will always attract tourists, whether we are in the deepest of recessions or not. I do not think that is a good indication of how the tourist scene is throughout the country. Many of the people coming in and out of Dublin airport, Shannon airport, Knock airport, Cork airport and so on, are emigrants who are coming and going and trying to keep in touch with the homeland. Certainly, I would not quantify them as tourists. They are our own people who are living abroad, as a result of our economic problems. Small villages have been decimated. We are looking to the EC for a bonanza in relation to integrated rural development and there has been no mention in the Dáil or in the presentation to us today of the Structural Funds. I wonder what secrecy is associated with the Structural Funds. Other member states seem to be able to debate who is getting them, who has got them, how they are being used and not from the top down as happens, unfortunately, here through the Minister for Finance and the Government.

There has been no reference by the Minister to Community initiatives which have to be the way forward. We cannot be different from any of the other EC countries, and we must work from the bottom up and try to improve the standards of living of a country which is basically agricultural and rural. A certain percentage of our population live in urban areas but there will have to be alternative employment for people who are no longer able to operate successfully from farming. However, there is no mention of that.

In relation to VAT and our approach to 1992, I am very concerned with the sloth and tardiness of the Minister in relation to the precise rates of VAT and excise duty and the goods which will qualify. Already — I think it was last week on radio — I heard warning bells in relation to the cost of cars. We were all looking forward to having cheap cars and driving around using unleaded petrol, hopefully, but we will not be doing that at what we thought would be reduced costs. From what I gather, if one wants to get a cheap car one will have to go to the nearest travel agent, get a ticket for another country and pay hotel expenses. By the time all of that is paid the money saved on purchasing a car elsewhere within the EC will not be great. That is the first warning bell as regards VAT rates and what we were expecting, the pluses of 1992. Unfortunately, there will be more minuses. I am a positive person by nature but I am worried about that.

I would like to refer to retention tax and its application to professionals, particularly those who earn money within the public service. I am talking about county council officials, be they architects, engineers, solicitors, hospital consultants or GPs. It is very important that the Minister rectifies the situation so that retention tax relates to the current year's tax liability. In his Budget Statement some months back, the Minister made a commitment to get self-employed people to pay their tax on a current year basis. He stated that the problems which have been created by the long delays in refunding money withheld in excess of the agreed liability would be resolved. Apparently, they have not been resolved and that is something I would like him to take heed of. The Minister said that refunds would be given priority and would be processed within seven days of receipt of the relevant paper work, but that has not happened. I hope he has a greater commitment towards what he promised us in the budget.

In relation to education, as Senator Costello said, we have the highest pupil-teacher ratio within th 12 EC countries. We have a very high quality education system but, in years to come, and I am not looking too far ahead, it will be something that we will be associating with the sixties, seventies and eighties rather than the nineties. We are familiar with the statistics, we look at them, read them and cry out in horror but nothing is done about them. I asked on an Adjournment matter the financial cost of giving all teachers within the three unions the option of early retirement. One teacher union has it already and I was told the total package would cost £30 million. Not every teacher, thankfully, is that stressed that they want to opt out immediately and, certainly the package would not cost £30 million. However, the option should be there for any teacher. There should be equality among teacher unions and all teachers should be able to avail of early retirement because of the stress involved in teaching classes that are oversized. The alternative could mean the alleviation of stress and possibly would cost very little. When one can do something, one may feel that one should do it. Teachers should not be forced into a straitjacket and told they have to stay in overcrowded classrooms, or feel they have to live with stress. That is a simple matter that the Minister could have dealt with and I hope he will respond to it.

In relation to language development, we hear about integration in 1992 and about increase resources. I have seen nothing to show that the teaching of languages, such as German, Italian, Spanish, unlike French, which has been taught in schools over a number of years will be developed. It is grand to say that we should encourage our students to take second and third foreign languages. The University of Limerick will shortly be insisting that any student must have a European language, not just for studying the humanities, but also for science. If the money, and the resources are not there to tune those students at a very early stage — I am going back even to primary school — to language development they are not going to have the language. In that event it is more an aspiration, is theory rather than practice and that is something that has to be either supported or forgotten about. Again, in relation to the integration of new curricular programmes no resources are being given and that adds to the stress level of teachers. There will be no extra money and, therefore, we cannot blame the programmes if they are not successful.

Reference was made there to the environment. We understand the cost of conversion grants and the cost of trying to avoid pollution on farms and so on. Obviously, money will have to be given to specific areas. I referred a moment ago to the fact that there was no reference by the Minister to Structural Funds. In relation to the financial services centre in Dublin, I would remind the House that we have had a financial centre ready made in the mid-west since the establishment of SFADCo and the development of the industrial estate around Shannon Airport. It is the oldest in the country and is economically and socially viable. There has been much controversy over the last few months, as the Dublin lobby subtly pushed towards centralisation, rather than decentralisation. This is certainly not in line with the reasons we are getting Structural Funds. The Minister should cut out the squabble in relation to two airports and realise that the mid-west region has a tremendous employment level and has been successful since the fifties. It was the first financial services centre, perhaps even in the EC, but, certainly, in Ireland. It is extraordinary, when we have a successful decentralised regional policy active and alive, that nothing pleases the eastern seaboard, particularly Dublin, but to try to centralise again. For that reason I would ask the Minister in relation to Structural Funds, to take heed of the mid-west region because decentralisation, and the creation and retention of jobs is what we should be working towards.

Senator Hussey referred to submissions from the ICMSA and I am glad he is supportive of the farming community. The same law should apply to farming families as to PAYE workers and I hope the Minister will listen to him and us in relation to that. Small farmers in particular, did not do very well out of the meat bonanza over the last number of years and I hope they will be more vociferous in outlining their needs to the Government. It is the small farmer at the end of the day who is most at risk and for whom the crisis looms, and has loomed. To a large extent, it is those farmers' children who are emigrating and from 1992 onwards small farms will probably be deserted. Will we then wring our hands in horror and wonder why, suddenly, we are surrounded by deserted farms. We should be counterating that now, so that there will be a generation of young people who will want to stay here. At present they are not staying because they have no option. Parents are bringing up their children to emigrate. It is even more horrific in rural areas than in urban areas because there has always been mobility within urban areas. I am saddened by the fact that in rural areas we have an aged population and nobody to tend the grassland. However, we can rest assured that after 1992 Europeans with entrepreneurial skills will decide to make us the bread bowl of Europe. We are taking the whole 1992 business far too casually. I am amazed that the Minister did not address the question of Structural Funds which, surely, must be coupled with his business as Minister for Finance to save the country and future generations, if they are there to inherit the greenlands.

Ba mhaith liom, i dtosach báire, fáilte a chur roimh an Aire go dtí an Teach. Beidh mé ag caint go ginearálta ar an mBille Airgeadais.

I do not intend getting involved in local issues because the Finance Bill, basically, concerns all the citizens of the State. It is very general legislation but has a fundamental bearing on the direction the country is taking. It is a pleasure to be debating the Bill in view of the obvious and clear direction that has been taken by the Minister for Finance. We are now in the happy position that borrowing is being brought under control. I look forward to the day when we will once again have a balanced current account. On this level, we should also look at the question of increased capital expenditure, where necessary. I have never had any fundamental objection to borrowing for necessary infrastructural development. This should be done efficiently and effectively, and the sooner we put in the infrastructure the country needs the better. Another direction that any budget and this is a second or series of budgets, must take is towards providing the incentive to create wealth and then, of course, to try to achieve an equitable distribution of that wealth when created.

On the general tax front, the object must be to have low tax rates and high compliance and to make the tax system as simple as possible. For the lower paid, in particular, it is important to have coordination between the social welfare code and the tax code. As a person who believes very much in incentives for the many being as important as big incentives for the few, I welcome the steps taken over the last two years to increase dramatically the exemption levels for the lower paid. Our aim must be to try to raise these further.

I particularly welcome the recognition of children in the exemption limits. This year a person with four children on an income of between £7,700 and £8,000 or £150 and £160 a week, will gain, approximately, £10 per week. To have achieved that under the tax rates that applied two years ago, a person would need to have had a gross increase in their income of £17.50 a week. The recognition that was due to this significant improvement has not been given to it. I would like to see single people with an income under £5,000, and married people with an income under £10,000, being exempt from tax. The big question is, where does the money come from for such a change? My experience of people in employment is that some of the smaller tax reliefs that exist cause more hassle than they are worth. They would swop a greater basic tax free allowance for some of those reliefs. I refer as an example to the dependent relative allowance which gives a person on the 30 per cent tax rate 63p more per week.

There have been significant reductions in the higher rates of taxation. It is agreed that our higher rates of taxation are much too high. However, we also have to ensure that scarce resources are used in the best way possible. An example of that tax reduction is that a person with an income of £100,000 on the highest rate of tax is saving £5,000 as opposed to a saving of £250 for somebody with an income of £5,000 on the highest rate of tax. Despite significant improvements, a single person on an income in excess of £12,600 is still on the highest marginal rate. We should look again at increasing significantly the thresholds at which people move on to the higher rates of tax. Significant improvement could be made in this area at a relatively low cost. In reducing the marginal rate there are other things that could be done. For example, is it time that an upper limit was put on the total amount of VHI relief that can be given?

Another issue in relation to taxation which has caused problems which have, to a large extent, been solved, but not totally, by the increase in exemption limits is the fact that non-contributory pensions and widows' pensions, particularly, are taxable, while unemployment assistance and unemployment benefit is not. A raising of the exemption limits would solve this problem. However, overall, the total taxation package over the last two year has been significant. The removal of large numbers of the lower paid from the tax net has been one of the most revolutionary changes in the tax code in recent years. When we talk about income tax and incentives we must remember that most workers are on the lower rates of tax. Given the right incentive, and if each worker increased his or her output by 10 per cent, the overall effect on the economy would be dramatic.

In relation to corporation tax, I welcome the lowering of the rate to 40 per cent and the extension of the 10 per cent manufacturing tax rate. I also welcome the steps the Minister has taken to limit abuse in this area. The reduction of capital allowances is justified. We have argued for long enough that the tax relief on capital as a method of creating employment was a contradiction in terms. The increased take from corporation tax is welcome. It has long been my contention that the idea of taking high taxes through employment, transport, and so on, which are taxes before profit based on turnover, and low taxes on profits, is wrong. More taxes should be based on profits rather than on overheads or turnover.

Will the Minister examine the possibility of exempting, like people with overseas accounts, old age pensioners who clearly do not have a taxable income from DIRT tax on a long-term basis? This is administratively possible and desirable because many old age pensioners are not claiming the rebate they are entitled to under this scheme.

On the business expansion scheme, the business community will have to learn that when such tax relief schemes are introduced they are introduced for the purpose of creating risk capital. There can be no justification for abuse of these schemes or using them to attract funds for schemes that have no risk attached. Under these schemes people with large incomes can, effectively, increase their tax free allowance up to £30,000. If this is used to direct capital into risk-taking business it is justified. The move by the Minister to close the loopholes is welcome. By doing this he is helping businesses that have a risk factor involved and often find it difficult to attract capital.

Similarly, I welcome section 45, which provides tax relief on donations made to the trust for community initiatives. In the time allowed to me I will not be able to go into this matter in detail. However, we must look again at new ways of creating funds for development, particularly in rural areas where lack of capital can be one of the greatest inhibiting factors to the start-up of local enterprises.

On the question of computerisation and service to the public, at the end of the day the taxpayer should be treated by the tax office as a customer. I would like to pay tribute to the courtesy and understanding of the officials working in the Revenue Commissioners and in the tax collection system. However, I would like to see major development in this sphere to simplify the amount of paperwork involved for the ordinary taxpayer in making his tax return each year. As a first step, I suggest that when an income tax return is desired one would be presented with a tax form with a printed record of mortgage relief and all those details so that those figures would not have to be resubmitted to the tax office year after year. One would then be obliged only to fill in any changes in these matters. In this way a lot of the fear of dealing with the tax office would be eliminated. In relation to capital gains and inheritance taxes on farmers, it is time to look at this in a new light. We should ensure that no tax is paid on the transfer of small and medium type farms, upon death, to the nearest living relative.

Finally, I welcome the first steps that have been taken to bring us into line on the rates of value-added tax and customs and excise duty. As the economy improves under the present Government I hope we will be able to take further steps in that direction and that something will be done to reduce the cost of both motor cars and the excise duty on petrol which tends to discriminate particularly against people living in rural areas, so that we would not be out of line.

I compliment the Minister on his vision and the consistent direction he has taken in the last two budgets. I welcome the Finance Bill as presented to the Seanad.

I am glad to have the opportunity of making a few observations on the Finance Bill, 1990. Domestic policies and administration have visibly suffered by virtue of the fact that Ministers spend so much of their working week in Europe on duties associated with our responsibilities as a member of the Community and, indeed, now, having the Presidency. However, I congratulate the Taoiseach and his Ministers on that score.

It is important that public administration should not be neglected, even for the greater European cause. I would hope that our administration here, will introduce whatever re-organisation, even at Oireachtas level, is necessary to facilitate a situation that, hopefully, will be ongoing for the next 100 years, when the Community, in their policies will be calling on Irish Ministers to play their role in an ever-expanding Commuinity. Since all of these ideas will be financed by the Department of Finance, I hope the Minister will set up some commission or working party to see in what way the work of our Ministers, and Deputies, too, can be facilitated. It is unfair if either the constituents or the Departments here might suffer from lack of manpower or whatever because Irish Ministers must undertake greater responsibilities in Europe. This is clearly an area on which thought must be focused. I hope that the Taoiseach, after his six months' experience, will effect some changes to ensure that the six yearly rota of the Presidency, will be organised in such way as to ensure that public administration in this country will not suffer during our Presidency.

I would like to mention briefly a few areas where I feel decisions have been delayed for too long. In my own county there is the question of education. The Department propose to close five or six schools next month, yet the new college or community school board have not got around to appointing the architects to build the new accommodation into which they should be moving next September. To me, as a public representative for 35 years at local authority level, that seems to be a fairytale. It creates uncertainty, especially in the minds of parents, as to where their children should be educated and, indeed, what services there will be for them. It certainly creates uncertainties in the minds of the teaching profession who have been told that they are transferring to such and such a new complex next September when the first sod has not even been turned in May. Much explanation and straight talking is necessary. There should not be so much uncertainty about a subject as important as education in any county.

In the course of her speech Senator Jackman mentioned the problem of the retention tax as it effects the medical profession. I want to avail of this opportunity to fully support the case the Senator made. When the former Minister for Finance, Mr. MacSharry, introduced this measure, he gave very clear assurances in this House that the problem — if there was a problem — would last for one year after the taxation was brought forward. From speaking to medical practitioners who seem to be most affected by this scheme, it seems that all the payments from the health boards or whatever source are subject to the retention tax — that includes the expenses they receive in respect of secretaries, receptionists, clinics or accommodation. They now find that by the end of the year, when everybody else is expected to have their tax up to date, they cannot get a refund of tax until they have paid the following year's tax, so they are forced into a situation where they are paying tax on incomes they expect to earn in the following year. This is some change from the taxation system we have had up to now. There is also an element of expenses being taxed. This is the first instance, in my experience here as a public representative, where expenses are taxed. I hope this is not the thin edge of the wedge. Expenses are either expenses or they are not. I would ask the Minister for Finance to look seriously at this particular aspect which is causing considerable and unnecessary expense and hardship to the medical profession at a time when the Department of Health's policy is, very clearly, to transfer the greater responsibility for hospital care back to the community. This responsibility will be taken up by the dispensary doctors or the professional people working in the community. It is a poor recompense for the additional responsibility which these people are expected to undertake on behalf of the community if they are to be taxed in this extraordinary fashion. The Minister said when this Bill was being introduced that the disadvantages would only be apparent for one year. It is now in its fifth year. Some review of the present situation must surely be called for.

The Minister for the Environment recently announced many new areas which are to benefit from the urban renewal scheme. I must confess to a little surprise at the numerous green sites selectively included in the list for that scheme. One would have thought that urban renewal would apply to the renewal and modernisation of rundown urban or built-up areas. That does not appear to be the case at present. I am not too clear as to whether that is the responsibility of the Minister for the Environment or of those who made the submissions on behalf of the planning authorities throughout the country. However, it is something that warrants close examination. It would tend to discriminate in a very serious way against some people who had high hopes of getting benefits for renewal of the areas concerned.

In the question of agriculture, it is now quite apparent that the large amounts of money the Exchequer spent on the eradication of the bovine TB over the past 25 or 26 years have proved to be an absolute failure. Over the past few years quite serious outbreaks have occurred, even on State-owned farms, where one would expect that management should be top-class and where they would be observing every possible precaution and working with modern methods of husbandry and hygiene. What amazes me is even with everyday news items on this Mad Cow Disease overseas, our Ministers do not appear, in their utterances at least, to take the matter very seriously. Looking at the important role the export of beef and meat generally plays in our economy, the health of our farm animals must, or should, rank very high in the order of priority in the Department of Agriculture and Food and, indeed, with the Government in general.

I am rather nervous that greater emphasis is not placed on the whole question of animal diseases. It is quite clear, looking at the statistics, that we are not making sufficient progress. Surely the country is not bereft of sufficient scientists and professional people who understand these problems? It must be possible to look at what is achieved in other countries and decide by comparison whether we are making the same kind of progress. For the amount of hassle and work that the testing of animals causes to the ordinary farmers in the country, the returns are, indeed, moderate. Perhaps the time has come for a very significant review of the entire situation, if only to relieve the taxpayer of the cost of a scheme that has very limited effects, other than a window-dressing approach from the country's point of view.

I welcome the improvements contained in the Bill in section 127. I appeal to the Minister before the next Finance Bill to review the thresholds pertaining to succession, inheritance and gift taxes, especially where they apply to the agricultural sectors. This is very difficult. While he is providing for indexation in this particular case, it is necessary that he should reassess the entire area here. There are many instances, not just in the agricultural sector but where inheritance is concerned where families, both large and small are being faced with burdens that ultimately mean the disposal of the properties. In many instances this is regrettable. We should be getting away from that particular problem.

A Leas-Chathaoirligh, I would like to say that in years gone by we had distinguished colleagues on these benches such as the late Senator Alexis FitzGerald whose utterances on Finance Bills were a tremendous education to all. Listening to his approach to reviewing the finance legislation on a yearly basis, I think that with a Bill like this of almost 130 sections the appropriate place to raise the number of questions I have is on Committee Stage. I look forward to that.

I would like to congratulate the Minister on an excellent and far-reaching budget. I am pleased to note that he has made further progress towards achieving the Government's stated aim of reducing the standard tax rate to 25 per cent by 1993. The reduction in the standard rate to 30 per cent, and the reduction of the top rate to 53 per cent, should be welcomed by all parties. Although some have expressed dissatisfaction at the rate of progress to date, we need only look across the water at our nearest neighbour to have a vivid example of the adverse effects of drastic reductions in personal tax rates. Their inflation rate is currently touching 10 per cent. I need not remind the House that it was crippling inflation rates which contributed to the adverse economic performance of our country during the late seventies and early eighties. We should continue along the road of slow, but sure, progress towards our stated goal and not allow short-term considerations to stampede us into taking action which may have long term adverse consequences.

Having applauded the Minister, I would like to remind him — although he probably does not need reminding — of the necessity of ensuring that tax rates continue to reduce over the next few years. High rates of tax contribute to unemployment, impede enterprise and particularly disadvantage this country in the context of the Single Market. The reduction in the VAT rate from 25 to 23 per cent is a helpful step in that context. It will also have a beneficial downward effect on inflation and will reduce the cost of living across the board. It will be of particular help to low income families in the reduction in the cost of a wide range of household items. I seek an assurance from the Minister that his colleague in the Department of Industry and Commerce has taken all the necessary steps to ensure that this reduction has been passed on to the consumer. I would also like to say I am a little disappointed at the absence of any price reductions due to the decline in the value of sterling. I ask the Minister whether any monitoring has been done to see that these lower prices have been passed on to the consumers.

Pay-related social insurance falls heaviest on the lower paid as there are no tax-free amounts which may be earned before full PRSI is levied. In this context the new PRSI exemption for those on low wages of £60 per week or less is an extremely welcome move towards relieving this burden. I seek the Minister's assurance that this limit will be increased at least in line with inflation for each subsequent year. I also call on the Revenue authorities to adequately advertise this exemption to ensure that all of those who are entitled may avail of this appropriate tax relief. In addition, I urge the Minister to ensure that a widespread advertising campaign is commenced to advise families of the possibility of obtaining a total exemption from income tax due to family size and low income. We should strive to ensure that all those who are entitled to such benefits are adequately advised of their rights.

I would like to thank the Minister for his recent initiative in making tax exemption on moneys received by severely disabled persons from court-awarded damages. This is an extremely humane move. It will mean a lot to the families concerned at a little cost to the State. I trust the Revenue authorities will take the necessary steps to ensure there is no abuse of this provision. It would be a pity if genuine cases were to suffer in the future by restrictions being placed on the scheme because of any irregularities.

I would just like also to mention — and I think it has been mentioned by quite a few of my colleagues — that I am aware from meeting with constituents that many elderly persons are unaware of their possible entitlements to a refund of the DIRT tax. Many of these people have modest savings and are now suffering the DIRT tax on their small savings. They are unaware that due to their low level of income they may be entitled to a refund of this tax. Every effort, therefore, should be made to ensure that all eligible persons are encouraged to approach their local tax office and query their entitlements. Many people, and particularly the needy, find it difficult to deal with bureaucracy. I feel we owe it to these people to make a special effort to reach out and help them.

In this context I would call on all of the main banks to redirect a small proportion of their large advertising budgets to aid the elderly customers. I would suggest that the banks consider drawing up a brochure which would simply and clearly explain the procedure by which the tax may be reclaimed. Such a brochure should be freely available in all their branches. In addition, bank officials should be educated to make customers aware of this facility.

The dramatic increase in Dublin property values has brought many people into the property tax net for the first time. Many families who have grown children are faced with high education costs and find it extremely difficult to meet this extra tax. It is particularly difficult for many individuals as they must meet this property tax bill out of income which has already been subject to high personal tax and full PRSI. Therefore, the reintroduction of child benefit for property tax purposes must be welcomed. We must always remember that rising house prices have made this tax applicable to very many people particularly in the Dublin area. We should not dismiss out of hand any claims for relief under this heading on the grounds that property tax applies to rich people.

As well as welcoming the Minister's reintroduction of child benefit under this heading. I would strongly urge him to consider the reintroduction of child relief into the mainstream personal income tax code. This would dramatically improve the financial position of couples with young families. At the current time there are people who are facing the full brunt of increasing educational costs and increasing mortgage repayments. Any positive move in this area by the Minister would be very welcome.

As the Minister is aware the change to the current year basis of assessment is a very major change in our tax code. This change is going to create many transitional problems for self-employed business people and their professional advisers. Any tax system can only work effectively and efficiently if there is co-operation from all sides. The implementation of a current tax year basis of assessment so soon as after the introduction of self-assessment is placing a very heavy compliance burden on the self-employed business person and his professional advisers. I hold no brief for people who work in the black economy or who are not willing to meet their obligations to pay the correct amount of tax. I am speaking on behalf of the honest taxpayer who is faced with a bewildering series of changes in the taxation code, having planned and protected his business expansion and his future growth on the presumption of a five year basis of assessment, and all the implications that may have for capital allowances. He now finds that the rules have been changed. If I may use a sporting analogy, the Minister changed the rules two years ago by the introduction of self-assessment; he has now moved the game to a new playing pitch by the introduction of the current year basis of assessment. I feel that this underlines the necessity of putting in place a statutory method by which major changes in our tax laws should be made the subject of informed debate by interested parties prior to the budget.

I understand that the Minister cannot give any indication in advance of changes in relation to revenue collection. However, I feel that major policy changes could be indicated in advance, perhaps in the form of a Green Paper. The circularisation of a Green Paper would allow all interested parties to discuss in detail and make their recommendations concerning these proposals prior to the budget. The necessity for this is particularly borne out by the experience for the current year basis of assessment. This was mentioned by the Minister in his speech. The exact details, and even confirmation that it was to be introduced in the current tax year, only became known on the publication of the Finance Bill on 29 March 1990. Interested parties, therefore, only have three short months to digest extremely technical changes in the legislation. I trust the Minister will agree with me that the fullest co-operation of the professional bodies in the operation of the tax system makes the Minister's and the Revenue authorities' jobs much easier. I would suggest to the Minister that this co-operation cannot be one way only. The Revenue authorities' themselves must co-operate with the professional bodies. My suggested Green Paper approach to the major tax law changes could allow all interested parties to make considered and well thought out submissions. The increasingly technical nature of tax related legislation, which is the old system, is no longer relevant.

Another area I would like to urge the Minister to review is the restriction on claiming entertainment expenses as a tax deduction. I trust the Minister would agree that in today's business world if we are to compete on the international market it is imperative that companies be free to entertain their clients in a similar manner to foreign competitors. At present all such expenditure on entertainment is not allowed for tax purposes. Therefore, actual monetary cost to a company is almost double what it would be if a tax deduction were allowable. I feel that legitimate and fully vouched expenditure should be allowed. I feel that the impact of same on revenue returns would be quite low, due to the fact that companies pay modest amounts of tax in the first place due to tax relief, and additional revenue would arise on extra activity in the hotel and catering industry.

We must not forget that the hotel and catering industry is a major provider of jobs. It is they who ultimately suffer from the lack of companies spending due to the lack of a tax deduction. This is an area which would require examination in conjunction with our stated aim to improve and encourage growth in the tourist industry. In Dublin, we have lost thousands of jobs in the manufacturing area and this is the area in which we are looking for these jobs. The Minister might take this on board.

Finally, I would just like to mention, as I have no doubt the Minister knows, that the provision of créche facilities is becoming more and more a part of conditions of employment. The provision of same should be encouraged by the State to facilitate women who wish to remain or return to the workforce, but who have growing families. In order to quell the fears which have been expressed to me by a number of people, I would particularly ask the Minister to address himself to the following questions. What is the Revenue authorities' attitude to the provision of créche facilities? Do they consider them to be a benefit in kind accruing to the employees? Will they, in any circumstances, seek to tax same as a benefit made available to the employee? Will the Revenue authorities allow full deduction by the company providing the créche facilities for all the costs involved? Individuals have expressed doubts to me as to whether such a deduction is allowed on the basis that Revenue would argue that the expenditure is not exclusively in the course of trade being carried out by the business. I would like a positive response from the Minister, as it would relieve a lot of women's anxieties in this matter.

On a point of order, is there any interest in the Finance Bill from the opposite side of the House? I do not see any pseudo-intellectuals who spend all day, every day, talking about everything. There are no members of the Labour Party. No one is offering at all. Have they any interest in this Bill?

Could we have a quorum?

Acting Chairman

In fairness there were a fair number of speakers.

Could we have a quorum?

Tá áthas orm seans d'fháil tagairt faoin Bille seo.

(Interruptions.)

You do not have an option once a quorum is called.

There are a number of Fianna Fáil Senators here but no Sénators from the Independents, no Senators from the Labour Party and only one Senator from the main Opposition party. We would be very happy to join the call for a quorum.

Seeing that I have the floor, may I just make a comment? I am delighted that Senator McDonald is on the benches opposite. It is a pity there are not a few more of his Fine Gael colleagues with him. However, I am really extremely disappointed that there are no Labour Senators and, indeed, no Independent Senators——

On a point of order, it has never been in order to refer to the absence or the presence of Members of the House. I would ask you to rule with the Standing Orders at your disposal. The procedure should be followed here, irrespective of who is here or who is not. I think it is a disgrace to start off naming the——

Acting Chairman

No particular Senator has been named. Senator McKenna has the floor.

Could I just mention to Senator McDonald that in actual fact it was widely publicised in the papers exactly what——

On a point of order, Sir, a quorum has been called for and you have no option but to ring the quorum bells.

Notice taken that 12 Members were not present; House counted and 12 Members being present,

Is this an unusual situation in the Seanad when the Government side who were already very well represented, they find themselves in a situation where there was no speaker offering on the Opposition side on this perhaps the most important Bill of the year. It would have been a great pity to have allowed the debate to come to an end. It does seem an extraordinary situation when the one and only Senator on the Opposition benches finds himself obliged to call for a quorum to be present.

As you rang the quorum bells, Sir, the leader of the Independent group and the leader of the Fianna Fáil group were having a discussion on the availability of speakers and the length of time of the debate. The leader of Fianna Fáil had indicated that there were quite a number of speakers left on the Fianna Fáil side and, in order to accommodate that, I had just told him that I would simply go in around 6.30. That is the record of the events. However, I can assure you, Sir, that the question of calling for quorums in this House is a technique which is used quite regularly. It is used quite regularly to draw attention to certain things. Now that the matter has been used and started and abused, to my mind, in order to——

Acting Chairman

We are dealing with the Finance Bill, Senator, and I am ruling you out of order.

On a point of order, Sir, we did not ask for a quorum.

I can assure you, Sir, I am glad to note the diligence of the Government side of the House——

(Interruptions.)

Acting Chairman

I would ask you to resume your seat, Senator, we are dealing with the Finance Bill and you are out of order.

Could I ask who is in possession, Sir?

Acting Chairman

Senator McKenna was speaking when Senator McDonald called for a quorum, which he is entitled to do under Standing Orders.

I think then you should correct the record. It was not a question of nobody offering from the other side of the House. There was a Fianna Fáil speaker in possession. Let the record show that.

(Interruptions.)

I want to reiterate that it was not a Fianna Fáil Senator who called the quorum. In fact it was Senator McDonald who called the quorum——

Acting Chairman

I would ask the Senator to return to the Finance Bill.

On a point of order, may I just set the record straight? I called for a quorum after a Government Senator called attention to the fact that certain persons were missing.

There was no mention of individual Senators——

(Interruptions.)

Acting Chairman

The quorum is present. Let Senator McKenna continue on the Finance Bill.

I drew attention to the fact that there was none of the pseudo-intellectuals there, that there was nobody from the Labour Party——

Acting Chairman

Please resume your seat, Senator McCarthy.

We are now back to the name calling which we are accustomed to from the far side of the House——

(Interruptions.)

Acting Chairman

I am asking Senator McKenna to continue on the Finance Bill.

As I said initially, before I was interrupted, I welcome the opportunity to say a few words on the Finance Bill and to congratulate the Minister for Finance in bringing forward such a Bill. As a number of speakers have said, it is a very complex piece of legislation and, in bringing it forward, the Minister and the Government have proceeded along a path they started out on some three years ago. It is widely acknowledged on all sides, by all people from every area of activity within the economy, that the Government must continue to reduce our huge debt. We have daily demands for a reduction in tax burdens and the lowering of interest rates. It is an extremely difficult task for the Government; it is not nearly as easy as some people might suggest.

This Finance Bill and theProgramme for National Recovery provide the evidence that the Government are determined to achieve a balance in the current budget and are prepared to take action to do so. The proper management of the economy over the past number of years has placed the country on a firm road to growth. I am glad that it is the Government's intention to continue in that particular vein.

Exchequer borrowing as a proportion of gross national product has been reduced from 13 per cent in 1986 to just over 2 per cent in 1989. By any standards this has been a remarkable achievement in such a short time. Our balance of payment deficit has been wiped out and there has been a surplus over the past number of years, with a surplus confidently predicted this year again. As a teacher, I remember regularly explaining to students, when they asked, why we had a constant adverse balance of trade. The standard explanation for this constant adverse balance of trade — it was contained in all the textbooks and all of the economists were at one as to the reason for it — was that the demand for imported products far outweighted the demand for the home-produced products and that our exports were not able to match the demands for the imports. It was commonly accepted that this country, being such a small open economy, depending so much on international trade, it was natural to have an adverse balance of trade but theProgramme for National Recovery over the past couple of years has proved this theory to be very wrong.

The signs are there also that the huge problem of unemployment is beginning to reduce. It is accepted on all sides that no one likes the level of unemployment we have; it is one of our major difficulties at the moment. However, people must accept that in order to tackle this huge problem the proper economic climate must be created. Those who expressed the view that unemployment could be reduced overnight were, to say the least of it, being unrealistic or in many cases politically opportunistic. Now that that climate has been created considerable progress is being made in relation to the whole area of unemployment. The key sectors in the economy are making very steady progress on job creation.

Mention of job creation brings me back again to the area of taxation and the proposals contained in this Finance Bill. The reduction in the tax rates and the changes in the tax bands have been brought about in a situation where there is a high level of dependency on the people who are working and paying tax. I am very glad the Minister for Finance has returned, because I want to take the opportunity to congratulate him in relation to the lowering of the tax rates and also the widening of the tax bands. The reductions have been achieved against a background where our National Debt is consuming over 80 per cent of the Government's main source of income, namely, income tax. This, in the circumstances, is a marvellous achievement and one on which the Minister must be warmly congratulated. I also welcome the extension of the self-assessment system to put self-employed people on a current year taxation basis.

I welcome the curbs being introduced in relation to the business expansion scheme. That scheme was set up initially to help to promote and encourage developoment in business where there was risk, but ways were found around that where in quite a number of cases people were availing of this scheme but in actualfact there was absolutely no risk involved. I welcome also curbs on the definition in relation to manufacturing industry for the purposes of the 10 per cent corporation profits tax rate.

A very welcome development in the Bill and one on which, again, I congratulate the Minister, is contained in section 9, which exempts local authorities from paying income tax on investment income. This measure could save local authorities millions of pounds. As we speak, a number of local authorities have been served with income tax assessments and threats of court action in respect of huge sums of money through prudent investment and that type of thing. If this section was not included and if local authorities had to pay these demands, then there would have been a huge increase in rates on commercial property and service charges or indeed a combination of both. This section removes an anomaly whereby one State sector, the Department of the Environment, were paying money to local authorities in the form of block grants, road grants etc. and another sector, through the Inspector of Taxes, was taking it back in the manner mentioned. All local authorities, when they see exactly the benefits accruing from this section, will see it as a very welcome step in the whole area of taxation reform.

Turning to the question of poverty and the measures outlined to tackle that problem, I am disappointed at the Conference of Major Religious Superiors and their criticism relating to social welfare and that the budget was anti-family. I am surprised that such a body would make such misleading and inaccurate criticism. The Minister, and indeed the Government, have given the highest priority to social welfare. I think the package of benefits over the past few years given to the unemployed and other dependants is ample evidence of the Government's commitment in this area. The Minister devoted a very substantial part of his budget speech to social welfare and to the elderly and disadvantaged.

The Conference of Major Religious Superiors stated there was no commitment to implementing the recommendations of the Commission on Social Welfare. The four priority areas in that report are being followed by the Government, and it has to be stated that 40 of the 65 recommendations in that report on social welfare have been already fully or partially introduced by this Government. As the report states, many of those recommendation can only be introduced on a gradual or a phased basis. How the conference can say that the budget is anti-family is a mystery to me because this budget increases the child dependant payments, child benefits were increased, there is a new carer's allowance, a clothing allowance, increases in adult dependants allowance, free fuel and the free travel is extended. If that is anti-family, all I can say to the Minister is: continue the work and let us have more of this anti-family legislation.

The Bill is very complex legislation and the Minister is to be sincerely congratulated on the magnificent job he has been doing and is doing in this Bill. I wish him well and ask him to continue the good work.

I want at the outset to take strong issue with the remarks of Senator McKenna in relation to the Conference of Religious Superiors. These remarks are totally out of order. Nobody can question the bona fides of that body and their commitment to the alleviation of poverty. I think they are one of the most progressive elements in the Church at the moment——

On a point of order——

I would also make the point——

On a point of order, I did not criticise the working of the Conference of Major Religious Superiors. What I criticised——

You criticised their comments.

——was their comments in relation to social welfare. It is a totally different thing. If the Senator is making comments in relation to what I have said, he should quote me accurately.

The implication of the remarks of Senator McKenna is that they were acting in an improper fashion. What I would also say — the point has to be made; it is a hare I did not intend raising when I came in here — in relation to Senator McKenna's comments he is misleading in his presentation of the carer's allowance because the carer's allowance in the Social Welfare Bill is a means-tested allowance and will be inaccessible for the vast majority of carers. The amount in question is approximately £45.47 and then to qualify for that amount the means-tested person would have to have a non-existent form of living.

(Interruptions.)

It is important for the record that we put those things straight.

Now, to address the issues in the Finance Bill, what I propose to do is to take six or seven pertinent issues arising from the Finance Bill that I think should be immediately addressed. The first question is the extraordinarily high level of interest rates that we have in this country at the moment for the commercial sector, for the agricultural sector and for personal borrowers. Interest rates at the moment are about four times the rate of inflation. We have an inflation rate of approximately 4 per cent; interest rates are approximately four times that amount. How that we have the Minister in the House — I appreciate the fact that he is presenting the Bill in the House — I want to say in very clear terms to him that it is time the controversy between himself and the Central Bank came to an end. It is time we got interest rates at a realistic level instead of what is the case at the moment. I am alluding to the newspaper commentary——

Do not believe what you read in the papers.

It is important that we get a proper level of interest rates at the moment. The second point I would like to make in relation to the Finance Bill is that, given that we are in the EMS, at present there is reasonably small risk of currency fluctuations. That is why I propose the Minister should undertake or should underwrite the risk for businessmen and farmers in this case. What I am saying is that there should be loans in Deutsche Marks for farmers and business people to give them the chance to avoid the penal level of interest rates in existence at the moment and to improve our economy and create employment.

I would argue that at the moment, with the dreadful reduction in the standard of living of our farming community because of falling agricultural prices and with the crisis in employment reflected in the number on the live register and in the high level of emigration, it is incumbent on the Minister to look at every possibility, at everything that can give a realistic chance of job creation and that can give the farming community some viability at the moment. I put to the Minister that one very easy method of achieving this is to have special loans in these categories in Deutsche Marks because of our membership of the EMS and to underwrite the risk here.

It is important that the point be made in the discussion on the Finance Bill that the role of my party in the last couple of years has been in stark contrast to the role adopted by Fianna Fáil when the last Coalition were in power. At that time many leading Fianna Fáil politicians took issue with every attempt to bring the public finances into shape. We have adopted a much more constructive approach to the national finances and a much more constructive approach to Opposition than was the case then.

One of the aspects of the Finance Bill which I feel is worthy of welcome is the adjustment in the BES scheme. I believe the adjustments in the scheme were in order because there was a gross abuse here and a gross waste of public finances.

The move towards a reduction in personal taxation is welcome, but it would be my submission that in the interests of equity and job creation we would need to progress much further on the road of reducing personal taxation.

In the area of indirect taxation the gap between us and the other European countries and the kind of indirect taxation adjustments that will be necessary in the 1992 context have not been achieved and there will be radical need in the next two budgets to reduce indirect taxation. The Minister on this occasion did not go far enough to make a more even spread in the reduction.

Along the Border with Northern Ireland where I come from there is a grievous problem for the trading community there, for the business people and, indeed, for the ordinary citizens because of the differential, particularly in the cost of petrol, between prices in Northern Irealnd and the Republic. The great problem with people crossing the Border — it is their constitutional right; they cannot be stopped doing it — is that when they cross the Border to buy petrol they buy many other items as well in all of these shops that have grown up in the Border region. I believe that is causing a chronic situation in the whole northwestern area and the area around the Border. It is incumbent on the Minister to address this question in a very radical fashion in the short term; otherwise the penal situation will continue for the traders in that area. It also gives rise to smuggling, and the only people who are involved and profiting from the smuggling along the Border are known terrorists. For that reason it is again critically important that that question be addressed.

I do not propose to rehash all that has been said all day except to make those couple of observations. I think these matters are worthy of consideration as they reflect the defects in the Finance Bill.

At the outset I would like to welcome the Minister to the House and the Minister of State as well. The Minister, in particular, has to be singled out and congratulated on doing a splended job in running the financial affairs of this country, which had gone out of bounds completely. While I agree with many of the remarks of Senator O'Reilly, there were some I could not agree with, especially when he said that this Government were not doing enough. I remember a Government, of which the Senator's party were part, between 1983 and 1987 and all they ever did about running the finances of this country was an amount of shadow boxing. They were talking about getting the national debt under control and they were talking about reducing——

On a point of information, they brought the finances under control despite destructive opposition.

——income tax to proper levels and so forth and all they seemed to do about it was talk. During that period the national debt actually doubled; it went from something like £12.5 billion or £13 billion to £26 billion. This Government had to come in and bite the bullet. They have done a darn good job and the Minister should be congratulated for his foresight in trying to get the affairs of this nation into proper perspective.

Everyone would like to see more improvements with regard to the income tax bands, but at least we are moving in the right direction. Last year we had reductions and we had them again this year. The Minister, in his address to us this morning, indicated he is going to continue down this road, which is the correct road. At the end of the day it will give more incentive to young people to work overtime and to produce more. At the end of the day, I think we will create more employment. I am delighted there is a reduction in the standard rate of income tax — down to 30 per cent — and I am quite sure the Minister and this Government will bring that down to 25 per cent within the next couple of years, and they will have to be congratulated on that.

Significant new reductions in the personal income tax of all taxpayers have been referred to. Then you have another development — the self-assessment system. I believe this was badly needed because people, particularly private business people, used to get enormous assessments from the Revenue Commissioners and they had to prove that the money was not being made. The self-assessment system is very good and very fair.

I also compliment the Minister on the initial steps to reduce indirect taxation, to help lower inflation and to bring the rates closer to European levels in preparation for 1992. It is very important that we would not be thrown in at the deep end in 1992.

Another matter I would like to speak about is the designated areas. I am delighted that in this budget the Minister is extending the period from 31 May 1991 to 31 May 1993. This will qualify people in the designated areas for the urban renewal tax relief. This is a move in the right direction because in large towns and cities, where the centres were deteriorating rapidly, these incentives made a great difference as there was massive growth. I compliment the Minister on that and I should like to see it expanded.

The Minister should also include seaside resorts which depend on a very short tourist season, from July to the end of August. People in those areas are trying to make a living in eight weeks. They also pay full rates and insurance on their premises and they just cannot make enough money in that period to upgrade their premises. If the incentive scheme could be expanded to include Ballybunion, Ballyheigue and other seaside resorts in County Clare — many of which have become shantytowns — and people could get the incentives granted to other areas, they would reinvest in their own premises and bring them up to proper standards. The Minister should look at that.

I am also glad that the projects are approved for grant-aid for the industrial development agencies, the hotel and tourist industries on or before 31 December of this year. I would also like to see some kind of incentives being introduced for the large land banks of property owned by the IDA or Shannon Development. There is definietely a need for some type of tax incentives which would encourage people to invest their money.

The business expansion scheme, which was mentioned by all sides of the House, has been abused. It was a good scheme, there was nothing wrong with it. However, there were loopholes and I am glad that the Minister has closed them. It was a very good scheme and rural areas will benefit from it. If people come up with the right ideas many towns all over the country will benefit from the business expansion scheme, which could help to provide indoor facilities, recreation facilities and leisure areas. A lot could be done in that area.

This Bill has gone a long way towards creating employment. The emigration trail is slowing down and unemployment is on the decrease. That is due to Government handling of our affairs for which they should be highly commended. This legislation will also take us a step further in keeping our young people here. I congratulate the Minister and the Government on this legislation.

I welcome this important legislation.

I wonder why the debate did not move across the floor of the House.

Acting Chairman

As I understand it, there is a long list of names. I am going by the list in front of me and the Senator may speak after Senator Mooney.

That is precisely what caused a row 15 minutes ago. We are working on a list of names but somebody from the far side of the House stood up and said that nobody from this side was offering. Will they get their act together over there? You have to have agreement on how to operate the business of the House. Perhaps we might have a quorum?

Acting Chairman

Senator O'Toole, please resume your seat.

I am sorry that my——

The point should also be made that,pro rata, we have had far more speakers from this side of the House than the Government. The Government have 32 Members, our party have 15 and ten have contributed already today. Let us get the facts on the record, stop the nonsense and get this Seanad on the road it should be.

Notice taken that 12 Members were not present; House counted and 12 Members being present,

I am sorry that my complimentary remarks about the Minister's excellent Finance Bill were caught up in a flurry of vocal activity a few moments ago. This legislation is probably the most important going through either House of Parliament at present. It sets the financial agenda for the 12 months and indeed, as elements of this Finance Bill show, it sets the financial agenda well into the nineties. There has been a budget and this Finance Bill reflects the pragmatic, flexible approach that has all the marks of a successful businessman, which Minister Reynolds is. It is also coupled with Christian compassion and those of us who know the Minister will not be surprised at that approach.

I, too, should like to congratulate the Minister for acting so quickly to ensure that recent awards by the courts to handicapped members of our society will now be tax free. Congratulations are due, not only because of the decision but because of its swiftness. Those of us in political life who are familiar with the mandarins in the Department of Finance, irrespective of the Administration in power, will know what I am talking about when I say that decisions of this magnitude are not normally, or usually, made in such a short period of time. It is to the credit of the Minister and his personal intervention that it has taken place.

On a more general level, the improvement in the external reserves are also welcome because, surprisingly enough, while it may seem like dull reading to the vast majority of the population, the swings and roundabouts of the external reserves impinge on the daily activities of the population. Specifically, one hopes that further improvements will result in a mortgage reduction and give practical effect to the very real tax improvements in the recent budget. The 4 per cent increase in mortgage rates over the past 12 months, due mainly to external pressures and reasons, is causing extreme difficulty for mortgage payers. The Minister is to be complimented for his remarkable restraint, however, in framing a budget that recognises the continuing serious financial difficulties facing the country while, at the same time, conceding that the hard-pressed taxpayer can at last see a narrow but increasingly bright shaft of light in the areas of tax reform and tax reduction.

It is interesting, in the context of the contribution made earlier where talk of the national debt was bandied around, that despite the remarkable restraint of the Government and the previous Administration in 1987, the national debt is still at the horrifically high figure of £25 billion. It puts in context the profligacy of the previous Coalition Administration from 1982 to 1987 in doubling that debt. It is usually fair game for the media, and for certain sections of the political establishment, to fire brickbats at a Fianna Fáil Administration for profligacy. That sort of selective criticism——

What about the 1977 manifesto?

——is not a true or accurate reflection of the reality that since the early eighties, and at a time when Fianna Fáil were not in Government, we had the highest level of emigration, the lowest level of economic activity and an increasing tax burden. Those are facts that, sadly, are not always highlighted in the proper places. However, I do not wish to take up too much time dealing with the past. Fianna Fáil have always been a party of the future and I am proud of that.

I would like to recommend that the Minister press ahead with tax equity especially as it applies to trading differences between North and South. The Minister with his business background, is only too well aware of the difficulties facing traders in the Border counties as a result of the disparity in VAT between North and South. I join with my colleague, Senator O'Reilly from the neighbouring county of Cavan, in highlighting the difficulties that traders and the general population have in relation to those disparities in the tax regime that operate between North and South. I would be interested to learn if the Minister's enlightened approach to the VAT regime — a reduction from 25 per cent to 23 per cent — has benefited the economy rather than leading to a reduction in Exchequer receipts. The latter was the perception among certain economists who for years have resisted any suggestion that a reduction in indirect taxation would be of benefit rather than an inhibiting factor in generating more income for the Exchequer.

In the context of North-South relations this is an opportunity to reflect, albeit briefly, on the highlights of the Taoiseach's speech to the Institute of Directors in Belfast recently on his historic journey to that city. He highlighted the disparities, not only in the tax regime between North and South but in the imbalance in trade between North and South. The statistics in relation to the intra-trade relationship between the people of this island made depressing reading. I hope the Government will redirect their efforts, in consort with the social partners, to generate more economic activity within the island and so benefit, and give added prosperity to the national population. It is a said reality that some 60 years after partition there is still the partition of the mind as well as the physical partition of people between North and South. Northern businessmen think in terms of moving to the United Kingdom and Europe, while Southern businessmen orient themselves away from their Northern neighbour. This requires debate and analysis. It has been ignored and neglected for too long. The Taoiseach, by highlighting these imbalances in our trading patterns, has at least set the ball rolling and started a debate that was long overdue.

I would like to make one specific suggestion to the Minister and I raise this hare practically every year on the Finance Bill. Will the Minister initiate a discussion within his Department, on setting up a tax free enterprise zone along the Border counties? The economic and political climate in recent years has been against creating more tax breaks. The trade union movement constantly criticise successive Governments for feather-bedding industry. The taxpayer is constantly saying that the Government are not spending money in the right places, particularly if it does not apply to their area. It is interesting to note in a recent report that the biggest economic growth area in Ireland over the next decade surprisingly will not be the east coast or Dublin and its conurbations but the mid-west. Apart from the natural attractions of the mid-west, its geographic location and its energetic and enterprising people, this economic growth will take place because of the enlightened approach of successive Governments to the tax free zone operating out of Shannon. It has, to some extent——

I am sure it also had something to do with representations.

——created that perception now. The reality is that the mid-west will be the growth region over the next ten to 15 years. It is in that context that I, respectfully, suggest to the Minister that, because of the unique dispartities economically between North and South, evidenced specifically along the Border counties, he might consider giving a tax-free enterprise zone status to counties, such as my own, which have been ravaged economically, more so perhaps, than our neighbouring Border counties. I know that when one governs one must govern for the whole country rather than for part of it, but this is something that I could not in conscience ignore.

As I stand in this House I must highlight, once again, the economic disparities as they affect my own county of Leitrim, especially in light of the imminent withdrawal of the ESB from the Arigna coalfield. I must refer to the resultant economic impact that will have, not only on my own town of Drumshanbo, but over three counties with the loss of upwards of 250 jobs in an area that traditionally has not an industrial heartland. It is something that will to be very difficult to contend with. It will be very difficult for the various State agencies, and local enterprises to attract the type of viable industry that will be necessary to maintain the people in my county and the region. The reality in economic terms is that business people will not look to my part of the country automatically to invest their money. They tend to go to other areas such as the Shannon free zone, Dublin and large centres of population. It is because of this natural handicap and their geographical location that counties such as Leitrim are suffering from the traditional impact of emigration. I once again urge the Minister, and the Government, to consider some realistic alternative to the existing incentives for private investment to encourage enterpreneurs to set up not just in the area where I come from but in other parts of the country which are economically declining and which need that extra little lift.

My colleague, Senator Kiely, referred to the seaside resorts. The Minister may respond by saying that if he was to set up tax free zones in every part of the country the entire country would become a tax free zone. I am making the argument for my own part of the country because of the handicaps it has experienced and suffered. I do not have to remind the Minister of this. He is intimately aware of the difficulties facing our part of the world and his own county of Longford. I hope he will continue the work he has started of reducing indirect taxation. He was the first Minister to reduce direct taxation. We are truly fortunate to have a person of the calibre of Deputy Reynolds as Minister for Finance at this critical time in our nation's history.

I would like to put it clearly on the record that there was an agreement between the Whips about the order of speakers and the method of dealing with today's business. We have bent over backwards to accommodate the Government Whip, and the Leader of the House to get the business disposed of today and to proceed to Committee Stage tomorrow. We entered into the debate in a spirit of co-operation and goodwill so that everybody would have their say. Before the row in the House I checked with the Leader of the House who indicated to me that he had a number of Fianna Fáil speakers waiting to contribute and he said "that is fine, let them go ahead." I deeply resent the implication that came from the far side of the House. I regret that the spirit of co-operation could not have even lasted more than ten days. However, I suppose we should be used to it at this stage and not be surprised. That is politics. I am a slow learner but I have finally got the message.

I should like to compliment the Minister on the amendment he introduced yesterday in the Dáil. I welcome the fact that he was able to respond so promptly to a real problem. He dealt with it efficiently and effectively. Everybody welcomes it and it is a tribute to the Minister that he was able to respond so quickly.

In dealing with the Finance Bill it is also critically important that we look at the economy as a whole. The economy is, of course, not the cosy, rosy scene we hear it might be. First, we seem to get a consistent flow of conflicting reports on the state of the economy. I always look forward to the Minister's budget speech and, indeed, to his words when presenting the Finance Bill. Now and again I would like to see an economic medium-term forecast from the Department of Finance, not from the Central Bank or the ESRI, issued in a publication we can depend on to indicate the thinking of Government in certain directions. There should be an official record in the same way that we get the quarterly report from the Central Bank and the reports from the ESRI. I should like to indicate the kind of chaos we come up against. There is a debate going on at the moment as to whether the reunification of Germany will affect interest rates. That would seem to be a load of nonsense. I find myself on the Minister's side on this. I do not honestly see how the changes in the German economy are going to trickle through and cause a worsening of Irish interest rates. My understanding of it is quite the reverse. The changes in the German economy can easily be absorbed by the Deutsche Mark and will not result in any desperate shock effects running through Europe. I do not believe they will worsen Irish interest rates.

Over the past number of months it has been noticeable that reserves are growing rapidly. I would like a response from the Minister as to what stage in the growth of reserves he expects the Central Bank might move to reduce interest rates. We are now at a very crucial time for the development of the economy as a whole. There is a sort of rule of thumb we always apply, that the building game is probably the best reflection of the state of the economy. There has been a massive upsurge in building in the past 18 months. However, we should take note of the fact that in the last month house sales have levelled off. From my information, they have dropped. Houses which a few months ago were selling like hot cakes are now sitting on the market. One of the reasons is the higher mortgage interest rates and the threat of even higher rates. It seems to me that the quicker the Central Bank resolves the doubt as to whether our interests rates are likely to go up or down the better. We have had an increase in reserves which, by now, should be at the stage where the Central Bank would think about reducing interest rates, or at least setting in train the process which would lead to a reduction in interest rates. On the other hand, there is a doubt about the shock effects through the European economy arising from the reunification of Germany. I do not think this will trickle down to us for the simple reason that the German economy can absorb the total affects of the exchange rate with the Ostemark which will only account for approximately 5 per cent of the West German economy. That will not have any shock effects on the West German economy and, even if it does, the excellent and plus balance of trade in the West Germany economy will allow it to absorb an awful lot more. I do not believe that German reunification will affect our interest rates. If some economists believe it will I would like them to specify how. I am sick and tired of listening to them surmising and making forecasts without explaining how they make the link between Berlin and Dublin. At least they have failed to do that so far. I would like the Minister to clear up that point. If that is the case we can say, without a shadow of doubt, that interest rates in Ireland will, in fact, reduce in the short term.

A recent ESRI medium term commentary took the view that interest rates do not necessarily have to rise. More and more people have been saying that in the last week or so. If we could have that clarified the house market could sort itself out and there would be some buoyancy, but I believe prices plateaued out in the past month or so or just before Easter which is traditionally the start of the auction season. The market seems to be stagnant at the moment. That is critical and should be sorted out.

In listening to the speeches, particularly from the Government side, I heard a welcome for the fact that in general terms our interest rates are far lower than they were some years back and that our inflation rate is among the lowest in Europe. There was a welcome for the fact that it is only a fraction of what it was a short number of years ago and that there is control of the national debt. If anybody thinks that a Government, or a Minister for Finance, no matter how skilled or excellent he or she may be, or how efficient or effective the Department of Finance may be, can deliver these kinds of results by simply sitting in ivory towers of offices and taking decisions they are mistaken. That is not the case. It should be understood by people that the developments that have taken place in the economy, particularly in the past three or four years, have been brought about by a co-operative and determined drive between the social partners. I would like to put that firmly on the record.

I have defended theProgramme for National Recovery in many different fora over the last number of years. It is important to recognise that it has brought a certain stability to industry and to workers on the shop floor. There is now a sense of stability. It is important to note that the part the trade union movement played in that was crucial. It allowed the Government implement their philosophy and objectives.

However, income tax is the area which is causing most problems. I would like to go back three years to 1987 when the Minister for Finance of the day announced that he would, in the following years, relieve income tax payers to the tune of £220 million. That was to be worked out on the basis of £70 million per year. I would like to put it very firmly on the record, because it is important that this be noted, that no matter how much we argue with Government progress should always be marked and new targets established. The Minister did not wait for three years to implement the £220 million worth of cuts. In fact, that figure was exceeded within 18 months, within two budgets at least, and has been far outstripped at this stage. I do not mind putting this on record, as one who has been critical of the Government on such issues, that they discharged their commitment on the question of income tax. They more than discharged it and, in fact, are well above the figure of £220 million. I want to put that in a context. This involves referring back to the time when that agreement was signed in 1987. At that time we were deep in an economic recession and belt tightening was called for and supported. Co-operation came from all sectors. In the meantime, there has been a massive growth in the economy and an average growth of 4 per cent in the past three years. If I am wrong on that, I am sure the Minister will correct me. Certainly the figures are in or around — depending on who you listen to — the 4 per cent mark. Taking that into consideration, I would now say to the Minister that we need to look at income tax for the future. I take a slightly different line to my colleagues on both sides of the House. I have certainly communicated this to the Minister on a number of occasions. I listen very carefully to people, and I certainly listened to the previous speakers referring to the trade union movement. The trade union movement have very strong views on income taxation. I would like to hear from the Minister, because it needs a certain political will and courage to take this matter in hand. There is also a bottom line about the reduction of income taxation. We should not be raising people's expectations by saying that we can go on reducing income tax levels. I have always talked in terms of fair taxation. I certainly do not believe, on my understanding of the economy, that we could ever sustain and survive on an income taxation standard rate of 25 per cent. That is too low. I am putting that on the record. I do not think that would create the income and the revenue for the State that we need in order to do things, whether it be the reopening of the Ballyconnell Canal which was mentioned by the previous speaker last year, or the Arigna Mines. These things will not be done on 25 per cent taxation. It is not possible to go too far below the 30 per cent mark. I would certainly feel that about 28 per cent is as low as we can ever afford to go. My own view is that there should only be two rates of income tax. That is the way it should be looked at. There was a commitment given by Government that before 1990— as I recall — two thirds of the taxpayers would be on the standard rate. We have just reached that figure, or very close to it. I am not sure if it is one above or one below, but it is very close.

I compliment the Government on achieving that level of taxation. I think our target should be 75 per cent of people on that rate. The standard rate means standard rate. The people who are above the standard rate should be the exceptions. I would certainly like to see the number of people on the standard rate being three out of every four — 75 per cent in other words — and the remaining people on the higher rate, whatever that happens to be. There should be two rates. I can sustain that argument by saying "let us hold the bottom rate somewhere around 28 per cent". I do not think that 25 per cent is an attainable target. It is one of those things that goes down well in the pub. It sounds great, but it just does not work because it will not balance the books. There is no point in just pretending that it will.

From my point of view the most annoying feature of the changes in taxation over the last number of years — and we could go back years to the change in the taxation system — was in 1980 when capital taxation accounted for approximately half of a percentage point of total taxation. I certainly would want to hear a response from the Minister on this point. In 1990 we are now talking about capital taxation being approximately 0.6 of 1 per cent, by my calculation, of the total tax take. So while capital taxes have gone from 0.5 of a percentage point to 0.6 of a percentage point, the income taxation on the other hand has gone way up. I just do not believe that we can sustain that kind of thing. That really is where the problem is created. It is not the rate of tax. It is the people who are not paying their fair share. I listened with some amusement to the question of the tax breaks. I think it was Senator Mooney who just said: "Let us open the particular tax breaks that we have available in Shannon and also at the docks centre". I would just like to tease those out. I would like to put a few things on the record about it. I am not one for knocking grant schemes. I think they are good, even if they only result in a few jobs for the lads who work on the building sites.

You do all right.

I do. It is my source of income. We have a position now where people are moving into the docks site. Take the AIB — and I am not singling them out for any particular reason — who have moved from Ballsbridge to the docks centre, and consider the financial effect of that move on economies in general. My understanding is that they shift part of their overseas operation, part of their mainland UK operation, and instead of operating it through one of their UK companies, they now operate it through the Customs House Docks company. That is all very well so far. The profit that is gained by the UK operation is shifted directly and immediatly from Manchester or London or wherever it is, to the Custom House Docks Centre, where 10 per cent tax or whatever is paid on it when you have allowed for management fees and consultancy fees and all the other odds and ends. Who gains and who loses in that? I would just like to have it on the record Minister. Is it the British taxpayer who loses out and we gain? Is it part of the European culture? Is it something we should be worried about or is it something we should be glad about? Is it neighbourly? I would just like to understand how in fact it works.

The Senator should not worry about it.

I just like the look of gift horses. I always like to look them straight in the face.

You are not objecting to UK taxation.

Not at all. I am quite clear about what is on my mind. I would be worried about Senator Mooney talking about the difference in the——

Acting Chairman

The Senator has two minutes.

(Interruptions.)

I will finish when I am finished. That is the answer to that one. I apologise, a Chathaoirligh, that was not meant to sound——

Acting Chairman

My Standing Orders are here in front of me.

I am sorry, a Chathaoirligh, you have to refer me to Standing Orders because——

Acting Chairman

I understand the agreement was made this morning. Senator Brendan Ryan had 30 minutes as spokesman for the Independents.

We had agreed on many things and on all sorts of ways of doing business until people started breaking those agreements. I have some more to say. I would advise you that I would wish to continue to say what I have to say. I am not going to go on all night.

Acting Chairman

I have to tell the Senator he has two minutes and that he is wasting time.

I am not going to be thrown around any more by these people here. There was a gentelman's agreement on how we could do business today but that was overthrown by the far side of the House.

On a point of order, could I make it quite clear that from this side of the House we continue to have speakers operating? We are very happy to see the Independent Senators come in for their full allocation of time. No action was taken which would have in any way prevented the Senator coming in.

For the record and in response to that point, there was agreement on the number of speakers. The Leader had indicated the number of speakers he had. We said: "Let those people go through." At that stage somebody said: "Why is there nobody offering from this side of the House?" I am not going back into the whole thing.

On the question of the Shannon free zone, I would also ask the same question. I do not understand the leasing companies' operation. We have a system where if, let us say, Air France decide they want to buy an aeroplane, they go to the Banque de Paris or they go to one of their satelites in Belgium or Luxembourg. Those are two of the European countries who do not tax dividends. They buy shares in a company based in the Shannon free zone. This company leases back an aeroplane to Air France. The profits of that company are paid back to the bank in Luxembourg or in Paris who own the shares in the company. The money gets finally back in that untaxed way. Who gains in that particular operation? What do we gain from it? I think it is a tax trick; that it is a cheat, unless somebody can explain to me in a better way how it works. I just do not understand it.

On the question of income taxation I would like to raise one point which I intend putting down as an amendment on Committee Stage and I would like to hear the Minister's response to it. It is a question of the writing down allowances: I found it in section 243 of the Income Tax Act, 1967, that is, the allowance for assets of short life. One of the difficulties about that was that when that section was written in 1967 there was a different concept of obsolescence to the present position. The position that is there at the moment is that many capital items being used in offices, or wherever, can be written off in a much shorter time than two years.

I am particularly thinking about computerisation, computerised products and computer hardware. It is very often the case in small companies nowadays that they buy and set up a computer system to help in the operation of the company. They are only allowed to write off maybe ten, 12 or 20 per cent, it varies, and I think in one case it is up to 25 per cent, in fact, for a year or so. They can write off the assets over a period of time. The reality is — and the Minister and I know it — that there are computers that are out of date in two years. There are many companies who replace their computer system in less than three years. We should recognise that, because it is hurting small industry and small business. There should be a special allowance in that section to allow companies to write off certain assets which become obsolete by virtue of technological advance. For instance, if you take the new UNIX system of computerisation which is going to boom through the world in the next 18 months anyone who went into one of the previous systems last year is now, in effect, out of date. Any company that wants to keep abreast of developments will find itself, not able to write that off. So the company which set up a new system two years ago now find that it is out of date and has to replace it although they only got 20 or 35 per cent of a write down on that particular asset. I do not believe it is good enough. The amendment that I will be proposing would allow companies like that to give the equivalent of 25 per cent on a reducing balance basis on the cost of such assets. It is very clear. It is not an item which anybody can pull a fast one on. The hardware is there. It is clear enough if it is out of date or if it is useful for the company. There is another aspect. A company which is developing very quickly and which expands quickly will very often find that the computer system and the technology installed have no longer the capability to deal with the expansion of the company. Therefore, it has to replace it with brand new technology, technology which it cannot write down.

I want to make one final point. I am conscious that there are other speakers, and we want to get the business finished. In a new programme, and negotiations will definitely begin in any new programme towards the end or this year, there has to be a commitment to share in benefits. That is one of the reasons I am talking about the tax level. We have people talking about improving the health service and I am talking about improving the education service and all social benefits but that costs money. We do not get it for nothing. The workers are also entitled to decent standards and increases in wages and salaries over the next number of years. That also has to be paid for, whether it be in the public or the private sector. We should recognise that fact. One of the things I am most worried about — and it is my final point — is the child allowance. I do not have time to develop my view now, but if things go the way they are, not only will there be nobody to pay our pension in X number of years' time but there will not be anybody to turn out the lights. The management of the population is going to be the most serious thing that we will need to adjust to in the next ten years. Having said that, there is only one way of approaching it and that is to have pro-natal policies from the Department of Finance to encourage people to have families that will ensure that the State continues. This has operated very succesfully. There is a case for pro-natal policies. I would certainly ask that those allowances be increased. I firmly believe that the fertility rate, which has shown an increase in both France and Sweden in the last number of years and is on the increase in other areas, will also increase in this country. The developed countries are watching this. We need to bring into law proper facilities for maternity and proper allowances for children.

Is this INTO policy? Keep up the numbers of children.

(Interruptions.)

My point is that every child is one-thirty fifth of a teacher's job. I could go on at length. When I stood up I intended to speak at length as a form of protest, but I have said what I wanted to. I will revise the other matters on Committee Stage. I am conscious that other people want to speak.

I would like to congratulate the Minister on a very imaginative and far reaching budget. Many of the measures in it would have been impossible a number of years ago. I am glad to read today that the economic strategy is working. We have a £314 million trade surplus, which is one sign that we are going in the right direction. As Senator O'Toole mentioned — and it would definitely get support on this side of the House — co-operation between the employers, the trade unions and the Government is one of the main planks the Government set out when they came into power. It is a very important one. If one is to look at England, the unfortunate thing about it at the moment is that not alone are the Government not co-operating with the unions but they are insulting them. In a small country like ours, it is essential that we work together. I hope that the agreement between us all will continue for many years to come.

I would agree with the points Senator O'Toole made with regard to interest rates. The link between Dublin and Berlin was one on which many economists spoke saying that there would be great gloom and doom and that it would send interest rates soaring but they never explained why. In fact, a number of economists were on the radio one morning saying that it was a brave man who would say that interest rates in Ireland were not going to rise because of what was happening in Germany. If I may say it, obviously the Minister for Finance and the Taoiseach are brave men because they predicted what was going to happen, and they predicted it correctly.

One of the many welcome features in this year's budget was the announcement by the Minister of the employee PRSI exemption scheme for persons on very low incomes. The effect of this scheme is to exempt employees whose gross earnings are £60 per week or less from employees' social insurance in respect of that week. Although I confess that I am puzzled by the fact that the maximum relief appears to be £3.50 rather than the £4.65, which would be the amount of PRSI payable on £60, and perhaps the Minister could clarify if such is the case.

However, when we talk about low paid workers, I think it would be fair to say that that would be an apt description of people earning much more than £60 per week. We are all well aware of the large number of single young people, many of them highly qualified, who are paid no more than £6,000 to £8,000 per annum and whose PRSI deductions alone are from £465 to £620. In addition, because they are single their qualifications for tax allowance is minimal. They are the people who are so fed up with their lot that many of them are giving up their jobs and emigrating in search of a more benign climate as far as tax and wages are concerned. Much of the fault, of course, lies with employers who are exploiting the situation for their own ends by paying wages far below what is just reward for the skills they are being offered. However, it would be a help if the Government would see their way to encourage these young people to stay by offering them some incentives.

I have noted an idea put forward elsewhere by Deputy John Stafford which was, perhaps, not heard by the Minister. I would like to make a similar proposal here. I would suggest to the Minister that he should examine the possibility of exempting the first £60 per week from PRSI payments in the case of those whose gross earnings do not exceed £8,000 per year. This would at least be a first step in improving this situation. The Minister has already shown himself to be imaginative in his concern for the less well off in our society. I am confident that he will examine this suggestion at the earliest possible time.

I am not going to commence my contribution by congratulating the Taoiseach or the Minister. I would congratulate the Minister on his stamina, listening to the debate not only in this House but in the other House. No doubt he has put in very long hours. I hope his arrival in this House will be a bit more pleasing to him, having spent so long in the other House. Neither am I going to agree with Senator Eoin Ryan in regard to his reasons for congratulating the Taoiseach and the Minister. He failed to mention that the interest rates here are four points higher than with the Deutsche Mark.

In my discussions with businessmen in recent times I notice they are tending to become extremely cautions as compared with 12 months ago. I am sure that development is known to the Minister also. I know that he is taking on board what the businessmen of the country are saying. Not, indeed, that I wish things to go that way but we must keep our fingers on the pulse and see which way things are going.

The Minister has been bombarded in relation to many points in the budget and, indeed, many points that were not in the budget. I am not going to bombard him a great deal. I am certainly not going to repeat much of what has been said. I have no doubt that he has taken on board all the points made by the Senators today, as he usually does. There is extreme concern for the small businessman. Some Senators spoke about that. This is the point I would like to make to the Minister. We have small businessman particularly in the service area. The IDA have indicated to us that they are stepping up their efforts to increase activity within the services area. This is where they see the greatest opportunity for further, increased employment. I am not disagreeing with that. As a matter of fact, I wholeheartedly agree with the efforts being made by the Government with regard to tourism. I have no doubt that increased tourism will bring an increase in employment in the service sector.

A greater effort should be made with regard to tourism. It is going to be increasingly difficult to attract industries to this country now that all the walls and barbed wires are coming down in the eastern part of the Continent. Tourists who have been looking at this country are turning their eyes in other directions. I have no doubt as the years pass there will be more and more attractions for them. Certainly the new governments in these east European countries will be looking at ways of attracting new industry. That, of course will increase the difficulty of the IDA and others who are interested in attracting tourists here. We will have competition that we did not have to face before. It is going to have a major effect.

I would urge the Government to redouble their effort with regard to tourism. The citizens of Europe, and especially Eastern Europe will in the future flock here because we have attractive resources. We have a climate that will attract them. Certainly there are some who will go to more sunny parts, the Algarve and other parts of southern Europe, perhaps, but once they have got the sun for a couple of years their attention will be turned to what Ireland has to offer. I sincerely hope that we will be geared to receive them when they come. I would draw the Minister's attention to the effect that the tax system is having on the services sector which will be unlikely to make a substantial contribution to employment as long as the present high taxation policy on services remain.

The services sector, unlike manufacturing industry, is the most heavily taxed sector in the Irish productive economy, excluding the drink and cigarette firms. Most services pay the full 23 per cent rate. They do not benefit in any way from the low 10 per cent tax rate on profits. They receive few, if any, subsidies. Where the customer is the Government, many services are further discriminated against by the policy of withholding payments against anticipated tax demands.

Asine qua non to expanding employment in services is a reduction in the heavy burden of taxation upon services, especially in relation to self-employed services. The total Government take from such businesses can easily exceed the take home pay of a sole employee. An employee as an unmarried person earning a net £7,000 could expect to pay the Government income tax and VAT totalling between £7,600 and £8,000. I will give the Minister figures in a few minutes. Obviously, our high rates of income tax have a lot to do with this extraordinary situation, but the real culprit is the high rate of VAT on services generally. If the Minister is serious about expanding employment in the services sector the very best thing he can do is to reduce VAT on services to not more than 15 per cent. I urge him to have a look at this area. Ideally I believe the reduction should be to 10 per cent or even 8 per cent. I can assure the Minister this simple amendment to the present Finance Bill would do more than any other change to secure a massive increase in service employment in this country.

In relation to the figures I have just given, I could point to a small firm operating in this city where a self-employed director is paid £10,000. His tax is £3,000; his take home pay is £7,000. Business use of the car is £5,000 and if you include petrol there would be approximately £650 tax on the petrol, which I have not added in on the other figures I have given. The general business expenses of the same firm are £5,000, bringing in a net turnover of £20,000. Add VAT of 23 per cent to that and it comes to £4,600, £24,600 in total. Of the £24,600 the total take home pay for that person is £7,000. The total Government take, including the £650 tax on petrol, would be £8,250. There is something substantially wrong when a self-employed person is working more for the Government and contributing more annually to the Government than he is earning for his own family. There is something seriously wrong there. I would ask the Minister to have a very serious look at that. I have given the example of a very small firm. The greater the proportion of business expenses to salary the worse is the position in that respect. This is very serious and if the same position obtained within the PAYE sector I predict it would lead to a national outcry.

I will refer briefly to the activities of the national lottery and I express my own and the concern of others at those activites, at the manner in which they appear to have taken over gambling in this country. Probably not many Members will have known — because the matter did not receive much publicity at the time — that I did not vote for the establishment of the national lottery even though it was initiated by my party, then in Government, and although I was at that time a Member of this House, I refused to vote on it because I did not like the idea. When I see the hype of publicity given to gambling, the massive sums of money involved, with people now glued to their television sets for that three minute slot on Saturday evenings, when somebody may be lifted out of the sphere of everyday life into perhaps the destruction of their soul, never mind body, I am convinced we have gone beyond the bounds of reasonable activity with regard to gambling. I would ask the Minister to take a serious look at the activities of the national lottery. I reiterate that there is grave concern that they have taken full control over that type of activity within this State to the exclusion of all others.

I know there are other smaller lotteries in operation and I contend it is wrong that the national lottery will not locate their machines or allocate tickets to outlets sponsoring other charities. It is my firm belief that traders have a constitutional right to sell what they want, within reason, on their premises. Equally, I believe the matter would not withstand the test of a court case if such were taken. The great hype of publicity devoted to national lottery activities is pushing out smaller ones. I am thinking in particular of the Rehab Lottery. I know there are a couple of others in smaller areas. Naturally traders are attracted by the hype and the large amounts of money involved in the national lottery.

I hope I have managed to draw the Minister's attention to the concern of many people at the lack of information emanating from the national lottery. I have written to them requesting information on the amounts of money accruing to them from particular areas. I fully appreciate they cannot detail the take from every outlet but undoubtedly the overall figure could be broken down considerably more than was done in their most recent publication so that we would have an idea of the yield from areas such as, say, Tallaght, west Tallaght, Terenure and others. Again, I would ask the Minister to take a very serious look at the activities of the national lottery.

I want to thank all the Senators who contributed to this debate and to respond as best as I can in the time available to me.

I will take up the last point made by Senator McMahon in regard to the activities of the national lottery. I understand the Minister for Industry and Commerce has the matter to which the Senator referred in hand and is on the point of taking appropriate action as a result of an inquiry carried out by the Director of Consumer Affairs.

I shall deal now with the other points raised in the course of the debate. I might add that many of the detailed questions posed can be dealt with at greater length on Committee Stage.

To begin, it was ironic that Senator Doyle should have suggested that the Government's budgetary policy is too soft since her party, when in Government, were simply unable to deal with the huge problems obtaining in the public finances in 1986. They took the easy way out allowing the debt to roll up, year after year, until it reached the stage at which the country was on the point of international bankruptcy.

The fact is that Exchequre borrowing is now at its lowest level in 40 years. The situation has been transformed in the past few years. The Exchequer borrowing requirement has fallen from £2,145 million or 13 per cent of GNP in 1986 to £449 million or 2.1 per cent of GNP in this year's budget. The debt-GNP ratio was stabilised in 1988 and has now begun to fall at a significant rate: down from 131 per cent at end-1988 to about 123 per cent at end-1989 and it will fall further this year. This is dramatic progress by any standards.

The pace of reduction in Exchequer borrowing has, in fact, been even more rapid than expected. Last year the budget envisaged an Exchequer borrowing requirement of 5.3 per cent of GNP but in the event we reduced borrowing to 2.4 per cent of GNP.

Against this background the priority this year was to consolidate this exceptional progress while, at the same time, doing things which needed to be done to develop the economy, reduce inflation and ensure greater social equity. We managed to introduce major packages of tax reductions and welfare measures and, at the same time, to keep Exchequer borrowing down to £449 million.

If the Government had gone further in reducing borrowing this year this could have caused difficulties for the economy, especially given the somewhat slower pace of economic growth internationally as compared with last year. I am quite satisfied that the balance in this year's budget was right — continued downward pressure on borrowing, combined with new measures to promote growth and jobs.

We must keep things in perspective. While we undoubtedly have a problem with the overhang of debt, our level of annual borrowing is now below the average in the European Community. I might also put our performance in context by pointing out that West Germany's general Government borrowing requirement stood at 2.1 per cent of GDP in 1988. It will be seen that we are in good company.

Let me assure the House, and Senator Doyle in particular, that there is no need for concern about this year's budget targets. The Government are determined to achieve them and are on course for doing so.

It is true that the end-march returns showed that borrowing for the first quarter was rather higher than had been expected at the beginning of the year. I explained in my statement on the 1st Quarter Exchequer Issues why non-capital spending was running ahead of expectations. It was due essentially to timing factors relating to the receipt of European Social Funds on education and to higher than anticipated health expenditure due to the increased incidence of influenza in the early part of the year and to a greater than usual rundown in health board overdraft facilities. The timing factors and the run down in health board balances will correct themselves as the year progresses — they are well on the way to self-correction — and indeed should have worked themselves out of the system by the end of June half year figures. Let me add, indeed, that the latest expenditure data available to my Department indicate that spending is now back broadly in line with expectations. It is the Government's intention to continue to monitor developments on spending closely for the remainder of the year to ensure that the budget targets are achieved.

I can assure the House that the revenue picture at end-April was quite satisfactory and continues to be good in May. This does not support Senator Doyle's argument that the budget arithmetic was based on an over-optimistic estimate of tax buoyancy. Indeed, some outside commentators said at the time that my Department had been over-cautious in their revenue forecasts.

However, I accept that there is no room for complacency in regard to the public finances. I said at the time of the publication of the first quarter Exchequer returns that the Government will be monitoring trends closely over the remainder of the year, in the light of developments at home and abroad, to ensure that the budget targets are achieved again this year.

There is nothing in the other economic indicators to suggest that the assumptions underlying the budget are optimistic. All the indications are that new car sales and retail sales generally are in line with expectations.

The Bill to establish the debt management office is practically drafted at this stage. I expect to be able to introduce it in the Dáil shortly. I do not see any difficulty in setting up the office within the general time scale I indicated in my budget speech and in staying within the estimate for debt-servicing costs this year.

Turning to our forecasts for the medium-term and what should be our objectives, again Senator Doyle felt they were too soft and would be achieved automatically with the economic growth in prospect. This view is far too optimistic. The objectives I announced in my budget speech are to reduce the debt ratio towards 100 per cent of GNP in the period to 1993 and achieve a broad balance on the current budget account, in other words, to do away with the current budget deficit. These objectives are by no means unambitious. On the contrary, as I pointed out in my budget speech, they will be difficult to achieve while at the same time addressing the other problems facing us. Success will depend on continuing tight control of expenditure and, in part, on the continuation of a reasonably favourable international climate. If conditions should enable us to do better we will, of course do so, as we have in the past three years.

Does the Senator genuinely want us to aim for an end-1993 debt ratio of 75 per cent of GNP? Does she not realise that this is totally unrealistic? To achieve such a target would require progressive improvements to have a negative Exchequer borrowing requirement, that is, a surplus of more than 10 per cent of GNP by 1993. This would require an unsustainable adjustment and, to put it in context, by comparison with our economic policies for 1990, an average net reduction in annual expenditure of some £2 billion or an increase in taxation of the same order. The Senator conveniently avoided addressing how this could be done and how at the same time we could accommodate further reductions in income tax rates and the requirements for harmonisation of taxes within EC levels. She, like her colleagues elsewhere, did not say whether her party would support the necessary measures.

As an indication of constructive opposition which we are told exists and the consensus politics which still exist, when concluding the debate on the Finance Bill in the other House yesterday evening I added up the cost of all the amendments put down by the Opposition parties which came to the princely figure of £937 million.

That was the other House.

Is that what they regard as consensus politics and constructive opposition?

It is all too easy to set targets but they will have meaning only if they are part of a coherent overall financial and economic strategy. Given the great progress we have made since 1986 in improving the public finances there should be no doubt about the Government's determination to continue this process.

A number of Senators expressed concern about the level of interest rates. I fully agree that interest rates have a vital role to play in generating economic activity. Indeed our success in reducing rates after we assumed office in 1987 played a major role in our subsequent improved economic performance. Despite recent rises in interest rates I would point out to Senators that since March 1987 — to take the key three month rate as an example — the differential between Irish and UK interest rates has improved by well over six percentage points and the differential with the corresponding German rates has improved by well over five percentage points. This is a dramatic improvement in competitiveness terms and is the true measure of the interest rate gains arising from the policies being pursued by the Government. However, let me hasten to add that I consider rates generally to be too high and that the differential between Irish and European rates has further scope to improve. With the lessening of uncertainty about future events in Germany, I would hope that pressure on interest rates will continue to ease as we move into the second half of this year.

I have noticed in recent weeks that belatedly many economic commentators are coming around to the view that the level of our external reserve has improved quite significantly — the low level of our external reserve and three other international factors led to the increase in interest rates in December — and that we are in a much healthier position now than when the Central Bank report was issued some time ago.

When people talk about interest rates it does not matter what line of business you are in — a small or large business, industry or agriculture. I have always believed that the level of interest rates is a key factor in determining the level of economic activity we will have. The Government will continue to pursue the policies which will lead to lower interest rates. However, the ultimate decision must always be made by the Central Bank who have the independent statutory authority to fix our interest rates, bearing in mind the level of reserves and the operation of monetary policy. As I have said, I hope that with the lessening of uncertainty about future events in Germany the pressure on interest rates will continue to fall.

One of the interesting factors in the trade figures which were published last night was the increase in our exports to the United Kingdom market. Despite the fact that the punt is very close to parity with sterling — sterling has depreciated by some 16 per cent over the past 12 months — the most encouraging factor from those figures was that we still managed to increase our exports into a market where we had to take on board that level of depreciation of their currency as against our currency. Many of our indigenous companies still use the British market, to which 35 per cent of our exports go.

That was a great achievement.

I believe it was a great achievement. It is the best news to come from figures published over the past six or 12 months.

Senator Doyle also referred to the decision to extend the 10 per cent rate for manufacturing beyond the year 2000. Indications were given on a number of occasions last year that the question was being considered. The CII and other organisations had looked for an early decision on the matter because international business planning now has a very long time span and companies wished to know now what the tax situation would be post-2000. The issue was, therefore, becoming increasingly important for the IDA, SFADCo and other agencies, in their endeavours to attract foreign multinational companies to invest in Ireland. The key tax incentive we have to offer to these multinational companies, which are one of the most important sources of new jobs, is the 10 per cent rate. Before the Government took their decision, a study was carried out by an international consultancy firm on Ireland's competitivenessvis-à-vis other regions in the EC for attracting internationally mobile investment. The Government, therefore, had the findings of this study in mind as well as other relevant factors when they took their decision.

EC permission was not needed when the 10 per cent rate was introduced for manufacturing in 1980 and it is also not needed for its extension now to the year 2010. The extension is not affected by any EC proposals for harmonisation of corporation tax rates. The EC Commission had put forward proposals of this nature in 1975 but had to abandon them earlier this year because of the lack of progress in proceeding further with them in the intervening years.

Senator Brendan Ryan advanced the view that high tax rates do not impact on an individual's enterprise or incentive to work or on job creation. I find this view surprising. Detailed empirical evidence may be hard to come by. Real international comparisons are difficult and will depend very much on the income levels you take. It seems clear to me, however, that people work to earn and are anxious to see a good return for their efforts. That return is very much affected by the level of the tax rates facing the individual. If you face a tax rate of 35 per cent rather than 30 per cent or 58 per cent rather than 53 per cent, then clearly the return from your effort is going to be affected. Your willingness to take up a job, to work overtime when it is required or to accept promotion naturally takes account of what you can expect to gain by it. That is not the only motivating factor, of course, but it would be idle to deny that it is a motivating factor.

Employers' attitudes to taking on workers also come into the picture. If it costs too much with high tax rates to employ additional workers then employers will be less inclined to increase their labour force. It still takes £2.90 to give £1 extra to a single employee on the average male industrial wage.

Tax improvements also have an important role in the vital area of wage moderation. This factor was clearly recognised by the trade union movement in the negotiation of theProgramme for National Recovery. As Senator O'Toole rightly said, in the programme the Government gave a commitment to introduce income tax reliefs costing some £225 million on a cumulative basis over three years. As the House will be aware, the Government have introduced reliefs costing over £800 million in cumulative terms over that period. These reliefs have had a substantial effect in creating the conditions for wage moderation which is so important for our international competitiveness and so important, therefore, for our ability to sell our goods on the international market. I am sure I do not need to remind Senator Ryan of the success we have achieved in this area. You cannot, therefore, look at tax without taking the need for pay moderation into account if we are to have more jobs. The foundation stone to the success we have achieved was undoubtedly the Programme for National Recovery.

When people are debating this matter there are a couple of issues they seem to leave out; everyone conveniently seems to ignore the huge bill which is building up for the harmonisation of taxes; the lower rate of tax has just been reduced from 25 per cent to 23 per cent. I have heard many Senators, those who live near the Border and some distance from it, refer to this. Senator McMahon referred to the effect on the service industry by bringing down rates but he must remember that there are bills to be paid and that we do not get anything free. Realistically our rate will have to be in the area of UK standard tax rates, if the UK are not going to move up. It is unlikely that that will happen. Therefore, we are talking about a standard rate somewhere in the region of 17 per cent. That will be some bill to have to pay. I believe that it is the only answer to the problems of smuggling and the distortion of trade between North and South. It is an objective that we should have. At the same time we are facing the position in the Community that any possibility of a harmonisation of DIRT tax, which is a big Exchequer earner here, seems very remote. It is still on the table but very remote. We are at 30 per cent and the tax will probably bring in more than £200 million this year. That is an issue.

There is another issue that people tend to ignore although I accept that it will be a once-off cash-flow problem. I am referring to the dismantling of VAT at the point of entry. That has to go and will mean a further cash call on the Exchequer, whenever it is done, and will involve about £150 million. When people suggest that tax rates should come down they should remember that there are many bills to be paid. We will have to bear in mind certain timetables. Those who suggest that the targets for 1993 to achieve a balanced current budget deficit and eliminate the Exchequer borrowing requirement is soft should look behind the scenes and take all factors into consideration.

I have noted the points raised by a number of Senators regarding the indexation of capital acquisitions tax thresholds. I am aware that problems can arise in this area and in my review of capital acquisitions tax this year I accepted that some degree of movement was desirable, I had, however, to balance this view against the fact that the yield from this tax was only some one-third of 1 per cent of total tax revenue in 1989 and that substantial changes in this area, in particular, any significant increases in the thresholds, would reduce the yield and would lead to a narrowing of the tax base.

While bearing in mind these factors, I included important reliefs in the Bill, including a provision for the indexation of the thresholds. These thresholds will, in future, be indexed in value each year and this will give valuable relief. The revised thresholds will apply to all gifts and inheritances taken on or after 1 January 1990. I would also point out that it has been possible since 1985 to make provision for inheritance tax by way of special insurance policies. These policies are very popular and the amendment at section 130 of the Bill will enhance their popularity. I am sure Senators will agree that my proposals in this year's Bill represent a reasonable and realistic response to the circumstances.

Senator Doyle asserted that I have no strategy for tax reform and that my policy was not radical enough. She suggested, as her party have been doing for some considerable time, an all-party committee on tax reform. I have stated before that I am not in favour of talking shops which are nothing but a recipe for inaction. What is needed is positive action on tax reform and that is what has been delivered over the past three years. Our achievements include major reductions in personal income tax rates; radical reform of the corporation tax system through curbing allowances and lowering rates and significant expansion of the tax base through curbing tax avoidance schemes and the introduction of a radically improved tax assessment, collection and enforcement system.

It is my belief that taxation is a budgetary matter and a matter for the Government. It is not a matter for open discussion in committee. I hold that view very strongly because committees tend to be talking shops. The Government of the day must make decisions in relation to the collection of revenue. They must stand behind those decisions; that is what they are elected for. They will be judged on those decisions when they go to the electorate.

By contrast Senator Doyle's party appear to have nothing to offer in this area. During the course of the Dáil debate on the Bill Senator Doyle's party tabled amendments, the more significant of which in the income tax area would cost in total £275 million in a full year. These amendments were put forward wihtout suggestions as to how they could be financed either through higher taxes or lower expenditure. This approach certainly does not represent tax reform and, indeed, I note that Senator Doyle indicated that she would be seeking to ease the restrictions on accelerated capital allowances. Needless to say this approach also makes a mockery of Senator Doyle's advice that I should have balanced the budget this year and should have a much more ambitious medium-term fiscal target.

It is nice to suggest changes and, at the same time, call for a balanced budget. The simple answer is that one cannot have a loaf and eat it. One has to make up one's mind. There are choices to be made and priorities to be accepted. The Government have specified clearly their objectives for lower rates of income tax — a standard rate of 25 per cent by 1993 and a single higher rate — and we are well on the way to achieving them.

Senator Dardis thought a 48 per cent rate was too high and I agree with him. I would be only too delighted if we could go further but we must pay all the bills. Senator O'Toole held a different view, as he is entitled. We have to make up our mind as to the level of services we want. I am referring to social welfare, disablement, welfare, education and health services. We need those services and we must decide on how to pay for them. There are only two ways the Government can get money, from taxation or borrowing, and most people agree that both are too high. It is nonsensical to suggest that we should introduce a range of new services or improve the existing ones if we are not prepared to pay for them. The Government are not prepared to countenance borrowing more money to pay for services. We need reductions in expenditure and to focus the resources on the priorities because we are committed to changes in taxation.

Many Senators welcomed the current year basis of assessment for the self-employed and certain other taxpayers. Senator Doyle quoted the then Minister for Finance on the introduction of the PAYE allowance as justification for the extension of the allowance. In fact, the Minister made clear at that time that the primary reason for the introduction of the allowance was to improve the tax progression for PAYE taxpayers. Notwithstanding the change to a current year basis, it is my view that this consideration is still a valid one. In general, self-employed taxpayers will not be paying on their income for the current tax year; they will be paying on profits for an accounting period ending in that year. They will also still have a more liberal expenses regime. Farmers have their averaging of profits.

The need for the change suggested by Senator Doyle has not been established. If the self-employed, farmers and so on, agreed to the disbandment of the advantages they enjoy we would have a look at the suggestion but I do not think there is any likelihood of that happening. The case for a PAYE allowance has not been proved.

I would like to make it clear that the PAYE allowance is and always has been viewed as an allowance for employed taxpayers, that is those who pay their income tax weekly, fortnightly or monthly through the PAYE system and who, generally speaking, discharge their entire tax liability within the year of assessment. On Committee Stage we can go into this matter in more detail and I hope to convince Senator Doyle, and other Senators, of the validity of my view that, notwithstanding the change to a current basis for the self-employed, the important differences which remain between their income tax regime and the regime for those on PAYE justify confining the PAYE allowance to the latter group.

Senator Doyle suggested that there should have been a positive definition of manufacturing in section 41 of the Bill for the purposes of restricting the coverage of manufacturing relief to genuine manufacturing activities. Not alone have many new areas been covered by the 10 per cent tax code by the courts or by the Appeals Commissioners, there are many more in the queue. Nobody in the other House disagreed with that action and we are now trying to implement it. My Department and the Revenue Commissioners examined this possibility — the coverage of manufacturing relief to genuine manufacturing activities — but concluded that to give a genuine, legal manufacturing definition of "manufacturing activity" was simply not a suitable approach as it is extremely difficult to define. It would have involved the creation of complex legislation, setting out positive criteria, which would have to be met by every existing manufacturing company in order for these companies to retain the 10 per cent rate. This would obviously have generated a much greater degree of uncertainty for companies than the approach set out in section 41 which is based on limited exclusions.

Senators O'Keeffe and Doyle asked if specific activities mentioned by them would now lose the 10 per cent rate as a result of the new rules in section 41. The section does not exclude any particular activity and it has been misunderstood and misrepresented in many areas. The section sets out general categories of excluded processes and an activity will only lose the 10 per cent if it falls primarily into one of these excluded categories. It all depends on the exact process involved. "Process" is the key word. If you take something in bulk and break it down to process it, the question is if there is a process in between and if you produce a different product — or a major change in its characteristics — at the end of the process. However, I can assure the House that the Revenue Commissioners will interpret the section in a reasonable way and, as I said earlier, the vast bulk of activities which now qualify for the 10 per cent rate for manufacturing will not be affected. I will also, of course, be open to any excluded company to go to the Appeals Commissioners and the courts if they wish. No legislation in this area could eliminate the possibility of legal cases in particular instances.

Despite Senator Raftery's comments about the pace of indirect tax reform, the VAT and excise reductions which came into effect earlier in the year have been warmly welcomed by industry and consumers. Our European partners — and indeed the Commission — have also recognised the measures as a significant first step towards eventual approximation within the Community. To put the matter in context, I wish to remind Senators that the full year cost of the reductions on indirect taxation this year is £140 million or nearly 4 per cent of this year's total revenue from VAT and excise duties. This is no small step.

In the general area of tax harmonisation, the Commission is at present carrying out a study relating to the problems which will have to be confronted by the Exchequer. That study will bear out some of the things we have been saying in recent times in that regard. The one objection I have to tax harmonisation of Community level is that it should not be all one way traffic. The higher tax countries should not have to make all the adjustments, adjustment and approximation should mean that those at the bottom of the scale should come some of the way and that those at the top should come the rest. It is not a view shared by the larger countries, nevertheless it is fair and equitable.

Senator Joe O'Toole raised questions about the international financial services centre and asked whether it would result in a bonanza. It is simple, 110 projects have been approved for the centre but, naturally, he picked one of the few Irish companies — AIB — who will not be able to move into the centre and replace their 43 per cent tax by a 10 per cent tax rate.

That was not my point.

It is only on new activities that this will apply. I do not think anybody should turn their backs on 110 projects involving international names which would otherwise not come into Ireland. Many big companies are involved including Daiwa Securities, Japan, City Bank, Chase Manhattan, in the United States and Commerzbank in Germany and they are all coming here because of the financial services centre. The 10 per cent tax is a bonus; it will give good jobs and provide us with business which we would not have had otherwise. It is marginal cost selling, if you want to look at it that way. It is trying to get the most out of assets.

I dealt with interest rates and as soon as they come down there will be more economic activity. Senator Mooney mentioned tax free zones. There are many such zones in Europe and, with some of my friends in the SDLP, we examined the possibility of a tax free zone straddling the Border on the basis of discussions that Mr. John Hume had with Congressmen in the United States. If they could provide us with access to the American market it might be a better approach than looking for extra visas. That matter is being pursued and it would generate good cross-Border activity if it came into being.

Any questions which were omitted can be asked on Committee Stage——

What about the ODA and the present level, given the backdrop the Minister painted of increased economic activity?

Where is that in the Finance Bill?

There were other matters, not in the Finance Bill, to which the Minister responded, such as the national lottery. As the Minister referred to these, I wonder why he left this one out.

I would not specifically leave it out; I have adjusted those areas in the budget this year according to the rate of inflation.

If I did not, the Department of Foreign Affairs must have done a little side twist somewhere.

Is Second Stage agreed?

Before the question is put, by agreement with the Leaders of the parties, on completion of the vote it is proposed to take a half hour sos.

Question put.
The Seanad divided: Tá, 29; Níl, 15.

  • Bennett, Olga.
  • Bohan, Eddie.
  • Byrne, Hugh.
  • Byrne, Sean.
  • Cassidy, Donie.
  • Conroy, Richard.
  • Cullen, Martin.
  • Dardis, John.
  • Fallon, Sean.
  • Farrell, Willie.
  • Finneran, Michael.
  • Fitzgerald, Tom.
  • Foley, Denis.
  • Honan, Tras.
  • Hussey, Thomas.
  • Keogh, Helen.
  • Kiely, Dan.
  • Kiely, Rory.
  • Lydon, Don.
  • McCarthy, Seán.
  • McGowan, Paddy.
  • McKenna, Tony.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • Ó Cuív, Éamon.
  • O'Donovan, Denis A.
  • O'Keeffe, Batt.
  • Ryan, Eoin David.
  • Wright, G.V.

Níl

  • Cosgrave, Liam.
  • Costello, Joe.
  • Doyle, Avril.
  • Howard, Michael.
  • Jackman, Mary.
  • McDonald, Charlie.
  • McMahon, Larry.
  • Manning, Maurice.
  • Naughten, Liam.
  • Neville, Daniel.
  • O'Reilly, Joe.
  • O'Toole, Joe.
  • Raftery, Tom.
  • Staunton, Myles.
  • Upton, Pat.
Tellers: Tá, Senators Wright and Fitzgerald; Níl, Senators Howard and O'Reilly.
Question declared carried.

I should like to welcome to the House Shirley Collins, a Member of the Canadian Government and the Minister responsible for disabled persons, who is here with her assistant.

Sitting suspended at 7.20 p.m. and resumed at 7.50 p.m.