Seanad Éireann díospóireacht -
Wednesday, 18 May 1994

Vol. 140 No. 10

Finance Bill, 1994 [Certified Money Bill]: Second Stage (Resumed).

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

Mr. Lanigan

I was welcoming the fact that in section 21 there is an increase from £10,000 to £13,000 in the capital value — using the term capital allowances and deduction for running expenses — to be granted for tax purposes in respect of cars used for business. There has been an increase in the sale of new cars since 1 January 1994 as a result of the budget concessions. These matters are now being addressed in the Finance Bill.

Many people have been concerned by the proposal in the Finance Bill to address the taxation of unemployment benefit particularly in relation to people who are systematically in short term work. In the south east we have quite a large number of such workers in the dairy industry employed by the major co-ops in Waterford and Kilkenny. This is seasonal work. These people will be adversely hit by the section which makes unemployment benefit reckonable for tax purposes. It has been decided in the Finance Bill that there will be a derogation of this tax until April 1995, however, it is causing quite an amount of concern among the large number of people in what is considered to be short term employment but is systematically becoming part-time employment.

The motor industry has benefited from this provision. The Minister is reflecting the benefits that will come to the Department of Finance as a result of budgetary changes regarding the motor industry for which I thank him. Major changes have been made in concessions to the film industry. It has been announced in the last few days that there is a major film being made in Ireland. During recent years a number of small films have been made in Ireland and they have had a tremendous impact on the economy of some small towns and villages. Last year a film of a book by Maeve Binchy was made in Inistioge, County Kilkenny. This year another film has just completed shooting in that village. The amount of short time work generated by such film making has been of tremendous benefit not only to the village of Inistioge but also to the surrounding area.

People do not consider County Kilkenny to be a tourist area but we know the beauty of Kilkenny and appreciate its historic importance.

Mr. Belton

Inistioge is one of the most beautiful villages in Ireland.

Mr. Lanigan

Tourism in Kilkenny has grown as a result of film companies working there. It is not only people associated with filming who benefit but also carpenters, fitters and other technical personnel, some of whom might have been unemployed for some time. One recent major benefit of film making in Kilkenny was the transformation of the facade of a Government building into that of a mock hotel. It demonstrated how beautiful that building could be. It was built in the 1960s for the Department of Posts and Telegraphs and it is one of the ugliest buildings approaching Kilkenny Castle. I have had a problem since the filming finished because the facade has been taken down. The facade showed what could be done with the building. I welcome section 35 which assists the film industry.

A number of elements in the Bill will be of long term benefit to industry and employment in Ireland. There is a realisation at Government level that the Finance Bill following the budget can play a major role in increasing the employment prospects of many of the unemployed. There have been significant changes in personal income tax reliefs and in VAT thresholds. The increase in those thresholds will be of benefit to small companies. The reduction of the threshold for payment of VAT on cash receipts to £250,000 will also be of great benefit. Smaller firms have been suffering for many years because they have been paying VAT on sales and not on cash receipts. There is no doubt that small firms which give credit and which have difficulty getting payment within the specified two month period will benefit from that measure.

The urban renewal scheme which is being extended to smaller towns is welcome. The urban renewal scheme in Kilkenny has been very good aesthetically for the city centre and it will generate much industry during the next ten to 15 years. However, there are problems associated with the incentives in such schemes. Unfortunately, many small businesses will close as a result of the effect of rates and the tax incentives being given in these areas. The impact of major supermarkets in such areas means that the playing field is no longer level. We must ensure that, when we extend the urban renewal schemes, we do not go too far in offering incentives. We must be equally cognisant of the traders who have been there for some time and who also have the right to live.

While there are problems in the taxation system and in the collection of taxes, the Finance Bill, 1994, goes a long way towards resolving the problems that confront us.

Dr. Henry

I welcome the Minister. It is a universally acknowledged fact that one can recognise how an economy is performing by the proportion of money spent on the arts. If the economy is bad the arts budget is cut, so all must be well with our economy because there has been an improvement in the allocation of moneys for the arts in this budget. In addition, there is recognition of the value of important art collections and historic houses. Tax relief has been given to the owners of such collections and houses who open them to the public.

I do not wish to talk about the sections of the Bill which relate to the visual arts. I wish to discuss how the performing arts are addressed in the Bill. The section of the Bill which deals with the film industry is very welcome and the recent success of the Minister for Arts, Culture and the Gaeltacht in having a major film made in this country is incredible. Smaller films, as other speakers have said, have been produced here and others are currently under production. Some have done well in competitions so the dividends can already be seen.

However, we must look at the full range of the performing arts as an industry. It is an industry in which we excel and in which, if it receives attention particularly from the Department of Finance, there can be enormous growth in the future. Many Members are experts on the popular music industry. Apart from praising the efforts of our national and international stars and groups, I was delighted when we won the Eurovision Song Contest for the third time in a row. What is all this nonsense about another £1.5 million to stage it? How many countries would not give their eye teeth to have such a tremendous opportunity? What a wonderful advertisement for the country. When it is demonstrated that one is good in one area people get the impression that one is capable in other areas also. Anybody who watched these productions can see that it was not simply artistic endeavour that was important, although there was obviously great skill involved in producing the entire show. I envisage a situation where our song writers will be bought, like major soccer stars, by other countries. The only hope of some countries winning the Eurovision Song Contest might be to buy an Irish songwriter.

I applaud what is achieved in the popular music sector. Many young Irish people are employed in that industry, not only singing and dancing in front of the cameras but also in live performances and many ancillary services. It is an industry which must be encouraged.

We must have a central focus for the performing arts. The National Concert Hall has been one of our most successful ventures, particularly in recent years. Over 300 events take place there every year with an audience of almost 300,000 people annually. There is an average seat occupancy of 80 per cent of which any theatre anywhere would be extraordinarily proud. A tremendous wide range of artistes perform there. In the recent past there was Isaac Stern, Nana Mouskouri, Acker Bilk, Anne-Sophie Mutter, visiting orchestras, the National Symphony Orchestra, school choirs, youth orchestras and tremendous educational programmes for children; in other words, there was something for everyone.

The Minister has greatly increased the grant to the National Concert Hall but in the coming year he should address the original plans for the concert hall site, which have not yet been brought to fruition. The site was to have been a centre for the nation's performing arts but its potential has not been fully recognised or realised.

It was proposed that there be a smaller second auditorium in the UCD medical library. Other parts of the UCD medical and engineering faculties which remain on the Earlsfort Terrace site were also to be incorporated in this national performance centre so that there could be better facilities for storage of instruments, administration of the concert hall, etc. The UCD faculties have still not been consolidated in Belfield, which would make room for this important move at the concert hall. The Iveagh Gardens could be incorporated into the site, which would bring them to their full potential and give great pleasure to Dubliners and people visiting the capital.

It would cost money to move the remainder of the medical and engineering faculties to Belfield but one wonders how economical it is to have them where they are. If we move them out we might save money and also have a fine performing arts centre at Earlsfort Terrace. Few capital cities could envisage having so wonderful a site in which to begin such a project.

There is a dearth of facilities for the performing arts in Dublin. Practice places are necessary for gigs, concerts, theatre shows, etc. It is sad to see the Ambassador cinema at the top of O'Connell Street in such an appalling state of dereliction. Somehow finance must be acquired to improve this building on our capital's main street which has traditionally been a centre for entertainment.

I recently attended the "Music in the Classroom" seminar staged by The Irish Times and RTE in the NCH. Both organisations must be praised for this venture. In his keynote address the renowned violinist Issac Stern spoke of the value of music in our education and how little importance is attached to it at present. A dedicated primary teacher spoke about forming a concert band in school, initially with tin whistles. This gave incredible joy to the children involved. He later expanded to harmoniums and recorders.

Another teacher working in a deprived area spoke of forming a choir. This gave tremendous stimulus to the local children who had little on-site education available in the area and became a focus of after school activity. When listening to the discussion on this evening's motion about juvenile crime, I felt that if the same amount of effort had been made in that area as had been made by these teachers, we might have far less need for juvenile detention centres.

Money will be needed to start these bands. The Minister must know the allocation for starting a school orchestra is £225. I have confidence in the ability of the Minister for Education, Deputy Bhreathnach, but she could not even start a tin whistle band with that money. The next time a Department of Finance official is passing Walton's or McCullough Pigott's, he or she should go in to ask the price of a flute or violin.

Minister of State at the Department of Finance (Ms E. Fitzgerald)

McCullough Pigott's has shut down, unfortunately.

Dr. Henry

Musical events are not my only concern. The theatre needs the same encouragement and discussion given to the film industry. As the Bill indicates changes are under way to the manner in which money is allocated to theatre, especially the Abbey, our national theatre. Perhaps I should not say too much about the Abbey because all the staff are under protective notice. The funding to all theatres is given by the Department of Finance through the Arts Council but it is given on such a short term basis that planning is difficult. Grants are given to the Abbey, the Gate and the Cork Opera House but since they do not know what funding they will receive from year to year they have problems making long term arrangements.

The Irish theatre is important because it is an area in which we excel. However not every production will be a hit and we cannot run pantomimes all year round, so we will have to accept that we must subsidise some of these productions. We must look on the theatre as an industry because there are offshoots from all these productions, actors must be trained, as must set designers, lighting and sound people, etc. We should not consider money given to a theatre as money wasted even if it does not have a good production in a given year. We are still training people who may be successful in other areas. I was glad that travelling shows and funfairs will pay the reduced 12.5 per cent VAT rate, because they were the lifeblood of entertainment in Ireland for so long.

Urban renewal grants seem to be directed at residential and industrial development. What happens to groups who wish to develop theatres outside urban areas? In Dún Laoghaire there was a thriving theatre above the Gas Company for a long time but there has been a hiatus for some years. A new group is trying to develop a theatre complex on the old Pavilion site. What tax relief could they expect on their capital expenses? Would they receive BES money? It appears this has not been considered and it would be useful to do so.

The Arts Council does its best with the money it receives and its funding has increased in this budget but we must think ahead. Our famous actors, like Barry McGovern, are booked up until 1999. They cannot be called up at short notice to come into a production. We should be in a position to tell our great actors they will be employed for two weeks every year at a given location but because of the way money is distributed at present we cannot do this. If we want a good theatre industry we will have to examine the issues carefully.

Mr. Cosgrave

On a point of order, I think it is important that we have a quorum for Senator Henry.

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

Dr. Henry

I thank Senator Burke and Senator Cosgrave for getting me a larger audience.

This is a good day to discuss the performing arts in this House because the best and most attractive demonstration I have ever seen was outside the House today. A group with balloons was playing, singing and dancing. It was a new, non-aggressive form of demonstration.

As regards urban renewal and the theatre, I spoke about Dún Laoghaire, but it is also important to help theatres in other parts of the country. Cork Corporation, as Senator Kelleher will be aware, gives one of the most generous grants to the arts. Coming from Cork myself, I realise how important this is. The Cork Opera House is also well supported by the Arts Council. However, the people of Cork must be praised for their own individual industry which they started with little encouragement and help. The Irish Operatic and Repertory Company Limited is Cork based. As a result of drive and hard work, it now has a good small local orchestra and choral singers who are trained into one of the best professional choruses in the country. These are employed people in an industry which is spread over the country. It is easy, from the arts point of view, to say the sculpture factory in Cork is an industry. However, we must envisage the Vanbrugh string quartet as being part of the music industry.

Theatre is an essential Irish art form because we excel in this area. I am not a believer in false modesty when we discuss this art form because we should say what is true. The theatres must run throughout the country. Films are important, but the State cannot afford to fund films. It would cost 50 times more to make one film than to produce a play, which could run in any of the Irish cities for a month or more. I ask the Minister in his next budget to help the small theatres and small theatre companies in places like Cork, Galway, Limerick, Sligo, Waterford, and throughout the country by being as imaginative as possible in his dealings with the theatre and with those involved in the performing arts. As he has seen with the theatre and with those involved in the performing arts. As he has seen with the film industry in this budget, proper indigenous companies in this country can be established and I am sure we will get as good a return as we appear to be getting from the film industry.

Mr. Kelleher

I would like to inform Senator Henry that the Opposition provided the music outside the gates today in joyful celebration of the Finance Bill, 1994. Some people claim it was in celebration of a jazz festival, but that is the official source.

Mr. Cregan

Cork Opera House is losing a lot of money because the wrong people are on the stage there.

Mr. Kelleher

I welcome this Bill. On numerous occasions we spoke about giving incentives to people to do something for themselves and to encourage competitiveness and an entrepreneurial instinct. Recently I spoke about the Task Force on Small Business and I am glad that many of its recommendations have been implemented or acknowledged in this budget. It is important that those who looked at the negatives in the Finance Bill, 1994, acknowledge this fact. This Bill is another step in helping to bring about economic growth, a stable economy, low inflation and low interest rates and to help people to go to work.

In his speech the Minister spoke about tax reform, particularly in the area of personal income tax. It is important to acknowledge this fact because for too long we said that the price of labour in this country was too high. This was not so for employers, but the burden placed on them by the Exchequer meant they could not compete. We lost our focus in this area many years ago.

I am confident there will be an upturn in the economy as a result of prudent fiscal management. I have listened to the Opposition's claims that they want money paid out, but then they call for tax reductions. I do not have to explain the equation to the Senators, but they must remember the speeches they made last year. Income tax has been acknowledged as the greatest obstacle to creating employment in our State. We have now realised this and done something about it. The ESRI report and the European Union have said the Irish economy is the most stable of the 12 member states. The OECD countries have also reiterated this view.

Mr. Sherlock

Who told the Senator that?

Mr. Kelleher

The Senator should read the newspapers instead of talking about the negative aspects of things as opposed to encouraging the positive——

Mr. Sherlock

The Senator did not hear that in Cork.

An Leas-Chathaoirleach

Senator Kelleher, without interruption.

Mr. Kelleher

The Senator was not elected in Cork either. I want to speak on the Finance Bill, 1994, without interruption.

The Task Force on Small Business suggested that income tax was the greatest obstacle to creating employment. This has been acknowledged in the Finance Bill, 1994, and steps have been taken to implement the recommendations on personal taxation made by the Task Force on Small Business.

I want to refer to what the people have endured since 1987. They should be celebrating because they have suffered for too long and they have made sacrifices since 1987. The reward has been seen and I am confident that with the upturn in the economy, due to prudent fiscal management by the Governments since 1987, the people will be able to say they endured to succeed. A great person in Irish history once said "Those who endure most prevail". The sacrifices made in 1987, 1988 and 1989 have now come to fruition and I am confident this will be borne out in the years ahead.

Everyone blames politicians and individuals, but banks and institutions have a major role to play in Irish society in the creation of employment, in encouraging entrepreneurial instinct and in encouraging people to create work. For far too long the banks have operated in an uncompetitive environment. Competitiveness is the backbone of any modern economy and it encourages people to work.

Unfortunately, banks put a millstone around the neck of the average person looking for a loan or capital to start up their own business in order to take themselves off the dole or out of a State agency and, perhaps, provide a job for someone else. These issues must be addressed. We have got everything right, with the exception of the financial institutions.

Banks do not see themselves as a partner in any risk taking business, but unfortunately they reap the profits. It is time to open up the banking sector and to provide competition. Banks have been profitable over the past number of years and I welcome that because it is an indication of how sound the economy is. If banks are making money, it shows we are confident and that foreign investment is coming into the country and that people are willing to invest in the economy.

Our aim in the coming years must be to encourage banks, not by way of legislation, to provide finance at a reasonable rate. The Task Force on Small Business claimed that the biggest problem in Ireland was, not the start-up or the entrepreneurial instinct, but the failure rate, and that was acknowledged in its report. The reason for this was personal taxation — no reward for risk and a lack of reasonable finance. The budget has acknowledged the first two, but it is not within its ambit to acknowledge the third. That is why I based my contribution on banks, because they are the final cog. If the banks come together with the Government, with the continuing prudent fiscal management, which has given confidence to the people, over the next few years we will be rewarded by an upturn in our economy and in the economy worldwide. The indications are good and we should see a decrease in unemployment figures.

I refer to the urban renewal schemes. I come from a constituency with a large urban area. It has been suggested that it is socially deprived. The urban renewal schemes in this area have been successful and I am glad the budget has provided for their continuation. In recent years in Cork city and in the Temple Bar area of Dublin, we have seen growth where deprivation once existed and where buildings were demolished on a large scale. There was unacceptable deprivation in the inner cities. However, the urban renewal schemes have given hope, life and buoyancy to cities. People have been encouraged to live in commercial areas, and that is referred to in the Bill. It important that people live in inner city areas over shops, thus encouraging them to contribute to the vibrancy of everyday life in cities.

Few Members mentioned the positive aspects of the budget and I am confident that Senators who will speak after me will do so. If one concentrates on the negative aspects of the Bill, one will have a short speech; on the other hand, if one concentrates on the positive aspects, one will have a long speech. I welcome the Bill and I look forward to Committee and Final Stages tomorrow. Little improvement may be made to this Bill. We must not be side-tracked; we must continue with tight prudent fiscal management, which has put this economy back on the rails. That must not be forgotten. If we allow ourselves to be distracted, we will find ourselves in the situation we were in 1987 when this country was effectively finished. I congratulate the Minister, his Department, the Government, and the Governments since 1987, on the way they have handled this. As the youngest Member of the House, it gives me hope that such a Bill is before the Seanad.

Ms Honan

I welcome the Minister to the House. I would not like to disappoint Senator Kelleher, so I will deal with the positive aspects of the Bill first. The Minister said that the focus in this year's Finance Bill is firmly on taxation policies which will promote and assist in the creation of sustainable employment. Everyone agrees that this is what the Finance Bill should be about. Senator Kelleher believes it has gone all the way in this regard, but my party believes that personal income tax is still too high and that significant tax reform is needed in this area.

Senator Kelleher said he felt sorry for the people since 1987 and how much they had to put up with, but that now everything was great. I do not understand how he can say that, because last year was the first year in which the lower and higher rates of tax were not reduced. It was reduced during the three years in which my party was in Government.

Mr. Kelleher

Your party does not represent the unemployed, my party does.

Ms Honan

I welcome the increase in tax allowances——

Mr. Burke

This Bill taxes the unemployed.

Ms Honan

——and the additional child exemption limits. I support the Government's commitment to maintain the main discretionary reliefs, such as mortgage interest relief and health insurance relief. It is reducing them to the standard rating and I and my party have always supported that. I also support — this may not be too popular — the taxation of unemployment benefit. My party believes all incomes should be taxed equally from what ever source they come.

I support the increase in capital allowances in relation to cars, and the Minister promised that this will be reviewed over the next few years to bring it up to £16,000. I accept many of the measures to encourage small industry and I welcome the special section in the Department of Enterprise and Employment to implement the proposals of the Task Force on Small Business. There are certain positive aspects of the Bill which are welcome.

Because this Government was only in office for a short period before it introduced its budget, this year's budget and Finance Bill have given us a clear indication of this Government's policy. Because of the fact that the Government has had a year to work out its strategy, we may judge this Bill more harshly than last year. This Government has the largest majority in the history of he State and, therefore, it has an enormous political capacity to put through whatever economic strategy it wishes. We have an economic growth rate which is good compared to other EU countries. Predications suggest that there will be further growth in the future and we must welcome that.

Given the large majority this Government has and the good indications regarding the performance of the economy, the real test of this Government will be how it will address the fundamental structures of the economy. The Government must use that to the best of its ability. If it does not do so, these opportunities will be lost.

I do not accept the Government has set out a strategy to remedy the key structural defects in the economy. My party supports tax reform. I do not believe there is tax reform of any substance in the Government's agenda and it is a core defect of this Bill. Recently I read two publications, which I recommend to Senator Kelleher, on successful tax reform, Lessons from the Analysis of Tax Reform in Six Countries by Cedric Sandford and another entitled Key Issues in Tax Reform. They would make very interesting reading and he might see in them what we are talking about in regard to tax reform. A comprehensive blueprint was provided by the Commission on Taxation and we still have not recommended most of the structural reforms suggested by it. Frederick Sandford in his publication looked at the United Kingdom, New Zealand, Australia, the United States of America, Canada and Ireland and he said:

The essential requirement for successful tax reform is a strong political will and such a political will has to come from a champion.

I am looking to the Minister, Deputy Ahern, to be that champion.

He also went on — I did not intend to say this, but as Senator Kelleher referred to the hardship the people suffered from 1987 to date, I will:

The only effort at tax reform in the Irish Republic was in 1989 when the Progressive Democrats joined in a coalition with Fíanna Fáil and promised a complete overhaul of the tax system. This coalition was responsible for the biggest reduction in personal income tax, the phasing out of tax relief on life assurance premiums and the attack on fringe benefits, the reduction in corporation tax from 43 to 40 per cent and the phasing out of accelerated depreciation and for most of the reforms on VAT and excise duty.

I recommend that Senator Kelleher read these books further because there are some other ideas in there on tax reform he might be interested in.

The criteria on which we must judge this budget must be the capacity of the Government to deal with the fundamental problem, which we all agree is high unemployment. Why do we have such a high unemployment rate? Why do we have such a very high dependency rate in this country? Every ten people who are working here support 22 others. Perhaps that explains to some extent why our taxation has to be so high, but there are other reasons. The only way to deal with the fundamental problems facing the economy is to change the high dependency rate, to encourage more people to become self-reliant and to increase the opportunities to participate in the development of the country by creating jobs. We can generate jobs through radical pro-jobs tax reform, but we have seen little of this. Senator Kelleher disagrees with me.

The Minister will ask how are we to fund this tax reform. My party suggests that the easiest way to fund fundamental tax reform is by the sustained control of public expenditure, but that has not happened. The proposed expenditure for this year will see public expenditure rising by 17 per cent. Inflation rose by 1.7 per cent last year and it is expected to rise by 2.5 per cent this year, which is about a quarter of the increase in public expenditure. If we have additional public expenditure we must have additional taxes to fund it. We have to decide how we are to cope with the fundamental problem facing the economy, that of unemployment, and how to use the positive signs that are out there to best effect. Control of public expenditure would enable us to enjoy the fruits of the economic growth.

The Minister and many Ministers in this Government say that unemployment is our greatest problem and everything we do must be related to that. They also say they are supporting the Culliton report and its recommendations. However, Culliton identified tax reform as the major tool with which to tackle the unemployment problem. I do not see any targets or measures set out in this budget. The Minister has not told us what the basic rate of tax is expected to be by the end of the lifetime of this Government, what the higher rate of tax is expected to be, or how he intends to increase the tax bands. Culliton said that no more than 20 per cent of taxpayers should be paying tax above the standard rate. We have to set out how we are going to achieve this and these targets must be publicly stated. Then achievements can be measured as progress is made. I accept that it is very difficult to achieve this overnight, but we must give ourselves targets and then we can see where we are going.

We need reforming strategy to assist families, and particularly those on low pay and on social welfare. I welcome the fact that some targets have been set out with regard to those who are on low pay, because many people in this country who are on low pay feel they would almost be as well off unemployed. People start paying tax at such a low level that it could be a disincentive, particularly to families with large numbers of children. I recognise the fact that family income supplement and other measures were introduced to try to combat this, but it is still a major problem.

People will ask where specifically public expenditure can be cut. One of the major problems that has contributed to the increase in public expenditure in this country has been centralised pay bargaining. The ESRI and Kieran Kennedy of the ERSI have suggested pay cuts and have said that the economy could not sustain another central pay bargaining round such as the Programme for Economic and Social Progress. During the lifetime of that programme, unemployment rose in this country by 40 per cent. This year alone the public sector pay bill will rise by £250 million. Last year it rose by something like £347 million.

I am not suggesting that we should reduce public expenditure and embark on tax reform by implementing a policy of low pay for public servants. Civil servants should be paid more and we should get much higher productivity from them, but the numbers in our public service are the problem. No effort is being made to change this. Instead of giving the extra £250 million this year and the £347 million last year, we could have used that money to introduce tax reform. This tax reform would have particularly benefited lower paid public servants, who, we are often told, provide the reasons for the public sector needing large pay increases.

There are many civil servants, particularly women, especially in the lower grades, who are very badly paid. Tax reform would benefit them greatly. We have the highest level of tax on work of all the OECD countries and we must address this if we wish to tackle our unemployment problem.

Some issues in the Finance Bill need to be examined. One of them is the withholding tax. This matter was raised and I raised it at the time Senator Kelleher talked about the Task Force on Small Business. It was recommended that withholding tax be abolished. My party has tabled an amendment proposing this, because the basis on which that tax was introduced is no longer with us.

There has been self-assessment in this country since 1987, and taxation on the self-employed is now assessed on an actual year basis rather than on the basis of previous year's figures. People who are subject to withholding tax do not benefit from the actual year basis on which income tax for the self-employed is assessed. This amendment was also put down in the other House. I do have an interest in this amendment, but I did not suggest it. My husband is a GP, he has a big GMS practice and he pays quite a bit of withholding tax.

I suggested to the Minister, Deputy Brennan, when he was talking here on the Task Force on Small Business that the Government, by eliminating the withholding tax over a period of years, could use that as an incentive to people paying withholding tax to create employment. For example, very few GPs in this country employ secretaries and nurses. In the United Kingdom the situation is different. Withholding tax could be used as a bargaining tool to get business people to employ more. The task force said that the withholding tax had a particularly negative effect on professional practices with employees pursuing activities such as engineering consultancies, architecture and the rest. Withholding tax could be used to encourage them to employ more people. I accept that there would be a cashflow problem were the Minister to do this and go back to an actual basis, but perhaps he could introduce it over a number of years, particularly as we are hoping for buoyancy in the economy.

I welcome the extension of urban renewal relief, but it has to be more transparent, particularly when decisions are being made on the areas that are to qualify for urban renewal. Some of the urban renewal schemes have displaced businesses in traditional areas. My own area in Portlaoise is one example. It is appalling that urban renewal status was given to a green field site on which a shopping centre was built. The main centre of the town was as a result transformed into an area that will need urban renewal in the future. This should not be allowed to happen. We are learning as we go along with this scheme, but that was a scandal.

I welcome the efforts, as mentioned in this Bill by the Minister, to encourage small firms and service industries. I have a problem with just one other area there. Provisions were introduced in last year's Finance Bill regarding trading operations that qualified for tax relief on seed capital. The two agencies that were given authority to authorise this were the Industrial Development Authority and Bord Fáilte. At the time the county enterprise boards were not set up. The county enterprise boards do not qualify for this, so somebody who obtains funding under the county enterprise boards cannot get a refund of income tax under this section. I have raised this with the Minister, Deputy Quinn, who is very concerned about it. I have talked to officials in the Department of Finance and they have been very helpful and understanding, but they did not change it.

I cannot understand how the Government will give funding to county enterprise boards to support small industries which believe they will qualify for this tax refund scheme and not allow them qualify. I have tabled an amendment on this matter. I have discussed this with the Minister for Enterprise and Employment, Deputy Quinn, and with the Minister of State, Deputy Brennan, but not with the Minister for Finance, Deputy Ahern. The growth in jobs will come from small firms.

With all the positive points I made to Senator Kelleher I am now out of time. The Progressive Democrats would like to see tax reform. We are looking to the Minister to champion this cause and we would like to see the buoyancy created by the improved economic circumstances used to reform the tax system and to make it more employment friendly.

Mr. Sherlock

The Finance Bill, 1994, is exceptionally complex legislation and most of the 147 sections are technical in nature. There is nothing one could say that is positive about it and two of the most significant developments are in the taxation area. The recent Social Welfare Bill introduced the imposition of unemployment benefit, and the introduction of the poll tax will, it seems, be reserved for another year. The decision to tax unemployment benefit and pay related benefit will hit people on relatively low incomes, will reduce their living standards and add to their difficulties in making ends meet. It is another example of making people at the lower end of the scale pay more while further concessions are provided for the well off. The annual yield from this tax on benefits is estimated at £30 million.

I met a person recently who, in 1993, had a disability claim from October until December. They received £600 in disability benefit for a genuine certified illness. When that person's new tax allowance was issued it was reduced by £600. I have been in public life since 1967 and this is the most atrocious element of legislation ever introduced which taxes a person on disability benefit. In 1993-94 that person had a tax allowance in excess of £3,000, or £61 or £62 per week; it is now reduced to £43 per week. That person had to drive 20 miles to a job in Cork from the Mallow area. There is no justice in that.

The Revenue Commissioners will take account of unemployment benefit and pay related benefit when dealing with claims that refer to the refund of tax after a person becomes unemployed. That is outrageous. In the Cork area the people are up in arms about it. I met a lady today who had come up from Cork. She told me that her husband gets £67 pounds a week; the total household income is £155 per week, and there are six in the family. How in the name of all that is holy can a family of six be expected to live on that amount?

Mr. Kelleher

What about the family income supplement?

Mr. Sherlock

One is on an invalidity pension and the other is on long term unemployment assistance. They have a fixed income.

This Bill continues the pattern of recent years of additional reliefs and concessions for business with merely cosmetic changes for the PAYE sector. Despite the impression given at the time, it is now clear that the supposed benefits for the PAYE sector are largely a mirage, and that many low and middle income families will be worse off as a result. There are two reasons for this. First, the few concessions provided for the PAYE sector were little more than a token, especially considering the level of tax most people are paying. In addition, the combination of reduced interest rates over the last year and the budget decision to start reducing the level of interest relief available meant that virtually all mortgage holders, other than recent buyers, had their allowances cut and thus lost heavily.

Tax should be deductible when assessing a person's income for full eligibility for the health services. That would be fair and proper. The assessment should be based on a person's disposable income. While some progress was made in regard to the self-employed, they are still paying an average of more than £200 less than those on PAYE. I cannot understand why PAYE workers whose earnings are an open book, where tax is not deductible for eligibility for higher education grant purposes, for example, are not marching in the streets because of the pressure on them and the hardship it is causing.

There is evidence of substantial tax evasion. A tax official told a recent conference that audits of the tax returns of the self-employed showed average underpayments of £22,000. A tax amnesty was given to the wealthy people while PAYE people at the lower end of the scale cannot afford to make ends meet. According to the tax official, tax fraud is taking place on an enormous scale in the self-employed sector. It is not even necessary to resort to tax evasion if one can afford the tax experts and consultants who can help people to avoid taxes.

The Minister referred to an exemption from corporation tax of employment grants for farm relief services. I am aware of a good number of people who are now employed in farm relief services under the system of C45 certificates. Their income is low and about a third of it is deducted under the C45 system — the same system as used by Coillte for most forestry workers. The workers have to wait to claim back that tax. I cannot understand what this exemption from corporation tax of employment grants for farm relief services is about. Are we referring to those who are involved in a pool to provide farm relief services operated by this well organised body — I will not use the word "cartel"? Before the workers get their wages they find that there is a third taken under the C45 system. I will not dwell any longer on that point.

There is a myriad of new reliefs in this Finance Bill for the business and commercial sectors from whom it has received a virtually unprecedented welcome. Most of these reliefs are justified on the grounds that they are designed to encourage enterprise and investment and thus promote job creation. We see little of this job creation in the Bill and we will say it is worthwhile when this becomes evident.

I acknowledge there have been substantial changes in the business expansion scheme to close off some of these abuses. There is a constant battle of wits between the Revenue Commissioners and the business sector as the State tries to ensure the reliefs are used for the purposes for which they are intended while tax consultants look to find and exploit more loopholes. I dwelt a lot on that aspect because we see these glaring anomalies and injustices. The wealthy seem to be getting away with these abuses. I welcome the inclusion of Mallow in the urban renewal scheme. It has been trying to get into this scheme for many years and this will benefit it greatly.

Rothschild said give me control of a country's finances and I do not care who makes the laws. That is what the Finance Bill is about. There is not enough being provided in the housing, health and social welfare sectors. Consequently, I now see something I thought I would never see in this country, and that is poor people.

Mrs. Taylor-Quinn

When one reads the Finance Bill one would expect, especially this year given the repeated Government statements, that since unemployment is our single biggest problem job creation would be the most important issue. One would have expected to find in this Bill an outline of the Government's proposals to tackle the problem. The Finance Bill is the most important legislation that passes through both Houses each year. It states how our public money will be spent over the next 12 months and one would hope to find in it specific incentives and attractions to generate employment and to retain jobs.

Senator Sherlock referred to attacks on unemployment and disability benefits. Because of the changes being introduced by this Government especially on unemployment benefit, the average industrial worker on part-time employment will have an income of less than £800 per year. There are many low paid employees who, if they find their income reduced further, would be better off remaining on full time unemployment benefit and assistance rather than engaging in part time work and drawing unemployment benefit for part of the year. This Bill is seriously deficient in addressing that issue. In the future, more people may choose to be unemployed rather than work part-time.

There is a factory in my area which is seasonal by nature because it manufactures ice cream. These workers have to go on unemployment benefit for a certain number of months each year. The current Government proposals will ensure their income is reduced by over £800 a year. Many of them are seriously concerned and are questioning, given the benefits they would have on permanent unemployment benefit, whether they should remain permanently on the unemployment list. This is regressive, rather than progressive, legislation.

One repeatedly hears the Government say there is great potential for job creation and employment growth in the tourism sector. There is nothing in this legislation which suggests that industry is being provided with any incentives to generate employment. The Minister for Finance, the Minister for Enterprise and Employment, the Minister for the Environment and the Minister for Tourism and Trade ought to have worked out a joint strategy to decide, direct and show how genuine jobs in that sector will be created and generated.

If, for instance, there is potential to create tourism related jobs in a certain area, what is the Government doing about it? Most of this potential lies in our rural areas, and in the west in particular. However, what we find is that the necessary infrastructure is not being put in place. What needs to be supplied — not necessarily in this order of priority — is an adequate water supply, proper sewage facilities and a good road network into these areas. If the relevant Ministers, with the Minister for Finance, are not working together in a common strategy towards generating employment in this sector, are they really serious about creating employment?

Many of our most attractive resorts are small places which do not provide the type of facilities tourists require. Why not? Because they are not getting the necessary injection of finance and grant aid. I speak especially about small hotels in rural Ireland. If a hotel has fewer than 40 bedrooms it will not qualify for the type of grant assistance that the major Dublin hotels get. If these small hoteliers cannot develop their hotels and provide an enhanced, improved and attractive facility for residents in these areas, people will not go there. I ask the Minister to examine this matter.

The Government has set up many committees, investigative groups and task forces to examine this issue but when these groups have finished their work, we do not even hear their findings. In Shannon, a task force was established under the chairmanship of Gillian Bowler. It reported to the Minister but its conclusions have yet to see the light of day. Nobody but the Minister seems to have seen them. That is not to the advantage of the taxpayer who paid for this report.

The Minister for Tourism and Trade has set up an investigative group to study the tourism sector, Dublin based consultants, Tourism and Leisure Partners. It has been paid £60,000. What is that money for? What we are seeing from this Government is jobs for the boys. These reports, research studies or task forces are having little real effect and there is no feedback on the ground. This cannot be accepted by the public.

This Bill is interesting in so far as it is an admission by the Government of its lack of success, especially on the question of the 1 per cent income levy. It was forced to withdraw that levy, which was introduced in last year's Finance Bill. It admitted that it was not a good idea. It has also admitted the mistake it made last year on probate tax by rejigging it.

The announcements in the Budget Statement by the Minister concerning the residential property tax was interesting but what was even more interesting were the repeated announcements by the Minster and the Taoiseach. What will next year's Finance Bill have to offer given the various pronouncements, especially by the Taoiseach, since this Bill was published?

The Government is confused and is unconcerned for those who are prudent and are trying to provide their own homes and decent living accomodation for themselves. Many are on large mortgages and will be subject to a penal and unacceptable tax. The Bill leaves much to be desired on this issue.

There are many issues which could be addressed in the Bill. Of major concern is the communication which takes place between the relevant Government Departments. The Minister for Finance decides the funding for the respective Departments. What kind of discussions, negotiations and contact takes place between Ministers, especially the key Ministers involved in job creation? It is evident from the Bill that there is a lack of coherent policy between the various Departments, or within the Government, regarding any type of strategy for job creation. For example, on taxation, there is merely a rearrangement of the situation, fiddling with the figures, attempting to close loopholes but doing nothing substantive, with no major theme or strategy for tax reform.

In view of the repeated public discussion over the past year, the Minister should have taken the opportunity in the Bill to provide specific incentives to people starting their own businesses. I had hoped that the Bill would provide proposals regarding such people not having to come into the tax system, especially in regard to PRSI and VAT, for the first 24 months of their business. It is a well known fact from research that has been undertaken that businesses succeed or fail within the first two years, and if they survive the first two years they are likely to continue to succeed. There should be incentives and breaks provided therefore to those in start up businesses, but unfortunately there are none.

At the other end of the spectrum, there has been no substantial increase in the budget regarding social welfare payments and the misery and misfortune which people continue to live in will continue while the Government remains in office, especially for those misfortunate people who are unemployed and in long term unemployment.

I had also hoped that, given the input of the Labour Party and socialist philosophy in Government, there would have been provisions aimed at specifically improving the poorer sectors of our community. However, there are no such provisions and the issue of poverty, which applies specifically to those on unemployment assistance, unemployment benefit and the low paid worker, has not been addressed. The low paid worker with a mortgage belongs to a category of poverty which is not usually recognised and the Bill does nothing to address this issue.

The Bill is nothing more than a book keeping exercise, an arrangement of the figures for the year in the hope that they will balance out. Unfortunately, it does not address the 300,000 unemployed, including the 100,000 long term unemployed, and the thousands at the lower end of the income category who are employed but are on low pay and are finding it difficult to succeed.

Regrettably, I do not expect the Minister to introduce any substantial amendments on Committee Stage and the provisions of the Bill are most unfortunate for the people of Ireland.

Mr. Neville

The Bill is a book keeping exercise which does not address the problems facing the people. It does not address the main issues and the opportunity to do so is lost. The Bill fails to deal with the unemployment problem, it does not create an incentive for business, it does not attempt to reform the system which creates disincentive for enterprise and for those wishing to take up employment. There is a need to provide incentives for people to create their own jobs, to create jobs for others and to boost the economy.

The taxing of pay related benefit and unemployment benefit is insidious. Those who are rendered unemployed are highly vulnerable while adjusting to their new situation. It is a traumatic experience to be made redundant and to face a period of unemployment and uncertainty, especially as many of those made redundant have commitments, such as mortgages and so on. Most of those made redundant do not expect it. Their lives are thrown into disarray and they face pressures, both financial and psychological, which require every assistance and compassion from the State. However, in this instance the Government and the State have decided to reduce their benefit by taxing their unemployment benefit.

The same measure applies to somebody on disability and who is concerned about their health and future income. While disability is in many instances a short term situation, this is not the case for many people.

I empathise with those who have been made redundant and endure a period of unemployment drawing unemployment benefit. When I entered the Seanad in 1989 I was unemployed. I was on unemployment benefit and went through the trauma experienced by many. I therefore feel strongly about the Government's decision to tax unemployment benefit.

Regarding the taxation of social welfare benefits for those on short term employment, the Government is creating a further poverty trap. In my own town of Rathkeale, the meat factory, AIBP, is constantly on short time and the employees have a hard choice to make as to whether they should stay in employment and suffer a loss, as happens when expenses are considered, or make a gain by going on unemployment assistance. These employees have spoken to me and to other public representatives, including those from the Minister's party, of their concern regarding the choice they face to leave work and improve their standard of leaving, or to stay in work.

Many of these people have worked for 20 years in reasonably good employment and they now find themselves trapped in a terrible situation where they may be forced to decide on leaving work. I would like to provide the Minister, if she is interested, with examples regarding two such people whom I have selected at random from a group who have discussed the situation with me. The first example refers to a person on £48 per week unemployment benefit. He receives a payment of £58.21 per week from the company and this provides a total of £106.21.

An Cathaoirleach

Minister, examples are being provided.

Mr. Neville

On unemployment assistance the person would receive £91.10 per week, therefore incurring the expense of travelling to work to obtain £15 per week. He is asking me why he should continue work? The reason he is continuing at present is because he wants to work. He enjoys his work and the camaraderie of work, but he is losing money.

The second example is in respect of a person on £92 per week unemployment assistance and in receipt of £62.42 net from the company. This provides a total of £154.42 per week. If this person was on unemployment assistance full time, he would receive £155.10. He asked me why he should continue working. He wants politicians to create incentives to make it worth his while to continue working, which he wants to do. He wants to be productive. I worked with him at one stage, I recruited him in 1974. He is now working two or three day weeks. He wants to continue this but asked me to explain to the Government and politicians that there is no incentive for him to do so. He would be better off staying at home as he would not have the expense involved in going to work and says he is being unfair to his family by incurring this extra expense. A group of about 20 people are appealing for the creation of an incentive to enable them to continue working. It is inevitable that they will have to make a hard choice and take redundancy, which the company would be willing to give them to correct their situation — it is emotive to talk about getting rid of people.

Since 1989 I have raised matters on motions for the Adjournment of the House relating to the introduction of an urban renewal scheme for Rathkeale in County Limerick. I make no apologies for raising this. Rathkeale has a unique problem in relation to its town centre, which has been bought up for storage purposes. Shops and houses have become stores for antique furniture. They have been bought by wealthy members of the travelling community. They have denuded the centre of the town and many businesses have closed. For some time we have proposed that the centre of the town should become an urban renewal area and be made attractive for people to establish businesses and shops there, so that it can be opened up like many cities have been. Excellent work has been done in Patrick Street and other areas of Limerick city. I have been told that Rathkeale town centre may be too small, but I was delighted to hear Senator Sherlock refer to Mallow. The differences between these towns are marginal in the context of urban renewal. I ask the Minister, as I have asked other Ministers since 1989, to look at the unique problems of Rathkeale and the necessity to open up its town centre and create an incentive for people using former shops and houses as stores for furniture to move elsewhere and release these premises for commercial purposes so that there will again be growth there.

I now turn to the old hairy chestnut of county roads. The Minister for the Environment announced recently that over £1 million in EU Structural Funds will be spent on roads in County Limerick. There is a dilemma regarding this in the county. The county manager insists that these funds must be used for certain projects and cannot be used for other purposes. These projects include constructing new roads to facilitate industries, one of which will be to Foynes Harbour. These are worthy projects. A candidate for the elections to the European Parliament, who is a member of one of the Government parties and a former Minister for Foreign Affairs — I will not mention his name — says this money must be used to fill potholes. He criticised the county engineer and his staff because the money is not being used for this purpose. Could the Minister clarify whether the candidate to which I referred will allow us repair roads in urgent need of repair, or will the money be used only on the projects for which it has been dedicated because of constraints on the allocation of funds to the county? I assure the Minister this is a live issue in County Limerick as it is in other counties. The Minister for the Environment will be in Limerick next Friday and if the debate on this Bill is completed by then, I will raise the issue with him.

We are disappointed that value added tax imposed on the clothing and footwear industries is not dealt with in the Bill. VAT receipts amount to £2.5 billion and is the second highest contributor to the tax pool. Despite many representations by representatives of the clothing and footwear industries, discussions, arguments and meetings around the country with them and the damage done to the level of employment in these industries, the Minister failed to look at the crippling high VAT rate of 21 per cent. We will make our points on this on Committee Stage.

The residential property tax hits those who pay most tax, that is, middle income PAYE workers who inherited their houses or obtained high mortgages to purchase them. Many of these houses have increased in value. This problem is not confined to Dublin but applies to every county. There are such people in Adare, Patrickswell, the environs of Limerick city, Newcastlewest, Tralee and Killarney. These people have been major contributors on a per capita basis to tax revenues. They now see themselves as soft touches who are hit again. The days of treating this section of the community as a soft touch are at an end. They will not tolerate the crucifying level of tax they have to pay. The statements by the Taoiseach on the extension of this tax and their subsequent rejection by the Minister for the Environment create not only confusion but fear that people with property, such as inherited family homes, will be further hit and that disincentives will be put in the way of people who want to have decent houses in decent areas. In my village of Adare two-bedroomed houses are valued at over £60,000. They were bought by people who worked in the local estate for £1 about 30 years ago. They are now in danger of having to pay the property tax.

My time is now up. I would not like to overstay my time, unlike other speakers.

Mr. Enright

I want to make a few general points about the Bill; we will have an opportunity to discuss the detail tomorrow.

At the outset I wish to talk about job creation. The situation in the west has been highlighted by the Catholic bishops and I will not go into detail on that matter. Basically, the Catholic bishops have been highlighting the problem of the depopulation of the west. I am from County Offaly and we, in Offaly County Council, are preparing our plan for the next five years, looking at trends over the last number of years and examining projections for the future. Regrettably, depopulation in County Offaly is similar to that in the west.

There will be an opportunity to examine all the other county plans when they are published. I am sure they will all be forwarded to the Minister who should examine the trends in the past and the projections for the future to see which counties are suffering population decline. We are suffering a haemorrhage of population loss in County Offaly and this concerns me.

The Taoiseach recently commented on the figures published by the Bank of Ireland. The Governor of the Bank of Ireland issued his comments and the Taoiseach spoke about profits, bank charges and interest rates. Much of what the Taoiseach said is correct. There is a problem, and interest rates are too high. I suppose the Taoiseach will be claiming credit for the fall in interest rates in the last few days but, irrespective of how it happened, they have been reduced marginally.

I would not like to see a major confrontation between the banks and the Government because whatever its faults, we at least have a solid banking system with a good foundation which is working well. In some European countries there can be difficulties with cashing sizeable cheques, obtaining bank drafts and so on. Here, at least money is paid on demand if there is money in the account. It is essential that we have a good working banking system. I hope that matter will be examined and solutions sought to obvious problems.

The Taoiseach went on to speak about the problems of financing small firms. A problem which nobody has mentioned recently is that of small firms which are having difficulties in making payments of PAYE, PRSI, VAT and so on. I work on the assumption that most people and firms are honest — a certain number are not and it is up to the Government to ensure that they are tackled and made pay whatever penalties are due. However, at present, any firm which fails to pay is faced with a penalty of 1.25 per cent per month, that is 15 per cent per annum. If it is even part of a month late it must pay the arrears for the full month.

The banks, on occasion, withdraw credit, sue people, bring them to court, etc., and sometimes firms go into liquidation because of how they were treated by the banks. However, the policies of the Government and the Revenue Commissioners also contribute to the closure of firms. I do not say that in an antagonistic way or to score points because the penalty of 1.25 per cent has been there for quite some time.

I was recently talking to a successful businessman who had a very sizeable firm but whose world had crashed around his ears. He had a number of orders prepared but the firm which he was supplying was not able to take the order and suddenly his business collapsed. He was left with substantial debts and he owed the banks quite an amount of money. He went into liquidation. He was shattered. He told me that at no stage did anybody from a Government agency, Department or semi-State body ever ask him what his problems were and how he would tackle the situation if he was starting again.

It is easy to ask people what they are doing if they are very successful but we should talk to somebody who has been through the mill and knows what that is like. We have not taken enough interest in the reasons so many firms are closing. There is a great deal of publicity and hype when a new firm arrives in Ireland but we must ask ourselves why so many of our native firms are closing. Cork is an example of an area where many established firms have closed. We have also lost companies in Offaly and elsewhere. If we can get the answer why so many firms are closing we may be able to help ourselves in the future.

The 1.25 per cent penalty can often make the difference between a business staying open and closing. We must question the powers of the Revenue Commissioners to close firms, send in the sheriff and seize goods. Many of these people should be helped to earlier rather than having a computer spouting out statements and penalties on a regular basis. At the weekend, the businessman and his wife are at home wondering how they will keep their business open. The computer is resting but there is turmoil in that house where the business and home are threatened.

An example of these problems is the clothing and footwear industries, to which Senator Neville referred. It was lunacy to increase VAT in that area. The VAT increased from 12.5 per cent to 16 per cent to 21 per cent. This is a sensitive industry. We have been proud of our clothing and footwear industries and we like to read in the social columns about how people are dressed. However, many of the people who have devoted their lives to those industries have been put out of business because we are importing clothing. I compliment anybody who goes to the trouble of trying to find Irish made goods. However, the 21 per cent VAT is crippling. Some of our top fashion designers in Dublin have gone out of business because they could not beat the system. That is a tragedy. Job creation is important, but it is essential that job maintenance be examined.

The probate tax is being modified to some extent, but it is not being modified sufficiently. I still have great reservations about it. There were changes made with regard to widows. I met a widow for whom we had to organise a loan to pay probate tax. We got it back, but the difficulty that widow had in getting the money together was quite considerable. There should be an exemption where families are involved. I ask the Minister to have a further look at the area.

The residential property tax is a tremendous mistake. It will not just affect Dublin, Cork and Limerick but it will also impact on towns like Tullamore, Birr, Nenagh, Portlaoise and others across the country. In a short time large numbers of people will find themselves caught in the residential property tax net. That is neither right nor proper. We should ensure that the family home is exempt.

With regard to comments made by the Taoiseach and added to by the Minister for the Environment and the Minister for Finance, I hope we never return to rates in this country again. Rates were an unfair system and I dread the day that they would return.

Mr. Belton

I welcome the opportunity to speak on this Bill. The urban renewal scheme has been a great success in the town of Longford and I am happy that it is being continued in the next round. It is an example to the Minister and the Government that if there is an incentive for people, there will be a reaction. It is a pity that this incentive is not present in other areas which generate employment — for example, the clothing industry. The cruel VAT on clothing has decimated employment and jobs across the board in the industry. The Irish clothing and fashion industry had stepped on to the world stage. However, instead of encouraging this growth industry which is a significant area of employment, the Minister and the Government have put the clampers on it by not facing the reality that if one does not have a sufficient profit margin, one cannot compete.

The urban renewal scheme offers an incentive which attracts investment and generates employment. There are a number of areas in the economy in which employment could be created if incentives were given. It is the only way in which employment will be created. There is no point in having the will to do something or talking about doing something if priority is not given to the area and radical approaches made.

Training and temporary work schemes have done much good by bringing people back into the system and giving them employment and self-esteem. However, everybody knows that it is only on a temporary basis. I am disappointed that the incentive approach has not been extended to other areas.

The increase in VAT on the telephones is a direct Government taxation on telephone calls. Everybody knows how important it is to the business community, because much business is done over the phone. The Minister sees this as an opportunity to collect more revenue. Instead of a reducing or maintaining the present level of VAT, it will now be increased.

These are areas where, with a little imagination and foresight, the Government could have intervened to help the hard pressed business community in their fight to retain their businesses and maintain their current level of employment. Small businesses have to compete against larger companies, shopping centres and other factors militating against the success of their businesses. It is an area of which the Government and the Minister for Finance should be more conscious.

When bigger companies go under, there is a large debt outstanding to the Revenue Commissioners. One often wonders how this comes about. It may be that these businesses present their case to the Revenue Commissioners and mention that there are many jobs on the line. The small business community does not seem to have the same clout. The tax collectors are on their doorstep very quickly. People would like to see a fair distribution of tax collection across the board.

The system seems to be against the small business person who is struggling to keep a business going with high overheads and a small turnover. There should be special conditions to enable those people to survive.

Minister of State at the Department of Finance (Ms E. Fitzgerald)

I thank the Senators who contributed to this wide ranging debate. It covered not only the items of the Bill but also the state of theatre and the arts in this country, the job situation, urban renewal and so on.

The Finance Bill gives effect to decisions in the budget which have at their core the need to deal with the problem of job creation. A specific effort was made in the budget to target relief on the low paid. This includes reducing the 2.25 per cent levy charged to people earning £9,000, who would not benefit from tax relief because they are under the tax thresholds; increasing tax exemption limits, particularly for those with children; an average increase of £6 a week in the family income supplement, again targeted at the low paid; and reducing employer PRSI for people under £9,000. That limit is as much as can be afforded at this stage.

The purpose of the tax package is pro jobs tax reform, with a particular focus on the low paid and those who are likely to be caught in unemployment traps. I took great note of the case mentioned by Senator Neville in relation to a person working part-time and on unemployment assistance. Those type of cases are the sort of anomalies we want to try to eliminate and we hope we can tackle them in the future.

At present we have the best economic forecast in 30 years. There was an increase of 16,000 net non-agriculture jobs last year. The job forecasts for the current and the next number of years are very good. We still have a huge unemployment problem but we have made a good start in our first 16 months in office. I assure the House that tackling the jobs crisis is central to the policies we will endeavour to pursue in terms of budgetary policy and the Finance Bill.

I wish to take up a number of specific points that were raised in the debate. Senator Henry included the arts in her wide ranging speech. We are making great progress in that area and I welcome the establishment of the separate Department of Arts, Culture and the Gaeltacht. She raised the issue of urban renewal and theatres. The purpose of the scheme is to engage in urban renewal in particular areas that are encountering problems. It is not to focus on a particular type of activity, such as theatres. The type of project she had in mind in Dún Laoghaire may qualify under the BES.

Senator Honan talked about jobs and tax reform. In my experience, the Progressive Democrats are not interested in restructuring the tax system. They would prefer us to abandon quality public services. When they participated in Government there was a rundown of the public housing programme and a large increase in homelessness and a rundown of the health services. That is not the way to achieve tax reform. There should be quality public services.

Senator Honan referred to the growth in public expenditure. I am happy to see money put into tackling housing waiting lists and an extra £27 million put into tackling the problems of those with a mental handicap. Some of the increase in public expenditure to which she adverted refers to the carryover effects of the Programme for Economic and Social Progress, which was negotiated when her party was in power.

Senator Sherlock referred to the taxation of disability and unemployment benefits. The Commission on Social Welfare, of which I was a member, and the Combat Poverty Agency believe the right way to go is that all income should be treated as income. The real problem is that our tax exemption limits are low and that is the area in which future reform should be concentrated, rather than treating particular forms of income in a different way. If we are serious about integrating the tax and welfare code and attacking the type of rip offs that have existed in some aspects of the social welfare system, such as where people have gone sick at the right time of the tax year to claim tax subsidies, the way forward is not the separate treatment of different forms of income. Instead, we should examine whether we can increase exemption limits and tax allowances. We have a good start in this budget in that regard.

The tax package contained in the Finance Bill is worth £330 million in income tax reliefs in a full year. It is a substantial programme of tax reform. We also took the opportunity to restructure the tax system and to move taxation away from income. We had a taxation system which was over favourable to property but not favourable enough to work. If we are serious about generating jobs, we need to move towards a system which favours employment. A good start has been made in the Bill.

I was pleased to have a provision included in the Finance Bill, 1993, in relation to tax relief on heritage gardens where there was no heritage house attached. This year there is a revision of the taxation provision with regard to heritage houses and gardens which provides for greater public access, longer opening hours and informing local tourist authorities about the availability of such facilities. Such houses are the people's heritage and if somebody is receiving public money by way of tax relief, there is a public obligation.

In that context, section 23, as it stands, provides for tax relief in relation to rented residential properties. I want a situation, which I hope can be covered in a future Finance Bill, where anybody who is receiving tax relief in relation to rented residential property will have to show that they are in order with regard to the regulations made under the Housing Act, 1992, by issuing rent books to their tenants and by obeying the conditions of minimum standards that exist.

Senator Neville made a point in relation to the need for urban renewal in Rathkeale and the problems in his town. I will bring those concerns to the attention of my colleague, the Minister of State at the Department of the Environment, Deputy Stagg, who has special responsibility for housing and urban renewal.

Senator Enright said that small firms are instantly hit with a penalty if their taxes are slightly late. We should examine this in terms of the administration of the tax code. Obviously we do not want people to build up large arrears of unpaid tax, but perhaps there is room for a little flexibility where genuine businesses may be a couple of days late with a particular payment. The Senator made a fair point in his examination of why some established firms are going out of business.

Senator Burke referred to the need for a jobs strategy. As I said, the whole thrust of the Finance Bill is pro jobs tax reform. The opportunity is being taken not only to give gross tax relief but to give higher tax reliefs on income and to use the chance to restructure the tax system. That is substantive tax reform by any standards. We are making a move in the Bill in relation to recommendations of the Small Business Task Force. All sides of the House are anxious that small business can make the maximum contribution to job creation.

The Government is satisfied that the residential property tax as extended is both a modest measure of equity in the tax system and a contribution towards tilting the balance in the tax code more in favour of productive investment, which helps to create and safeguard employment. People who are not reasonably well off and comfortably housed are not asked to pay this tax. One does not start to pay it unless one has an income of £25,000. A married couple with an income of £25,000 are getting £690 back in terms of the income tax and levy aspects of the budget. One does not pay the full tax unless one has an income of £35,000. On that income, there is £890 by way of a reduction. People must look at the budget as a total package. The Opposition very often look at one aspect and neglect the counterbalancing pluses. It would have been irresponsible of the Government to have simply engaged in an exercise of tax reduction this year without taking the opportunity to restructure the tax system in a way that would generate more jobs when we are in a position to deliver net tax reductions to every taxpayer.

Mr. Burke

The Government will know about it on 9 June.

Ms E. Fitzgerald

The changes made in the residential property tax and mortgage interest relief areas were about restructuring the tax system in a way that has been recommended by every ESRI report, the OECD, the Commission on Taxation, NESC and the Culliton report, etc.

This country has a high saving ratio, but that is not being translated into the rate of job creation that we might otherwise achieve. It is important to take the opportunity, when we are in a position to make people net better off, to restructure the tax system.

Senator Quinn mentioned the differential between the corporation tax rate for manufacturing and service industries. It is important to look at the different characteristics and needs of those industries. There is a particular regime relating to firms which export. In this context, if we are putting a higher burden on other taxpayers by reducing it for others, it is important to look at the concept of what we are net creating. Are we displacing jobs in one area of the economy, or are we generating a net gain? By concentrating on issues such as internationally traded goods and services we can subsidise net job creation and not simply displacement in that context.

We will be endeavouring to work within the existing policy framework to enable growth in manufacturing and in service employment. There have been a number of changes in VAT in the Finance Bill which are pro-business and proenterprise initiatives and which have not been fully covered in the debate. The increase in the VAT registration thresholds will be of particular benefit to small business. The extension of the cash receipts basis of accounting will provide an important stimulus to a variety of Irish businesses, many of which have significant potential for job creation.

Senator Henry recognised what we have been able to do for fairgrounds. I am particularly pleased about that. We all need a bit of bread and circus in this country.

The problems of the clothing industry were referred to. The Government had a working party which looked in great detail at what could be done to help employment in that area. While it was not possible to ringfence clothing manufacturing, the budget reduced the employers' PRSI in the low paid area. That will be of particular benefit to the clothing industry. Since some 80 per cent of clothes bought in this country are imported, the Exchequer is losing out. Through the employment side we have helped the manufacturing basis of our clothing industry. I try to wear Irish clothes at all times because we should encourage our own manufacturing companies.

Senator Quinn referred to the difficulties faced by family businesses competing with concerns that are not family owned. Considerable recognition has been given in this Bill to the needs of family businesses and their transfer from generation to generation. I hope the people who inherit these businesses will also inherit the necessary skills, otherwise we may not be doing the right thing. However, we have made that concession in the Bill by introducing business relief in respect of capital acquisitions tax which should be of substantial benefit to family owned businesses.

The Bill provides for new reliefs in respect of capital gains for equity investment. One of our major concerns is that the economic signals up to now dictate that it makes more sense to invest in property than in equity or expanding a business. We have one of the highest savings rations in Europe but we want to see our savings put into something in this country that will create long term employment. For example, if I extend my home I may give short-term employment. However, if I put the same investment into extending my business, when the building workers have moved off site, continuing employment will be provided. We want to see a climate where our tax system encourages investment in general job creation.

This year's budget and Finance Bill sought to address the most important issues in mainstream income tax. By any standards the relief given was substantial, amounting to £330 million in a full year. The budget also includes a major restructuring in the PRSI system which would significantly improve the competitive position of firms with large numbers of low paid employees. There have been major areas of achievement in the area of corporate taxation with the tax base being greatly widened enabling the standard rate to be cut by ten percentage points. This reform has greatly shifted the balance of incentives in favour of job creation. In indirect taxation, the standard rate of VAT has been reduced over the last number of years from 25 per cent to 21 per cent. There has also been a considerable simplification and consolidation of the rating structure with the 12.5 per cent rate now applied to a wide range of employment intensive sectors.

This is the second full Finance Bill and second budget introduced by this Government in 16 months in office. We have made a good start. There obviously is a lot more to achieve and we have certainly not got an ideal system at this stage. Many of the points made by Senators on all sides of the House will be carefully considered in the Department of Finance. The very good economic outlook gives us a chance to look ahead and seize the opportunity to do something about jobs, particularly for the long term unemployed and those people who, without active intervention, are likely to remain outside the economic system. I hope that in future budgets we will be able to improve on what we did this year, to continue to ease the tax burden on the low paid, to tilt the tax system in a way that is pro-jobs and to ensure compliance with the tax system. While the tax system is often used to achieve particular objectives in areas like urban renewal, it should also be used to ensure that landlords issue rent books. We want to extend those principles in the area of tax clearance to other areas.

The Opposition made the point that this is a bookkeeping exercise, moving money around. There are no magic answers. If we are to deliver tax relief and reduce taxation, that money has to be found somewhere. We are running the economy in a competent way and economic growth is providing some of the resources from which we will be able to deliver future pro-jobs tax reform. But inevitably in any system of tax reform we are dealing with things which are balanced, one against the other. We must have the maturity to look on changes in the tax system as a package. It is not a question of being thankful if there is a reduction on one side while people scream blue murder about increases on the far side. We need to have the maturity as a society to look at the net picture and the net changes otherwise we will get into a state of paralysis where change will become impossible. If we do not achieve change we will not be able to tackle the area of unemployment seriously. I hope we will have constructive discussions about how our tax system can be restructured and improved as well as how we can use our fiscal mechanisms and tax structure to generate the maximum number of jobs the economy is capable of supporting.

Question put.

The Seanad divided: Tá, 22; Níl, 11.

Tá

• Bohan, Eddie.
• Byrne, Seán.
• Calnan, Michael.
• Cashin, Bill.
• Fahey, Frank.
• Farrell, Willie.
• Finneran, Michael.
• Fitzgerald, Tom.
• Henry, Mary.
• Kelleher, Billy.
• Kiely, Dan.
• Kiely, Rory.
• Lanigan, Mick.
• Lydon, Don.
• McGennis, Marian.
• Maloney, Sean.
• Mullooly, Brian.
• O'Brien, Francis.
• O'Kennedy, Michael.
• Ormonde, Ann.
• Roche, Dick.
• Wright, G. V.

Níl

• Belton, Louis J.
• Burke, Paddy.
• Cosgrave, Liam.
• Cregan, Denis (Dino).
• Dardis, John.
• Doyle, Joe.
• Enright, Thomas W.
• Honan, Cathy.
• Naughten, Liam.
• Neville, Daniel.
• Taylor-Quinn, Madeleine.

Tellers: Tá, Senators Mullooly and Calnan; Níl, Senators Cosgrave and Burke.

Question declared carried.

Committee Stage ordered for Thursday, 19 May 1994.

An Cathaoirleach

When is it proposed to sit again?

Mr. Mullooly

Tomorrow at 10.30 a.m.