Wednesday, 25 April 1990
Dáil Éireann Debate
The essential purpose of this Finance Bill is to provide a statutory basis for the taxation measures which I announced or foreshadowed in this year's budget. The measures represent a very significant tax reform package which will promote the development of the economy. They include the reduction in the standard rate of income tax to 30 per cent and the reduction in the top rate to 53 per cent, which are now beginning to reflect themselves in pay packets; the reduction in the standard rate of corporation tax to 40 per cent which will help job creation in the services sector; the extension of the 10 per cent rate for manufacturing industry to the year 2010 so as to create greater certainty for investment planning; 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, and the abolition of the 60 per cent rate of capital gains tax which has been an inhibiting factor on investment.
There are also measures to curb tax abuse, notably in relation to the business expansion scheme and the definition of manufacturing for the 10 per cent rate,  and to deal with other areas of tax avoidance.
Taxation is, of course, a key component of overall economic policy and the measures in this Bill are an integral part of the Government's economic and social policy. Before detailing the main provisions of the Bill I would like to review briefly the present economic position, outline the general direction of Government policy in this regard and touch upon the general approach to tax reform.
We can take heart from the major economic achievements of the past three years. As a result of pursuing the right policies we have created the conditions for a resumption of growth. Irish economic performance has improved enormously over this period. Annual growth in real gross national product has averaged 3.5 per cent over the three years. We have now resumed our position as one of the top performers in the world league.
The underlying objective of Government policy is, of course, to maximise growth and thereby jobs. This is the payoff we are seeking from our comprehensive policy approach. Non-agricultural employment in the private sector did, in fact, increase by some 30,000 in the two years to April last.
In considering the effect on jobs of the resumption of economic growth, it is vital to remember that the net improvement shown by last year's labour force survey — 10,000 more employed than two years before — understates the gross private sector job-creation response to the economic upturn. In addition to creating those 10,000 extra jobs, the private sector has produced new employment sufficient to offset both the necessary reductions in public sector employment and the continuing secular decline in agriculture over the period. More recent indicators suggest that employment is continuing to expand. For 1989 as a whole, there was an estimated net increase of the order of 13,000 jobs outside agriculture.
I am confident that, despite some moderation in growth internationally and in particular the weakening in the UK, we  can again this year achieve a growth performance on a par with that of the past three years. In the light of the budget measures to strengthen the economy, GNP should expand by around 3.5 per cent once more. The budget also puts us 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 2.5 per cent by the end of the year. Provided we carry this through into our international competitiveness, we can anticipate further solid export growth even if not so spectacular as over the last couple of years because of the more muted external demand now in prospect.
The signs are that the volume of business investment is headed for expansion of the same order as in 1989 — 10 per cent. Personal consumption seems set for a further significant rise also, perhaps of the order of 4 per cent this year. All three — exports, investment and domestic demand — will have a strong positive effect on jobs. The overall result is that a net increase in non-agricultural employment of 16,000 can be achieved this year.
A key element in our economic success of the last three years has been the Programme for National Recovery. The success of the programme has set an international example of what can be achieved by a consensus approach. The Government have played their part in achieving, ahead of schedule, the financial objective of stabilising the national debt-GNP ratio and setting it firmly on a downward trend. Employees, by adhering to the moderate pay increases provided for in the programme, have greatly contributed to the reduction in cost and price inflation while at the same time, as a result of the substantial income tax reductions made possible by the improvement in the public finances, they have enjoyed an increase in real take-home pay over the last two years and into 1990. For example, single workers on average male industrial earnings have enjoyed an increase in real take-home pay of 8.5 per cent over the period of the programme. Employers, through increasing investment and job creation, are making their  contribution. The whole community has gained.
It is essential to future employment prospects that we do not lose the ground gained under the present programme. We reached, in the present Programme for National Recovery, an eminently sensible agreement whereby, as I have said, living standards of employees were secured 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. This arrangement can be a model for the future. To be viable, of course, it presupposes that the terms under the various headings of a new agreement are consistent with the wider needs of the economy.
A vital ingredient in the improved economic performance and outlook has been the progress made in recent years 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 had 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. Borrowing is now at its lowest level in about 40 years and the debt-GNP ratio, which was stabilised in 1988, has begun to fall at a significant rate — down from 131 per cent at end-1988 to about 123 per cent at end-1989. It will fall further this year.
While there were some timing distortions in the Exchequer figures for the first quarter, the returns indicate that the results so far are broadly in line with budget expectations. The Government will be monitoring trends closely over the remainder of the year so as to ensure that the budget targets will be achieved.
I would emphasise to Deputies that the Government are fully committed to reducing further both the level of 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 make a significant rate of progress in reducing the debt-GNP ratio towards 100  per cent, down from its end-1989 level of 123 per cent. These objectives require that tight control is maintained on current expenditure and that borrowing for investment purposes continues to be subject to rigorous scrutiny. There is no scope for reverting to a relaxed approach to the public finances. To do so would undermine confidence and destroy the very basis on which the improvement in the economy, and the increase in income for workers and welfare recipients, has been secured.
The Government have an ambitious agenda in the field of tax reform. Already in the past three years major progress has been made in reducing personal income tax rates, in starting the reform of the corporation tax system to make it more conducive to job creation and, last but by no means least, in greatly improving the system used to assess and collect taxes. As I have indicated, this year's Finance Bill builds on the progress already made and breaks new ground with major further development of the self-assessment system by placing self-employed taxpayers on a current year basis; the significant new reductions in personal income tax for all taxpayers; further 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 and the new steps as part of the Government's determined efforts to curb tax avoidance and ensure greater equity in the system.
In relation to income tax, the changes in the Bill mark a substantial step towards fulfilment of the Programme for Government commitments. The Government are well on target to meet their objectives of achieving a standard rate of 25 per cent by 1993 and of moving towards a single higher rate. The Government are determined to achieve the income tax targets we have set ourselves in tandem with the overall objectives for continuing improvement in the public finances. We recognise the negative impact on enterprise and initiative of high tax rates and we have shown that we are able to tackle  it. This is a major element in our approach to tax reform. The Government are anxious to see this process continue and to ensure that lower income tax rates do, in fact, bring about not only a more favourable climate for employment but more actual jobs on the ground.
If others have a different approach to tax reform they should say clearly what changes they would make and how, specifically, these would be financed. Calling for new reliefs without any counterpart funding plans does not represent a coherent approach to tax reform.
I will turn now to the individual sections of the Bill and draw the attention of the House to the more significant items. Full details of the individual sections of the Bill are contained in the Explanatory Memorandum which has been circulated to Deputies with the Bill.
The opening sections of the Bill deal with the substantial package of income tax reliefs which I announced in the budget. These reliefs continue the process which I began in 1989 of reducing income tax rates while making special provision for the low paid and maintaining at 63 per cent the proportion for the taxpayers on the standard rate. The reliefs will cost over £200 million in the current tax year; taken together with the 1988 and 1989 budget changes, they mean that income tax reliefs costing over £800 million on a cumulative basis will have been provided over the period of the Programme for National Recovery.
In addition to the reductions in the rates of tax to which I have already referred, the specific income tax changes are as follows. The general exemption limits are being increased from £6,000 to £6,500 in the case of a married couple and from £3,000 to £3,250 in the case of a single person. The age exemption limits are being increased from £3,400 to £3,750 for single persons aged 65 years or over and from £4,000 to £4,350 for single persons aged 75 years or over. The age exemption limits are being doubled, to £7,500 and £8,700 respectively, for married couples. The special child addition to the exemption limits, which I introduced last year at £200 per child, is being  increased to £300 per child. Finally, the marginal relief rate, which applies where income does not greatly exceed the exemption limits, is being reduced from 60 per cent to 53 per cent.
It is estimated that these changes will exempt some 31,000 taxpayers with 58,000 children from tax altogether, while a further 65,000 taxpayers with 123,000 children should benefit from marginal relief. The Revenue Commissioners have, as I indicated at budget time, conducted a publicity campaign to make low paid taxpayers aware of these concessions; they also sent an information leaflet, incorporating a short application form, to low paid taxpayers with their tax-free allowance certificates. This leaflet also drew their attention to the family income supplement scheme operated by the Department of Social Welfare and described how to get details of that scheme. I understand that there has been a good response so far to this publicity.
The exemption limit changes will benefit a wide variety of taxpayers, small farmers and shopkeepers as well as PAYE taxpayers. They mark the second year in a row that the Government have taken special measures to help the low paid. The changes are substantial. The general exemption limit for a married couple has been increased from £5,500 to £6,500 in two years, an increase of nearly 20 per cent; for a couple with three children, the increase is nearly 35 per cent; with five children, over 45 per cent. These various changes complement the rate changes in what is a significant package of income tax reliefs. As I have said, the Government are committed to continuing with this process.
Chapter 1 of the Bill deals also with other income tax changes. Section 3 renews the PRSI allowance for 1990-91, while section 4 reduces the level of life assurance relief from 80 per cent to 50 per cent of what previously applied. This restriction was necessary in order to meet a small part of the cost of the budget income tax reliefs. Without the restriction, life assurance relief would have cost some £35 million in the current tax year.  The restriction will yield some £13 million in the current tax year. Even taking account of this, the cost of the overall budget package of income tax reliefs will, as I have said, exceed £200 million in the 1990-91 tax year.
While I am dealing with restriction of reliefs, I want to refer to the question of mortgage relief. Deputies will be aware that this relief has been restricted twice in recent years. It was restricted to 90 per cent of interest within the £2,000 single — £4,000 married ceilings in 1987. The second restriction of the relief, to 80 per cent, was made last year. I decided to make no further change this year.
The restrictions of 1988 and 1989 must be seen in the context of the major package of income tax reliefs which have been introduced in recent years. Since 1987, the general exemption limits have been increased from £2,650 to £3,250 for a single person and from £5,300 to £6,500 for a married couple, and a child addition of £300 per child has been introduced. The standard rate band has been extended by £1,800 for a single person and £3,600 for a married couple, and now stands at £6,500 single and £13,000 married. Most dramatically of all, the standard rate of tax has fallen from 35 per cent to 30 per cent and the top rate of tax has been reduced from 58 per cent to 53 per cent.
These reliefs have benefited every taxpayer in the country. It is against this background that the restriction of mortgage interest relief must be viewed. It must also be seen in the context of the Government's commitment in the Programme for Government to further reduce the standard rate of tax, to 25 per cent by 1993, and to move towards a single higher rate.
The suggestion has been made that mortgage interest relief should be restored to 100 per cent because of the rise in interest rates over the past year. This suggestion ignores the fact that, as I have already pointed out, the revenue gained from the restriction has been used to pay a small part of the cost of the major income tax improvements made in recent years and no suggestion has been  made as to how the Government should recoup the cost — estimated at £55 million a year — of such a restoration. The second point I would make is that, despite the restriction to 80 per cent, mortgage interest relief will cost the Exchequer an estimated £220 million in terms of tax foregone in the current tax year, as compared with some £170 million in 1989-90. The vast bulk of this increase is due to increased interest rates. By any standards, this is a very substantial level of on-going Government support for mortgage-holders.
There is no question of the Government being unconcerned about those paying mortgages. The underlying problem is of course the increase in interest rates which, unfortunately, has occurred due mainly to international factors. In our domestic policies the Government have done everything possible to promote lower interest rates and we will maintain our efforts in this regard.
Section 6 implements the budget proposal relating to farmers' stock relief. This is aimed at farmers whose stock has to be disposed of under disease eradication measures. In such cases, there will be an extra period of one year allowed to farmers for restocking before a claw-back of stock relief takes effect.
As Deputies will be aware, the BES was introduced in order to generate risk capital for companies in selected sectors of the economy. The scheme is a very attractive one from the investor's point of view, because he or she can obtain tax relief on the full amount of his or her investment up to the agreed limits; this is intended to encourage him or her to take the risk involved in putting up venture capital.
The scheme has, I regret to say, been the subject of continuing abuse. Last year, as Deputies will recall, I introduced a number of measures intended to counter these abuses: the principal one was a ban on guarantees and options to purchase BES shares, at the end of the  obligatory five-year holding period, at other than market value. The purpose of that measure was to try to eliminate the guarantees which had become a feature of BES schemes while allowing the investor an exit mechanism from his investment at the market value of his shares.
Despite this restriction, guarantee arrangements aimed at eliminating risk and circumventing the legislation remained a feature of BES projects in the tax year just ended. This is obviously inconsistent with a scheme for generating risk capital. In my budget statement I indicated my determination to ensure that the BES remains a risk capital scheme.
Accordingly, section 29 of the Bill ensures that BES relief will not apply where arrangements exist which guarantee the investor's shareholding regardless of whether or not the company is successful. Relief will be denied where an arrangement exists 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, guaranteed investments will no longer qualify for BES relief. I consider this provision an essential one to counter the sort of abuse which we have seen taking place in recent months. I am also conscious in this context of the necessity to protect the equity of the tax system. The BES was not introduced to provide a guaranteed tax shelter for well-off investors at the expense of the Exchequer — that is, at the expense of other taxpayers. It was introduced to encourage those with funds to make them available as risk capital for investment in productive Irish industry and thus to help maximise the value to the economy in terms of employment and output.
Section 7 is to prevent a situation where investors could get interest relief on loans taken out to buy BES shares, as well as the BES relief itself on the capital invested in the scheme. Such interest relief could be available where the investor is an employee or director of the BES company. However, there is in my view no reason why an investor, having got tax relief on the capital amount he invested  through the BES, should also be able to get relief on the interest paid on a loan taken out to enable him to acquire the shares. In other words, tax relief should not be available on both the capital and the interest. Accordingly, section 7 provides that where tax relief is claimed on capital invested through the BES, relief will not also be available on money borrowed to fund the investment.
This is the second year that the Government have had to introduce anti-abuse measures in relation to the BES. I think it is proper that I should record my deep disappointment, and the Government's, at the way that this generous tax relief, far from being used for the productive purposes for which it was introduced, has been abused. At a time when improved industrial performance and increased employment are so vitally necessary, it is a great pity that the considerable talents involved in the BES industry could not have been put to more productive use.
Section 8 deals with the tax treatment of ex gratia payments made to individuals on retirement or termination of employment. The section provides that where tax relief on such payments is being calculated, account will be taken, not only of any tax-free pension scheme lump sums which the individual has received or will receive, but also of any options he has — which have not been revoked — under which he may receive such lump sums in the future. The purpose of the section is to ensure that individuals do not get excessive levels of tax-free payments on retirement or termination of employment. I should stress that the tax-free status of ordinary pension scheme lump sums is not affected.
Section 9 exempts local committees, vocational education committees, county committees of agriculture and health boards from income tax other than deposit interest retention tax. These bodies are already exempt from corporation tax and capital gains tax. The  fact that local authorities were liable to income tax used not to give rise to any actual liability. However, the restriction of interest relief in 1973-74 gave rise to the possibility of a tax charge and some authorities have in fact been assessed to income tax which is unlikely to be paid without assistance from the Exchequer. The present section therefore exempts local authorities, and the other bodies I have mentioned, from income tax with effect from the 1973-74 tax year, the year when the possibility of a tax liability first arose. I am sure that Deputies from all sides of the House will join in welcoming this section, which settles the long-running question of the income tax liability of local authorities.
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 to facilitate further development of the self-assessment system. The self-assessment procedures introduced on a voluntary basis in 1988 have been a tremendous success but further development of the system is essential at this stage if the momentum of progress is to be maintained. A prerequisite for this development 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 into the system and in particular will result in a lower compliance burden for taxpayers and their advisers, greater efficiency in, and therefore better service from, tax officers 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, as opposed to the accounting period ending in the preceding tax year as at present.
There will be changes in the tax payment arrangements. Preliminary tax will 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. The option of paying the previous year's liability will assist taxpayers who may not be in a position to estimate their liability on a current basis by 1 November of the tax year.
As a result of the switch to a current year 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 1989-09 by 50 per cent or more, the assessment for 1990-91 will be reduced to the average profits of the two periods. Farmers will of course continue to have their general averaging option available.
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.
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.
I would like to underline 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 represent a reasonable and balanced package of measures and I commend them to the House.
Before leaving this topic it is only right that I should acknowledge the valuable role played by the tax practitioners in the success of self-assessment to date and I look forward to their continuing co-operation in relation to the new measures provided for in the Bill.
Sections 25 to 28 are concerned with the urban renewal tax incentives for the designated areas. As announced in the budget the time-limit for this incentive package is being extended by two years from 31 May 1991 until 31 May 1993. The development of the designated areas will be given a further impetus by this measure, especially in the case of projects  which are as yet only at the planning stage.
Sections 27 and 28 are intended to counter several unintended uses or abuses of the generous tax incentives contained in the designated areas package. The double-rent allowance available to tenants in these areas allows them to reduce their income for tax purposes over a ten-year period by taking a deduction each year of an amount equal to twice the rent actually paid. In the case of sole traders or partnerships, where income tax at a rate of 53 per cent can apply, the tax saving can actually exceed the amount of rent paid. This is unduly generous, and section 27 accordingly limits the tax foregone by the Exchequer to an amount not exceeding the rent actually paid by the taxpayer. That section also provides that the double-rent allowance will not be given in a contrived “cross-letting” situation. It was never intended that any one party could obtain both the full capital allowances as the lessor of a qualifying building, and the double-rent allowance as the lessee of a similar building, in an arrangement undertaken purely to exploit the tax provisions.
Section 28 excludes finance leases of commercial premises from qualifying for the double-rent allowance. Such leases include capital payments which enable the lessee to purchase the building. The double-rent allowance was intended for normal rental payments by the lessee and not for capital payments.
The overall effect of sections 27 and 28 will be to eliminate excessive levels of tax benefit which were never intended under the incentive package for the designated areas. By reducing the potential for excessive tax gains to lessees, the provisions will enable market forces to operate more freely in regard to rental levels.
I have already referred to section 29 in dealing with the business expansion scheme. Section 29 also deals with abuses of the exemption for Shannon dividend income. A number of schemes were launched last year which involved the extension of this Shannon exemption to  investments which had a bank guarantee for both the sums invested and the investment return. Through the use of a combined loan-share arrangement, the guaranteed fixed rate of return amounted to over 800 per cent per annum on the very small amount of actual share capital invested. I announced on 21 July last that if necessary I would introduce legislation in regard to these schemes. Section 29 accordingly provides that where arrangements exist to eliminate the investor's normal risk, the Shannon tax exemption for shareholders will not apply.
I would like to take this opportunity to state that I will not hesitate to take similar action in future where necessary and with similar immediate effect from the date of the announcement, if I become aware of other abuses of a specific exemption.
As announced in the budget, the standard rate of corporation tax on company profits is being reduced from 43 per cent to 40 per cent from 1 April 1991. This is part of the continuing process of reform which includes also the phasing-out of accelerated capital allowances, which I will refer to shortly. Sections 31 and 32 of the Bill give effect to the reduction in the rate and to the related adjustment in the tax credit attached to company distributions out of profits taxed at this standard rate. This change will be of particular benefit to the services sector which is such an important source of new jobs.
Section 33 is concerned with the definition of manufacturing for the purposes of the 10 per cent rate of corporation tax. 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. This reflects court decisions in particular cases as to what constituted manufacturing. The concept of manufacturing has, as a result, been extended well beyond the normal everyday meaning of the term to include activities which are not really manufacturing activities at  all. These activities have gained an unintended benefit by being taxed at only 10 per cent instead of at the standard corporation tax rate of 43 per cent. New provisions are therefore being introduced under section 33 so as to restrict the definition of manufacturing to what was originally intended. This is done by excluding certain processes from the scope of the relief. The change is necessary in order to protect the corporation tax yield because the standard 43 per cent rate is the rate at which the bulk of corporation tax is paid.
It has been claimed that meat processing is now being given the 10 per cent rate for the first time. I would like to correct this impression. Meat processing has always been eligible for the 10 per cent rate. The reason section 33 specifically provides for meat processing is a technical drafting one, which is designed merely to ensure that meat processing does not lose its exsisting entitlement to the 10 per cent rate as a result of the application of the new rules.
As announced last week, the Government have decided that the termination date for the 10 per cent rate of corporation tax for manufacturing and related activities is to be extended from 31 December 2000 to 31 December 2010. This special low tax rate has proved to be a very effective incentive for attracting mobile international investment and for assisting the expansion of domestic manufacturing companies. Because of the long lead time associated with major manufacturing projects it is necessary to provide assurance and certainty now to foreign investors that the 10 per cent rate will continue after the year 2000. The necessary legislative provisions are being prepared and I hope to include these in the Bill on Committee Stage.
Section 34 allows the Irish branches of foreign parent companies to deduct their patent royalty payments against their income for tax purposes. This will give such branches equality of tax treatment with Irish subsidiary companies of foreign parents where such payments are already allowed. It will also assist the industrial development agencies in their promotional activities abroad.
In my 1989 Budget Statement, I invited the business community to launch an initiative which would help to alleviate poverty and increase employment. I also asked that the initiative should be organised and operated by the business community itself. That community's response has been to set up a trust for community initiatives which will receive donations from companies and apply those to assist suitable projects in line with the aims of the trust. In order to encourage companies to contribute, section 35 provides for a relief for corporate donations which are given to the trust in the period between 20 April 1990 and 31 March 1991. This gives a reasonable deadline and should serve to stimulate a quick response by the business community. The trust deed itself, which has been drawn up in consultation with officials of my Department, of the Revenue Commissioners, and of the Chief State Solicitor's Office, contains appropriate measures in relation to the appointment of new or additional trustees, and to any changes in the trust deed. There is also a requirement on the trust to publish an annual report and to make detailed returns to my Department on the donations it receives, and on the disbursements it makes to assisted projects and initiatives.
Section 36 confirms the budget proposal to reduce the volume of section 84 loans with effect from budget day. No new domestic-sourced section 84 loans are now permitted except where the total loan volume of the lender does not exceed 75 per cent of his loan volume as of 12 April 1989. A special transitional arrangement will apply in the case of  certain loans for new manufacturing projects which were under negotiation with the industrial promotion agencies. Provided particular qualifying conditions are fulfilled, section 84 loans for these projects which cannot otherwise be catered for under a lender's 75 per cent ceiling will be allowed. This transitional arrangement will apply to qualifying loans of this type given in the period 31 January 1990 to 31 December 1991. The total amount involved, which is not to exceed £170 million, will count towards the 75 per cent ceiling rule after the end of 1991 by which time section 84 loans to Shannon companies will have been phased out in accordance with the 1989 Finance Act.
The self-assessment system was extended to companies from last October. Sections 37 to 45, inclusive, introduce technical changes designed to assist both companies and the Revenue Commissioners in operating the self-assessment system. They will ensure as far as possible that the liability for an accounting period can be finalised in one return form and in a single payment of tax. In this way these sections will streamline the operation of self-assessment for companies.
Sections 46 and 47 contain provisions relating to the conversion of building societies into companies. These cater for the taxation consequences of such conversions which were provided for in the Building Societies Act, 1989. Similarly, sections 48 to 50 provide for the taxation consequences of the amalgamation of trustee savings banks and for their reorganisation into companies which were provided for in the Trustee Savings Banks Act, 1989.
Chapter VII of Part I, comprising sections 51 to 58, implements the budget proposal dealing with the distribution of income to their Irish investors from foreign unit trusts and similar investment funds. This measure is designed to promote a more level playing field between Irish and foreign investment media. Up to now investors in certain foreign funds had unrestricted scope for converting a taxable income into tax-free capital gains. With effect on and from 6 April  foreign investment funds will have to distribute at least 85 per cent of their annual income each year to their Irish investors. If this distribution condition is not met, the investors will become liable to income tax instead of capital gains tax on the disposal of units or shares in these funds.
Chapter VIII of the Bill provides for the budget reduction in accelerated capital allowances for plant, machinery and industrial buildings. These will be reduced from 50 per cent to 25 per cent from 1 April 1991, and to nil from 1 April 1992. As I have noted earlier, this is linked to the parallel reduction in the standard rate of corporation tax and is necessary to defray the cost of the tax rate reduction. It will also contribute to a broadening of the corporation tax base. The normal annual wear and tear allowances will still be available and the reductions will not affect the special building incentives in the areas designated for urban renewal, or qualifying service companies in the Custom House Docks area and in the Shannon customs-free airport.
A transitional arrangement is being applied in the case of new industrial projects approved for grant assistance by the industrial development agencies on or before 31 December 1990. For such projects accelerated capital allowances will continue to be available at a level of 50 per cent.
Sections 60, 61 and 62 contain the general measures for the phased reduction in accelerated allowances for plant and machinery, and sections 63 and 65 cater for similar restrictions in the case of industrial buildings. In similar vein, section 66 restricts accelerated allowances for certain farm buildings and other works. Finally, certain loopholes in the application of the capital allowances regime are covered in sections 59, 64 and 67.
Sections 71 and 72 provide, as announced in the budget, for the abolition of the 60 per cent rate of capital gains tax. The top rate of tax for disposals made on or after 6 April 1990 will be 50 per cent which is closer to the new top rate of income tax. This change is not  expected to have a significant effect on revenue receipts.
The relief available under sections 26 and 27 of the Capital Gains Tax Act, 1975 on disposals of certain business assets by individuals aged 55 years or over — referred to as retirement relief — does not at present extend to disposals of shares in holding companies of trading groups. Sections 73 and 74 of the Bill provide for such an extension.
Section 75 in an anti-avoidance provision. Under the Capital Gains Tax Act a capital loss cannot be transferred between members of a group of companies. A practice has arisen whereby companies have used a particular provision in an unintended way to circumvent the above rule with a consequent loss of tax revenue to the Exchequer. The Bill closes this loophole.
Part II of the Bill deals with changes in the Customs and Excise area. Sections 78 to 84 give effect to the reductions in excise duty which were announced in the budget. Section 78 provides for the reduction in excise duty on environmentally friendly motor fuels, with tax on unleaded petrol being reduced by 5p per gallon and the tax on auto liquid petroleum gas being halved. The tax differential in favour of unleaded petrol is now 13.5p per gallon. Sections 79 to 84 provide for the budget reductions in duty on table water, televisions, videos and camcorders and for the abolition of duty on records, compact discs, matches and mechanical lighters.
Section 85 is a technical adjustment. It provides for a change in the technical composition of the tax on cigarettes made necessary by the 1 March reduction in the standard rate of VAT. This change is necessary in order to comply with an EC directive. This section will not change the overall level of taxation on cigarettes, nor will it affect the price of cigarettes.
Part III of the Bill, covering sections 86 to 96, gives effect to the VAT changes announced in the budget as well as a number of further largely technical measures. The major change is of course  the reduction of two percentage points in the standard rate of VAT to 23 per cent which is making a significant contribution to lower inflation this year. The other budget changes include the increase from 2 to 2.3 per cent in the farmers' flat-rate refund and associated livestock rate, the increase from 5 to 10 per cent of VAT on electricity and the imposition of VAT at 10 per cent on telephone and related charges. The VAT imposition on telephones will now take effect from 1 January next instead of the originally proposed date of 1 July 1990, so as to facilitate Telecom Éireann in completing the installation of their new billing system. There will be no loss to the Exchequer since Telecom will pay over an amount in respect of the net VAT due. As I indicated on budget day, the VAT measures on electricity and telephones are being given effect without any increase in charges to consumers.
As a result of developments on the EC front we are required to terminate the VAT-exemption of horses and greyhounds, the non-taxation of which was only allowed temporarily by way of a derogation from Community law. I am proposing to bring these to tax at the low rate of 2.3 per cent which already applies to livestock and the effects on the industries concerned will be minimal.
The technical VAT measures in this Part of the Bill deal with taxation of services received from abroad that may currently avoid tax; clarification of the law in regard to the taxation of driving schools and a number of other items; and, finally, a minor extension of the existing definition of newspapers which can qualify for the 10 per cent rate of VAT.
It is gratifying that we have been able to make a number of indirect tax changes this year, especially the reduction in the standard VAT rate, which are consistent with the emerging framework for 1992. Much of course still remains to be agreed at EC level as to the rates of both excise and VAT and the other arrangements to apply post-1922. EC Finance Ministers took stock of the situation at a meeting which I chaired in Luxembourg on  Monday last. I brought my colleagues up to date on the work which has been undertaken in this area under the Irish Presidency. The work is to be pushed ahead actively and the Commission was asked to bring forward the outstanding proposals as soon as possible. I also look forward to early completion of the study which the Commission is undertaking on the implications of tax approximation for Ireland.
Section 97 continues the bank levy for 1990, as announced in the budget. The total levy amount is £36 million, which is the same as for 1989. Section 98 implements the budget proposal for a 3 per cent levy on investment by Irish residents in unit trusts and similar investment funds. This will provide equality of treatment in this regard with investment in life-assurance linked funds, where the 3 per cent levy has applied since 1987.
I announced in my budget speech that it was my intention to clarify and simplify the way stamp duties are to apply to various financial services and transactions. Sections 99 and 101 contain these measures together with the rationalisation of the rate bands applicable to property valued at less than £25,000. For bonds, covenants, mortgages and so on the exemption limit below which stamp duty is not payable is increased to £20,000 and there is a ceiling of £3,000 on the maximum charge. I hope that these changes will encourage the execution in Ireland of transactions which at present are being effected abroad.
Section 103 provides for exemptions from companies' capital duty for collective investment undertakings which come under the UCITs Directive. This measure is aimed at establishing UCITs in this country, especially in the IFSC, and is in line with a proposed amending Directive which has now been put forward by the EC Commission at our request. The fact that a 1 per cent duty  could be charged on the foreign investment funds under management by these undertakings was proving to be an obstacle to their establishment here.
Section 100 provides for the charging of full stamp duty on non-grant type new houses. This measure is a response to the situation which had developed whereby the intending purchaser of a non-grant type new house could reduce his or her exposure to duty by having separate contracts for the purchase of a site and the construction of a house. In order to allow more time to cater for those persons who entered into contracts prior to my budget announcement to complete their transactions, this section will only become operative for conveyances executed after 1 September next. This section will not apply to an individual building a house on his own land nor will it apply to industrial or commercial property.
Section 110 will facilitate the self assessment of residential property tax by making provision for the rounding upwards of the market value exemption limit to the nearest £1,000 and for the use of the new house price index for the three months ended 31 December instead of the three months ended 31 March, in determining the market value exemption limit as at 5 April each year. The use of the March index at present is causing delay in administering the tax. Section 111 provides for the rounding up of the income exemption limit to the nearest £100.
More significantly, section 112 provides for the restoration of child relief under the residential property tax code in accordance with my budget announcement. The provision allows for a reduction of 10 per cent in the amount of tax payable for each child up to a maximum of ten.
Part VI of the Bill deals with capital acquisitions tax. In addition to the measures for indexation of thresholds and the exemption for gifts between spouses  announced on budget day, it contains two further provisions. Section 116 tightens up the legislation in respect of certain exemptions from discretionary trust tax. Section 117 provides for an extension of the scope of section 60 insurance policies. The proceeds of these policies are exempt from tax where they are used to pay inheritance tax. The new provision will cater for joint policies effected by husband and wife where the estate is not left absolutely to the surviving spouse, for example, where the estate is devolved to a child on the death of that spouse. This extension will make these policies more popular.
The Bill contains some non-tax items. These include a number in relation to debt management as is customary with the annual Finance Bill. An important aspect of national debt management relates to conversion of existing Government loans, whereby the Minister for Finance may offer to replace a stock due for redemption by giving holders of the redeeming stock the opportunity to convert into another stock. This process is at present governed by legislation that is nearly 40 years old. During this period our capital market, and especially the bond market, has developed greatly. In line with this development, the stock conversion legislation needs to be updated to reflect modern market conditions and practices. This is the purpose of section 120.
Section 124 will provide the basis for the introduction of a new short-term Government security, Exchequer Notes, which will effectively widen the existing market for Exchequer Bills and provide greater flexibility for investors. For example, the notes will be made available more or less on a continuous basis, in contrast to Bills which are sold by weekly tender. The section provides that where Government securities are issued at a discount, the discount will be liable to tax; and exempts the discount in the hands of non-residents.
The Bill is a major and lengthy one. Some of its provisions represent significant policy initiatives while others, as  I have indicated, are of a more technical nature. The real importance of the Bill lies in its furtherance of the Government's overall economic and financial objectives which are aimed at achieving more econiomic growth and jobs and, as part of this, a greater equity and efficiency in out tax system.
Mr. Noonan: (Limerick East): I thank the Minister and his officials for a very detailed speech. This Finance Bill is particularly long — 130 pages — and complex and the detail and clarity of the Minister's speech, together with the explanatory memorandum, will be of great benefit to Members of the House and interested parties outside it as they seek to come to terms with the Bill. Like all Finance Bills, generally it enacts the announcements made by the Minister on budget day and, where the Minister merely foreshadowed an announcement by a statement of principle, it spells out in greater detail the implications of such statements. I should like to commence by referring back to the budget since the Bill enacts it. I now believe that the budget is going off the rails. The very large increases in expenditure by the line Departments during the Estimates campaign in the autumn of last year and the over reliance on buoyancy of taxation in the Minister's budgetary figures are now coming home to roost.
The Exchequer returns for the first quarter of the year show that the Minister will now have to run a surplus of over £100 million on current account for the next nine months if he is to achieve his budgetary targets. This has never been done in living memory and I would be surprised if the Minister achieves it this year. It certainly looks unlikely that he will achieve his budgetary target. I know that the Minister has attempted to explain some of the very disturbing first quarter Exchequer returns. Some of what  he claims is correct and the effect of certain provisions is a once off. There are, however, claims in the budget of savings made which are of doubtful validity. As I mentioned on the Order of Business, the Minister, for example, has included a saving of £35 million in his figures for the proposed new debt management office in the Department of Finance but we are still awaiting legislation to set up that office and the schedule of impending legislation circulated at the start of this session does not include a provision for it. It is unlikely now that the experts who would manage the debt more efficiently than those who do so at present — to the extent of saving £35 million in a half year — could be recruited by mid-year.
Even a small overrun on the budgetary borrowing target this year could have very serious consequences. I believe that the political consensus in favour of tight control of public expenditure is now evaporating. The demand for increased public expenditure is now widespread, in Government, in the Oireachtas, in various interest groups and in the electorate at large. There is no stomach for further expenditure cuts and if the current budget deficit begins to increase again the Government will have great difficulty in reversing the trend.
As a nation we have tottered on the brink of insolvency through most of the eighties. There is a widespread perception that our debt problems have been solved but of course they have not because the debt continues to rise. The pace at which it is rising has been reduced but it will rise again this year by almost half a billion pounds. It takes almost all income tax receipts to service the debt, the debt keeps interest rates high and costs jobs. The Minister had a unique opportunity in that he could have brought in the first balanced budget for years but his chances of doing so now are slipping away. He talked in his speech about bringing in a balanced budget by 1993 but that will be a very difficult target to achieve.
There are signs in the economy at present that there is very little buoyancy  even though a huge amount of tax revenue has been included in the budgetary figures. For example, bookings in the holiday package trade are down by between 25 per cent and 30 per cent. That is always a reasonable indicator of activity, especially among young people and the amount of disposable income they have. Applications for new house loans are drying up; one building society manager recently told me that it was like turning off a tap in the first week in March after a buoyant January and February.
The retail sector is depressed and there are sales in half the shops in every town in the country. Sales of cars, new and second-hand, are beginning to slow down, especially in relation to the second-hand trade. The forecourts of garages are filling up with second-hand cars and this will spill over to the new car trade very shortly. There are signs of depression in this area.
Rural Deputies are very conscious of the fact that the price of milk has come down by about 20 pence per gallon and this affects buoyancy, not only in rural areas but in every small town in the country. I am not pointing out these things to paint a black picture of the economy or to adopt the role of some kind of Cassandra, all I am saying is that there is a question mark over the revenue buoyancy figures which have been included in the budgetary arithmetic. If there is an overrun on expenditure and if revenue begins to fall short the Minister will have a problem. I do not know whether this anecdotal evidence which I indicated is reflected in the tax receipts going to the Department or whether there is any evidence yet that there has been a reduction in stamp duty, excise rates or VAT to Revenue but I will certainly await the second quarter revenue returns with great interest.
Rising interest rates are putting a serious brake on economic growth at present and are costing jobs. Rates have risen four times in about 12 months and there is wide speculation regarding further increases. A leak of a briefing document from the Minister's Department  published in yesterday's Irish Independent has further fuelled this speculation and I should like the Minister to comment on whether this was a genuine briefing document, if it was leaked and, if so, how?
Mr. Noonan: (Limerick East): The Progressive Democrats have a more catholic attitude to leaks. The Minister for Finance merely leaks to Michael Ronayne of RTE and to a well known journalist in the Irish Independent.
It is astounding that the Minister ignored interest rates in his budget speech and it is equally astounding that he has not taken any steps to treat either the symptoms or the disease of rising interest rates in the Finance Bill. The Minister should have restored full mortgage interest relief in the Bill. I know he gave the reasons for not doing so but he dealt with the matter more by assertion than by any reasoned argument. It will cost more in tax revenue and lost buoyancy by not doing so than the measure would cost. The Minister said such relief would cost £55 million but that is the gross cost and I presume the buoyancy on a relief like that would be in excess of 40 per  cent. The real figure would be something in the region of £30 million and not £55 million as the Minister stated.
The Minister should also have come to the aid of farmers, especially those in the beef sector, who need less expensive working capital. The Minister could provide exchange rate, risk free Deutsche Mark loans which was done in similar circumstances in the early eighties by Deputy Dukes when he was Minister for Finance. If the Minister is as firm as I hope he is — and as he says he is — on exchange rate policy there would be no cost to the Exchequer for providing loans at German interest rates to a very restricted sector rather than at Irish interest rates.
It would be possible, allowing for a commission to the banks, to provide money to farmers, especially in the beef sector, at about 10.5 per cent to 11 per cent as against anything between 15 per cent and 18 per cent which they are paying at present. It would not be at a cost to the Exchequer if we are to believe the Minister's commitments to a strong currency. I believe the Minister and I hope he sticks to his commitments.
These are merely suggestions to deal with the symptoms of rising interest rates where they pinch hardest and cause the maximum pain and a major downturn in economic activity. The great problem with Irish interest rates is that they are 4 per cent higher than those in West Germany, even though our punt has been tied for a long time to the Deutsche Mark within the EMS. While there were widely differing inflation rates and a widely differing attitude to fiscal policy, a differential can be justified but it is very difficult in present circumstances to justify such a wide differential.
I know the Minister does not take the decisions to increase or reduce interest rates, that decision is taken by the Central Bank. About two months ago the Governor of the Central Bank said he believed the present 4 per cent differential rate will have to continue and gave his reasons. If the Minister wants to reduce interest rates — he has got the reasons they are high from the man who  is in the position to reduce them — he should introduce policies to accommodate the Governor of the Central Bank so that the differential between the two rates can be reduced.
The Governor of the Central Bank said that the 1990 budget was too soft. He said the borrowing targets were too soft and, therefore, interest rates would have to remain high. The Minister is smiling but he has read this statement and has been briefed by his officials. The Minister may like or dislike the Governor of the Central Bank or agree or disagree with his attitudes, but he happens to be the person who is statutorily empowered to fix interest rates. If he decides that Government policy keeps interest rates high, the Minister has two choices — he can either maintain the same policies and high interest rates or he can change policy and reduce the differential between the Irish and West German rates.
Of course, if the Minister does not achieve the soft targets he has set — even the reputable economists the Taoiseach referred to when he arrived back in Dublin Airport recently are now saying there will be an overrun of at least £50 million — I do not think the Governor of the Central Bank will be encouraged to reduce that differential. The Governor also said that the medium term target to bring the national debt to a point where it is equal to one year's GNP is too soft. The Minister repeated this today when he said that if we could bring the debt down to 100 per cent of GNP by 1993 it would be good progress. Of course it would, but if he simply takes growth at 3.5 to 4 per cent of GNP and maintains the same ratio of expenditure a rising GNP will give a different percentage. If this is maintained over three years it will be reduced from the present 123 per cent to 117 per cent at the end of this year and perhaps to 100 per cent without the Minister taking any action whatsoever. I agree with the Governor that this is the minimum acceptable target. Any other kind of target would mean the Minister would be increasing disproportionately public expenditure. As I said, the Governor of the Central Bank believes this  target is too soft. I believe it needs to be revised and strengthened. A total national debt of 75 per cent of GNP by 1993 would be a far more appropriate target if the Minister wants to reduce interest rates.
The Governor of the Central Bank also pointed out that our historically high inflation rate works against lower interest rates even though Irish inflation rates now compare favourably with other EMS countries. To an extent both individuals and countries can be blamed for the sins of the past. When we went into Government inflation was at 21 per cent, when we left it was below 5 per cent, and a year later it was down to 3.5 per cent. The Minister has continued this progress and we are now regarded as a low inflation country. However, even in that context there is still work to be done. For example, I do not believe that the benefits of a strong pound are now being passed on to the consumer in terms of lower retail prices on imported goods. I raised this issue previously and the Minister for Industry and Commerce in a burst of frenetic activity called in the importers and the supermarket proprietors and threatened and cajoled them into reducing the price of some goods.
In a competitive economy the benefits of a strong currency should be automatically passed on to the consumer and we should not have to rely on fire brigade action by the Minister for Industry and Commerce for this to happen. However, the Minister for Industry and Commerce has an obligation to introduce legislation as a matter of priority to ensure that competitive factors are allowed to operate and that they are not obstructed by cartels and quasi-monopolies in the pursuit of windfall profits at the expense of the Irish consumer. The Minister for Industry and Commerce has singularly failed to introduce such legislation and I have not seen any sign of that Bill in the list of legislation which was circulated to Deputies today. The Minister should at a very early date introduce into domestic legislation the anti-monopoly and anticartel provisions in the Treaty of Rome. It is ludicrous that when the swings favour  the consumer the windfall profits are taken up but when the roundabouts go against the consumer, prices go up. I do not believe it should be necessary to raise a row in this House so that the Minister has to call in certain people again to get them to pass on the benefits they should automatically pass on in a competitive economy.
The Irish pound strengthened by over 25 per cent against the yen during the past 12 months, but has anyone noticed a drop in the price of new or secondhand Japanese cars? The Irish pound has further strengthened against Sterling in recent months, but there is no sign of the benefits being passed on to the Irish consumer. We will not be taken seriously as a low inflation economy if only adverse trends are immediately reflected in prices and beneficial effects are not reflected in the downturn. This is one of the reasons we have this differential of 4 per cent between Irish and German interest rates. There is not widespread credibility that we have a low inflation economy, we are committed to low inflation, we are prepared to take the necessary steps to keep it low and to organise a free market competitive economy where the cartels, monopolies and vested interests do not gain when economic factors run in favour of the country at the expense of the consumer who should gain.
I wish the Minister and the Government well in their talks on the next pay round. I presume the first joust will begin before the summer recess and that the main activity will be in the autumn. Wage rises quickly impact on inflation figures and I hope the social partners will be able to conclude an agreement appropriate to present economic circumstances.
If the above package of immediate measures to treat the symptom of rising interest rates and long term policy changes to reduce the differential between us and the West Germans is implemented, our interest rates could be cut or alternatively a further rise in German interest rates in July could be absorbed without an increase here. In the absence of policy changes it seems quite  clear from the statements of the Governor of the Central Bank that he will keep that differential at 4 per cent whether or not it is justified. It is justified in his opinion and it will require policy changes to make him change his mind.
Building society managers and bank managers are now openly speculating on the prospect of a credit squeeze. A liquidity problem is emerging in the banks. Some building societies are contemplating reintroducing the restrictive criteria for lending which were common in the past — so much on deposit for a certain length of time, £2,000 for six months, £5,000 for a year, etc. That mood is back in the building societies and they are speculating about it. The banks are also talking about a liquidity problem. One of the main banks is refusing to fund new projects, not because of doubts about the validity of the project or the repayment capacity of the borrower but because they would have to borrow the necessary funds from the Dublin interbank market to fund the project, which they are not prepared to do.
The Minister for Finance should reconsider his position on the second liquidity requirement on banks by the Central Bank. I know this is something his Department proposes. It is a very easy way of funding if the banking industry have to hold 25 per cent of their assets in Government paper. When I raised this issue by way of Priority Question with the Minister for Finance he said the banks were holding more assets in Government paper than they were required to. I accepted that at face value but when I inquired into the matter I was told that while the overall banking system may be holding more than the 25 per cent required and certain banks do not have a problem, some of the main banks are right up against the wire, they have a severe liquidity problem and are down to their 25 per cent of Government paper. Relief here would be of major benefit. I do not believe the economy needs a credit squeeze at present as a matter of fiscal policy. As a matter of fact I contend it would be quite damaging to our economy if there were a restriction imposed on  credit, especially when that would arise from a liquidity problem within the banks rather than as a result of any policy instituted by the Central Bank or the Minister for Finance.
Mr. Noonan: (Limerick East): Yes, I made that point. I agree fully with Deputy Taylor in that respect; in fact it is putting a brake on economic activity. The point I have now moved onto is that, on top of interest rates, there is an actual liquidity problem. At present the banks are attracting a certain amount of savings as are the building societies and the insurance industry, the latter attracting many savings. I do not know whether it is correct — no doubt the Minister has the relevant information — but I am informed that insurance companies are now attracting a disproportionate amount of savings and that, because they are insurance companies, are not in a position to lend. This means they can invest their money where we know they will but they cannot lend it to their customers over the counter. I understand there is now a shortage of savings in building societies and the banks. It is emerging that there is a demand for credit.
The Central Bank say they will confine the expansion of credit to 10 per cent this year — that they will have no problem with that — that they will back the banks up to that limit but, beyond that, they will be on their own. The demand for credit is higher than that. It is justified with the influx of Structural Funds, by the activity in our economy which does not need to be dampened down at this point by a credit squeeze. I would hate to think that our economy would be damaged by a credit squeeze due purely to a lack of liquidity in the banks when the Minister has instruments of policy available to provide the necessary liquidity.
After consideration with the Central Bank if the Minister does not favour a reduction in the secondary liquidity requirement he might examine the  schemes introduced by his counterpart in the United Kingdom, the Chancellor of the Exchequer, who introduced schemes specifically related to encouragement of savings. It would be worth examining that possibility in coming months. The banks and building societies are already being quite restrictive on the basis of picking and choosing between customers beyond what is due to considerations of repayment capacity. I predict it will go beyond that point in the next two months or so when we could run into a very serious problem. Perhaps the Minister would take up that point when replying.
I have referred already to the complexity and length of this Finance Bill. It adds to the mounting evidence that our tax code must be consolidated. The Bill will add an additional 130 pages of tax law to an already very complex code. Consolidation is necessary and the Minister for Finance should begin that process immediately. I know it constitutes an enormously difficult task but someone must begin somewhere some time. It is now at the stage when most talented people are wasting their time simply trying to ascertain what is the law scattered across such a multiplicity of Acts. That does not take into account the hordes of other people wasting their talents and contribution to our economy in trying to identify further scams to benefit various people who are their customers and to whom the Minister referred also in the course of his introductory remarks.
I will defer my detailed comments on the personal taxation provisions of the Bill until later. The Minister does not appear to have an overall plan on tax reform. Indeed, some of the measures introduced are contradictory. Fine Gael proposed an all-party committee to the Minister's predecessor to examine the whole issue of tax reform. We made a similar offer to the Minister but he and his Government rejected that offer. I would suggest to the Minister now that the Commission on Taxation be reconstituted to re-examine the question. Many of their recommendations have been implemented piecemeal over the years.  The time has now come for another overview. I contend a reconstituted Commission on Taxation could undertake that task very quickly and report within, say, six months with a view to having their recommendations implemented in the next Finance Bill if that proposal were greeted with favour by the parties in this House.
The Minister foreshadowed certain announcements on industrial policy in his Budget Statement and he spelled them out in greater detail today. The latest proposals on corporation tax demonstrate some confusion with regard to industrial policy. I presume the budgetary announcements in this respect have been watered down after much lobbying on the part of the IDA, SFADCo, the Department of Industry and Commerce and others, to the effect that projects negotiated on a certain basis should have the benefit of the case made in the first instance.
The announcement to extend the 10 per cent rate of corporation tax to the year 2010 was made in the course of the Minister's press statement accompanying the Bill but was contained neither in the budget nor in the Finance Bill. I am glad the Minister has decided to introduce an amendment on Committee Stage to give this provision a statutory basis. I believe the commitment to the continuation of the 10 per cent rate of corporation tax to the year 2000 was contained in the 1980 Finance Bill and has a statutory basis. I thought it most peculiar that the Minister announced this latest provision by way of a press statement rather than in a section of the Bill. However, I now note he will mend his hand on Committee Stage. Certainly it shows the decision was not taken before the budget or indeed up to the publication of this Bill, that it has been a very recent one. It appears to me to be a premature one. The announcement has all the appearance of the Minister for Finance jumping the gun; whether jumping the gun on the issue or on his colleague in the Progressive Democrats I am not sure.
If an extension is justified it should  arise from an overall review of industrial policy. I cannot see why the Department of Industry and Commerce are engaged in an overall view of industrial policy if the politically sexy bits are picked by the Minister for Finance, like currants from a cake and presented to the House before its introduction. Certainly the Minister made no case for this extension in the course of his introductory remarks. It appears to me to run counter and to be contradictory to a general trend of an increased take on the corporate tax side, the transference of the tax gain here to the personal side to reduce the rates. Now a heavy line has been drawn under the process. Indeed one might well ask: when the section 84 relief is reduced somewhat further, when accelerated allowances disappear, what more will be left on the corporate side which can be removed in a subsequent Finance Bill to gain the kind of revenue necessary?
One of the big problems involved here is the jump from the 10 per cent to the 40 per cent corporate tax rate. For example, if one is sufficiently lucky to fall within the ambit of the Minister's new definition, one will pay tax at 10 per cent whereas if one is unlucky enough to be on the other side of the line and classed as a service industry rather than a manufacturing one, one will pay tax at 40 per cent. Let us take the example of a small service industry with three fellows showing profits of, say, £100,000. They will pay £40,000 in corporation tax. They will then distribute £60,000 between the three of them — £20,000 each — and will be taxed at 53 per cent on that amount. Is it any wonder there is unemployment in the country? Nobody wants to get involved in any activity where the return is so meagre. This also means that those involved endeavour to open every door, push out every window where there is any possibility of availing of a tax break or tax avoidance scheme. The whole of the accountancy profession and tax experts, instead of advising people on how to run their companies efficiently and effectively, spend their entire time trying to find gaps through which to derive a coach and four. The greatest  example of that has been the unholy disgrace of the business expansion scheme in the months between Christmas and the beginning of the new tax year. It is a pity.
The entire corporation tax area warrants examination as a separate issue. Indeed the whole attitude to corporation tax, as an instrument of industrial policy, also needs to be examined in the context of industrial policy. It seems to me that, in this case, that has not been done at all. The announcement was not contained in the budget or in the Finance Bill but rather is being introduced by way of amendment on Committee Stage. Obviously it was a decision taken off the top of the head within Cabinet. Bearing in mind the narrowing of the focus of the scheme, the lobbying on the part of the interest groups, this amounted to throwing a fairly large bone to a dog that was getting upset. I do not think it was considered in any proper fashion.
I wonder what consultations the Minister had with the EC Commission on that issue because it appears to me that an extension of the 10 per cent regime runs counter to Commission policy. I remember when in Industry and Commerce being involved in the preliminary negotiations on export sales relief to companies being raised from zero, not to 43 per cent but to 10 per cent. It proved difficult enough to get the agreement of the Commission and I think it was the Minister who finally got their agreement for a rate of 10 per cent. This required much toing and froing to Brussels at the time where we happened to have a Commissioner at the right place who did his best for us. Against that background I cannot see how the Government can arbitrarily decide to extend the period during which the 10 per cent regime will apply from the year 2000 to the year 2010 without first holding lengthy consultations with the Commission. It also seems to run counter to the proposals being made by Commissioner Schrivener on tax harmonisation. I have read some of her statements in which she has made it clear that one of the objectives of the Commission is to extend harmonisation not only to VAT and excise duties but also  to corporation tax. Her approach to tax harmonisation is to set a minimum rate, be it for VAT or excise duty, to dismantle borders and remove customs posts following which the forces of competition will force everybody to reduce their rates to the minimum rate. At present the rate of VAT in Newry is 15 per cent while it is 23 per cent in Dundalk. If we were to dismantle the economic border and customs posts the Government would have no choice but to reduce the rate to a figure as close as possible to 15 per cent.
Commissioner Schrivener has made proposals on corporation tax along the same lines. She has said that it is her objective to put in place a minimum corporate tax rate to which all member states would approximate. Against that background and in that context it is difficult for me to understand how the Minister and the Government felt they were in a position without entering into consultations to make an announcement on the extension to the year 2010 of the period during which a particular regime will apply.
One of the Minister's colleagues, Deputy Roche, said in a radio interview on this topic last Saturday that this is all in the future but I pointed out to him that the year 2010 is also in the future. We are talking about decisions which will only have an effect on taxation between the year 2000 and 2010. We know what the system is going to be to the year 2000 but it seems that this is a very peculiar decision and I would like the Minister to give us some idea of the thinking behind it. Could it have something to do with the temporary little arrangement and is the Minister trying to be nice to the leader of the temporary little arrangement?
Mr. Noonan: (Limerick East): I would now like to deal with some specific provisions of the Bill which were not dealt with in any detail in the budget but rather  merely suggested. The Minister's proposal to restrict the business expansion scheme is a very belated response to difficulties which have been apparent since the middle of last year. I think the Minister has wrecked the business expansion scheme and that it has now degenerated into a tax avoidance scheme. Proposals absolutely in line with the intent of the scheme when initiated are now unable to attract funds. It will prove very difficult to bring that scheme back as a mechanism for the provision of venture capital to people who are taking real risks in manufacturing industry. I regret that over the last year and a half a very valuable scheme for the provision of venture capital to the industrial sector has been damaged and probably irreparably damaged. It is a pity, given that the Minister had the support of this House, that following the summer recess he did not introduce the provisions outlined in his statement of intent in August last rather than wait for the shambles to occur at the end of the tax year which places a question mark over the future of the business expansion scheme.
The Minister has announced major restrictions in the application of the 10 per cent corporation tax rate. He has listed activities which will no longer qualify for the 10 per cent rate and introduced a catch-all provision requiring a change of form which must take place before an activity can be described as manufacturing for the purposes of qualifying for the 10 per cent rate. The activities which will no longer qualify are ill-defined. The provisions are of doubtful legality and could result in raising the prices of certain goods and in the loss of jobs. I wonder if some of the activities which will continue to qualify have any greater merit than those which are being excluded. I intend exploring these in greater detail on Committee Stage.
In his speech the Minister justified the insertion of these sections by saying that this marks a return to the original intent of the 10 per cent tax regime which was widened unnecessarily, not as a matter  of policy but rather through the exploitation of the scheme in the courts by certain companies. He stated that it was expanded by the courts. Let us take the case of the tea blending industry which requires an enormous amount of expertise. This was always an activity which qualified for the 10 per cent rate. It was not included following any court case but rather was there from the start.
I do not know how the provisions will relate to the food industry and I would like the Minister to spell this out in greater detail. It seems that he is including meat processing and has stated there was never any question of meat processing not qualifying. He has written it in in case it could be caught by the exclusion provisions but what about food processing in general, such as the processing of vegetables and the preservation of peas and beans? Are these in or out? It seems the cutting up of meat and putting it into packs to be sold in supermarkets is a very valuable and necessary activity but the processing of food in other ways is also a valuable activity.
I am not clear why certain activities are specified as being in and others are specified as being out. There is a vast twilight zone where one is not clear whether an activity is in or out. Let us take the case of small pork butchers around the country who used to make sausages and black puddings in the back kitchen. That activity qualified for the 10 per cent tax rate but it will be excluded from now on. It is also quite clear that the activities of the providers of hamburgers who incorporated the kitchen in one company with the sales outlet in another will be excluded because, as the Minister says, the food must be prepared in a manufacturing unit of some sort and not on the premises.
Mr. Noonan: (Limerick East): I am saying that you are in that respect but before I could cope with this matter on Committee Stage I seek clarification from the Minister on what he thinks is in and  what is out. If he fails to do this either in his reply to Second Stage or on Committee Stage the Bill will not have been signed one week before it is taken into the courts by somebody with case law following very quickly.
I also doubt the legality of some of the provisions. It is very difficult in law to make fish of one and flesh of another. If one activity is included and related activity, which is equally valid is excluded, it is a very pertinent image because the flesh would be in and as far as I can see the fish would be out. I do not think this kind of arbitrary list will stand up in law.
What does a change of form mean? Does one change the form of the product in blending tea or whiskey or in cutting up a sheep into gigot chops, side loin or centre loin chops to be put in vacuum packs and sent out to supermarkets? One certainly changes the form when one boils an egg but is somebody involved in light assembly work changing the form of the product or are they simply putting all the pieces together with no change in form? There is an absolute minefield here and I would like far more clarification before I would accept even the principle of what the Minister is doing.
The move to tax on a current year basis is a logical development from self-assessment. It was recommended by the Commission on Taxation and I am glad the Minister has introduced it in the Finance Bill. The commission were aware that allowances which apply to PAYE workers should also apply to the self-employed when they are put on a current year basis. The recommendation of the Commission on Taxation was two fold, to tax on a current year basis and give the same allowances. There is a case now for schedule D taxpayers getting the £800 allowance and, if they pay full rate PRSI, for getting the £286 allowance as well. If the Minister does not give this willingly some of them will test it to see if they are legally entitled to it under the Constitution.
There are other things I want to refer to, many of which will be left until Committee Stage because I have very little  time. I would like to deal in detail with the whole attitude to tax reform and the Minister's provisions, and also with certain other aspects of the corporation tax. Before the Minister comes back here to reply, I would like him to reconsider his decision to index the thresholds on inheritance tax. That does not go far enough. The Minister should seriously consider raising the thresholds in this Finance Bill and continuing then with the indexation process. They are cutting in at a point where it is very expensive to transfer a small shop or the family farm from father to son or daughter, because the thresholds are at a very low level. There are other anomalies that arise in regard to transfer that the Minister will be aware of and I would like him to look at those in particular.
I would also like the Minister to give us far more information on the harmonisation process. He says there will be a report to the EC soon to bring them up to date on the present position. I would like a report to this House from the Minister because it seems that harmonisation has taken a back seat. I know there are other happenings in Europe of far greater magnitude, but harmonisation was one of the commitments and I do not think the targets will be met now. The move towards 1 January 1993 has been stalled and there will be a big falling behind now. I would like to thank the Minister again for his contribution. It clarifies much. I would, however, like far more clarification on the corporation tax.
The Minister has introduced a new schedule of stamp duties for the transfer of property. In particular, he has closed an avoidance loophole whereby people will not now be able to have separate contracts for the site and for the house which they build on the site. The Minister has extended to 1 September the date of completion for any conveyancing transactions carried out before then. Could the Minister look at the possibility of including some kind of provision to cover cases where for example, there are delays in the Land Registry office through no fault of the applicant or his solicitor.
Mr. Noonan: (Limerick-East): It is fine if it can be dealt with in that way, but the Minister has extended the time for the completion of the conveyancing transaction under the present system of separating the site from the house. The Minister will have to re-define his exemption or do what I suggest.
Mr. Taylor: The 1990 Finance Bill is a flawed and dangerous document. Preliminary examination of the Bill reveals a number of areas of major concern. It is noteworthy that none of those areas have been highlighted in the Government's statement accompanying publication of the Bill. For instance, the proposal to change the basis for self-assessment for the self-employed includes a provision which could turn into a once-off tax bonanza for many self-employed people. One year, namely, 1989-1990 will no longer be used as an assessment period. For many self-employed people this means that tax due this year will be assessed on income generated in 1988 and tax due in 1990 will be assessed on income generated in 1990. There will be an incentive therefore for people to declare inflated incomes in respect of 1989 in order to minimise the income on which tax would be assessed in 1990. The scope for abuse in this provision is enormous.
Second, the tightening up of the BES scheme is modest and it only operates from today. There is a strong case for a tax scheme which provides an incentive for people to invest savings in productive and risky enterprises but the BES scheme no longer functions to that end. It is time the whole scheme was scrapped and that a new scheme was devised to maximise investment in truly productive enterprise.
Finally, the decision of the Government to continue meat processing as manufacture of goods is inexplicable. On the face of it, it will be seen by many as yet another device to continue handing over millions of pounds of taxpayers'  money to the beef barons. Whatever happened to the new get tough image of this Coalition Government?
I intend to elaborate on all of these issues and on others that arise from our examination of the Bill in the course of these remarks. It is necessary, however, to see this Bill in a particular context and against the background of the budget whose provisions it is intended to enact. There is every possibility now that we are facing into a period of sustained economic growth. The recent medium term review published by the Economic and Social Research Institute heralded the possibility that within a few short years we will be making capital repayments on our debt rather than simply servicing the interest. According to the Economic and Social Research Institute our economy could grow on average by 5 per cent a year for each of the next five years. By 1991, on the basis of present revenue and spending policies, we would be taking in more in taxation than we have spent for the first time since the early seventies. This is a rosy picture. Some would say it is much too optimistic, but even if we allow for a degree of optimism the likelihood is that our economy will grow. The question that poses is, who will benefit from that growth? The authors of the Economic and Social Research Institute review pose that question well. They say the policy dilemma will be the reconciliation of the need for economic efficiency and the desirability of social equity.
In the past the Labour Party has attempted to pose the same question over and over again. We have, at all times, insisted that the management of our economy must be efficient and tough; but it must go hand in hand with a deep underlying commitment to the principles of social justice. We have had economic growth in the past two and a half years; we have had more efficiency in the public service and throughout the economy — nobody can deny that. It has, however, been built on the backs of 100,000 emigrants and a quarter of a million unemployed people. It has been built on the backs of one million poor people. It has  been built at the cost of increasing inequality and disadvantage at every level of our society. Side by side with the increasing efficiency of our economy we have witnessed in the past two and a half years an increasing polarisation in our society. It is manifest in our two tier health system just as it is manifest in the virtual collapase in our public housing, the gradual elimination of free education and the dismantling of social welfare schemes. A more efficient economy coupled with a more unjust and less equal society is what we have begun to create in the short lifetime of the last Dáil.
Sadly, there is little evidence in anything we have seen so far that the issue of equality and justice will feature on this Government's agenda. From what we have seen of the Programme for Government it is not a programme for Government at all but a recipe for ensuring that the spoils of office are grabbed by the few and held onto. From the recent Kanturk declaration of the Minister for Finance we can deduce that what is uppermost in his mind is the need to assure the party faithful that he at least has not lost sight of Fianna Fáil's core values. Not for him the weighty issue of how economic growth should be fairly managed; not for him the task of ensuring that those who are now marginalised in our society will be entitled to participate fully in the future. His primary concern, indeed his only concern is the task of positioning himself to succeed his present leader by sniping in private at his Government partners. For as long as this power struggle bubbles under the surface of the Fianna Fáil Party——
Mr. Taylor: ——I can see no prospect that their senior members are likely to deal with, or are even capable of dealing with the major issues that ought to be their principal preoccupation. In short, I have seen or heard nothing that persuades me that this Coalition Government are even aware of the fundamental  importance of wisely managed and fairly distributed economic growth.
Mr. Taylor: The Taoiseach is on record as saying that the major issue facing us in the context of growth is the question of ensuring that the growth is translated into jobs here in Ireland but what is he doing about it? What review of industrial policy has been initiated since he took office? The only views we have heard on the subject from the Taoiseach appear to rely totally on renewal of the Programme for National Recovery without spelling out the new and different elements that would make the programme meaningful to those who are unemployed. The only views we have heard so far from the relevant Minister, the Minister for Industry and Commerce, appears to consist of suggestions that the buses should be privatised. On every recent occasion that he has been asked to intervene in tragic situations where job losses have occurred or are threatened, his efforts have been entirely desultory and have usually been accompanied by plaintive bleatings about the importance of market forces being allowed to work their magic.
A great deal of the growth that we have already seen and are likely to see is in very restricted areas. There has been substantial growth in multinational profits and in profits in the financial services sector. A great deal of this growth has already drained out of the economy. It is clear from the warnings contained in the Economic and Social Research Institute report that they fear that a continuation of the policy of wealthy Irish companies of investing the bulk of their profits abroad will deny us the opportunity of benefiting from that growth.
Deputy Noonan wonders why interest rates in this country remain so persistently high and so many percentage points above the West German level. The question of what interest rates are is a matter of supply and demand. What is keeping interest rates at their present level is a shortage of funds on the money markets. Why is that? It is because of  the export of £2 billion of profits by the multinationals and the massive extent to which investment abroad by Irish companies has followed from the relaxation in exchange controls. That is the reason money is in such short supply in this country and that is the reason we are in the remarkable position of having a relatively low inflation rate of 3 or 4 per cent while interest rates are running primarily at 12, 13, 14 or 15 per cent. That is an unheard of gap between the interest rate level and the rate of inflation level.
It is clear that the Government have no coherent industrial policy aimed at translating the growth we have had into wealth retained in Ireland and into jobs for Irish workers. We need radical changes in industrial policy to secure the concept of value added in the Irish economy and to maximise investment in the Irish economy. Without such changes our economic growth will continue to have more impact on job creation in America, Japan and Germany than it will here. The experience of the Irish economy since independence has been the failure of job creation in Ireland. That has been the central fact of Irish economic and social development. Associated with this, apart from certain brief periods, we have had comparatively high levels of unemployment and unique levels of forced emigration by European standards.
Is it not an appalling reflection on this Government to read the recent figures just published by the OECD and find that of all the countries covered by the OECD, Ireland tops the percentage level of people unemployed? Likewise in the European Community we have the ignominious role of topping the percentage levels of people unemployed. Is that something to be proud of? Is that something that warrants the smug responses of the Minister for Finance and other Ministers about how well we are doing, how fine everything is, about jobs created and so on? Of all the OECD countries, we top that level and that is an absolute and appalling disgrace and a reflection on the policies that have been tried and have been shown to be patent failures.
 For the last two years the Labour Party have been undertaking a fundamental reassessment of the type of policies necessary to confront fully this legacy of failure by our society. We see it as our task to place on the agenda the goal of full employment as the fundamental objective of Government. This needs to be demonstrated and expressed as a moral as well as a political commitment. Growth, competitiveness and job creation can and must be pursued in the context of Labour's vision of a humane, just and democratic economy.
One of the most critical factors in ensuring long term economic growth and employment is a strong domestic industrial base. It is a fact that no small country has achieved self-sustaining industrial growth and expansion in employment when it was based mainly on multinational investment from abroad. The objective must be to retain value-added in Ireland. That is not being achieved by the current strategy. All the current strategy has achieved is that a high proportion of value-added by overseas industry is repatriated as profits — as I have said, nearly £2 billion in 1988 — and that is dead money, money which is being generated here and is going to create jobs and wealth elsewhere.
The key to creating wealth and jobs here is by retaining value-added in the economy. To retain value-added in the economy we have proposed a number of factors: public ownership, part or whole, in the traded sector; public intervention by targeting grants and incentives to overcome the issue of firm size; tax reform through radical changes in the income, company and wealth tax codes, with far larger revenues from the company sector. This approach is not in conflict with any obligations arising from the Single European Act and is applicable to both manufacturing and internationally traded services. We recognise that strategic investment abroad by Irish firms will often be an essential part of the overall development. One of our key proposals to build up native industry is to get the  IDA to focus entirely on inward investment from abroad and to reorganise fundamentally the National Development Corporation as the major leader in the development of Irish industry. We cannot hope to win the battle to retain value-added in Ireland and increase jobs if we sell our proven winners to foreigners.
Another key proposal is that public sector commercial enterprises must be given independence to make commercial decisions and be compensated by the Government where they are required to retain non-viable enterprises for social or national reasons. The reward package for top managers in the enterprises must be market-related and the link with public service pay and control by the Department of Finance must be broken. The National Development Corporation should be allowed powers to raise up to £500 million of commercial capital for selective investment in expanding indigenous industry, with the transfer of the IDA grant budget for indigenous industry to them.
In addition, Labour want public and private sector workers to have both an individual and a collective financial stake in their place of work and in the creation of new resources of wealth in the economy. We have already published detailed plans for the establishment of employee investment funds. These plans would include tax relief in the form of deduction from taxable income of 125 per cent saved and contributed to a fund each year, a key promotional role for the trade unions, and the fund to be used for the expansion of existing public or private companies.
We have also taken a view on the issue of privatisation, spelled out by the Leader of the Party in the budget debate, which is totally at variance with the anti-national and anti-public sector approach of this Coalition Government, an approach which is being debated and developed behind a large number of closed doors. It is impossible to make decisions about privatisation without deeply affecting the national interest, yet a great many of these decisions will be made without the  slightest involvement of the public at large.
A number of issues are involved in the privatisation debate. It often seems to me that the public good is the last issue to be discussed on the agenda. These issues must be addressed before any rational decisions can be made on this subject and certainly before the public can be assured that their interest is being served by a privatisation programme. Listening to many of the commentators, one would almost believe there was no point in raising one's voice about this subject.
A culture has been growing in the financial press and the pubs frequented by the business gurus to the effect that privatisation is the only sensible way to approach the issue of the development of State companies. All right-thinking people, they proclaim, will readily agree that it is nonsense for the State to hold on to valuable assets when they could be offset against the national debt or sold in order to reduce taxation. What these so-called independent experts never talk about is the large fee to be obtained by advising and consulting the State about these matters. Ever since the good people in National City Brokers were paid more than £500,000 to advise the Government to sell Tara Mines to Outukumpu the fashion for consulting about privatisation has grown. There are huge question marks as to why that fee was paid in the first place, especially when anyone with eyes to see could have told the Government that once the decision to sell had been made there was only one company that made any sense as a customer.
Since then there have been consultancy reports on State companies generally including Irish Life, the Irish Sugar Company, the Great Southern Hotels Group and Irish Steel. As far as we know, all those reports would say roughly the same things. There are two reasons for that. No consultant worth his salt nowadays will say something which his paymasters do not want to hear. Secondly, all these reports were prepared from the base of anti-public sector bias. In the case of Irish Life, for instance, I understand that four options have been recommended but  each one is a different method of privatisation. No serious examination was given to the possibility of developing Irish Life into a strong player on the European insurance scene as a native-owned Irish public company. When are these reports to be published? When are the policy holders in Irish Life to be consulted about their future, or the workers in Irish Steel, or the farmers who supply Irish Sugar, or the tourist industry generally about Great Southern Hotels? When will the people as a whole be consulted on any of these issues? If a consultant prepared a report, say, for Mr. Michael Smurfit and told him the only sensible way of dealing with his overdraft was to sell off all his most profitable business, I doubt if that consultant would ever work in Dublin again. That is what we the Irish people are being told and we are not being given an opportunity to express our views on all these consultants and their conventional wisdom.
The argument has been bolstered of course by some public company managers who feel constrained by the influence of Government Departments and who long for the excitement of a private sector. I have great sympathy for them in this dilemma and would argue strongly that when public sector control becomes public sector interference they have a case. The way to deal with it is hardly to swap the control of a Government Department for the control of a German or French multinational. If our public sector managers believe they will be better off in the private sector, many of them will have a rude awakening. Over and above that, it was the spirit of public service in our public companies which was one of the mainsprings of our national economic development in the 1960s. We cannot and should not allow that to be frittered away in dreams of private sector glory.
On the subject of national development there is another side to this argument. How can our national interest be served by selling our insurance companies to the French, our steel industry to the Germans, the flagships of our tourist  industry to the English, our sugar industry to the Americans or our aviation company to the Arab? Surely future economic prosperity depends on the development of strong native-owned industries. How could we be so blind as to sell to the highest bidder without any regard to where the future lies? That is why I have described the blinkered approach to privatisation adopted by this coalition Government as essentially anti-national. I fully endorse the call by the Congress of Trade Unions for a White Paper on this subject which will set out all the arguments, not just the self-serving ones. I would go further and assert that if any of these State companies are sold off without the people having been consulted the Government will have lost all sight of the need for accountability. Irish State companies are the property of the people. Our past and our future is bound up with those companies. We are entitled to a say in what happens to them. They are not the property of any Minister, consultant or entrepreneur. They are ours and we demand to know what is going on before any final decisions are made.
Poverty is one of the most scandalous and burning issues of our time in this, the twenty-third richest country in the world. There is a number of reasons the extent of poverty in Ireland is so great and has grown larger in the last few years, high unemployment, low pay, an increasing number of people in part-time or casual work, inadequate social support, charges for essential services such as health care, cutbacks in education and so on. Perhaps the largest single cause is unemployment and we have already outlined a number of proposals in regard to that.
In many other areas that have been mentioned, direct Government action is not only essential but possible in the short term. Under the social charter for instance, our Government have accepted a moral obligation to ensure that part-time workers are no longer exploited. That will require legislation covering such items as pay, sick leave entitlements, protection against unfair dismissal and so on. There is also an obligation now on the  Government to examine the whole issue of low pay and to legislate for a minimum wage. There has been a great deal of publicity recently about the so-called poverty trap which results in some people on social welfare being better off than some people at work. The right wing politicians and commentators always seem to draw the conclusion that the reason for this is because social welfare levels are too high. The truth is that in all too many cases wage levels are too low but it is in the context of the budgetary process that the Government can do most to begin an attack on poverty in the short term.
Last year the 1989 budget aimed to remove 24,000 low paid employees from the tax net but according to the Combat Poverty Agency and other reputable sources there are still families paying tax whose incomes are less than 60 per cent of the average industrial wage, in other words, very poor families. In most cases the £10 or more which they pay in income tax is the reason they fall below the poverty line. To take another example, it has been estimated that the cost of feeding, clothing and caring for a child varies from £19.60 per week for children under four years of age to £28.20 per week for children over the age of four years. Almost 350,000 children in Ireland are being maintained by social welfare payments. The basic child dependant rate was £10 per week until the budget. Is it any wonder that all too many of our children are under-nourished? Child benefit which is intended to supplement these rates and to be an income for mothers has been frozen ever since Fianna Fáil returned to office or, to put it another way, it is being cut in real terms by about 15 per cent. The 1989 budget contained a welcome innovation in as much as it added an additional £200 per child to the exemption limits that applied to low paid workers.
Mr. Taylor: They are relevant to the finance of this nation and they are budgetary matters. The purpose of the Finance Bill is to enact into law the impact of the budget. These items are relevant and were touched on by the Minister in his speech.
In the Labour Party pre-budget submission we estimated it would cost about £20 million in 1990 to increase that allowance for each child to £600 and the net result would be to remove 50,000 low income families from the tax net altogether. In addition, it would cost about £60 million to increase child benefit by 25 per cent and to pay an extra months benefit in September, a time when many families suffer the hardship of enormous additional child-related expenditure. These are not solutions to poverty. That cannot be achieved by one or two isolated steps but only by a concentrated and integrated programme of activity which may take several years and which must be based on the twin principles which I mentioned earlier, economic efficiency coupled with social justice. That would help many families who are suffering now to share in the benefits of the very considerable improvements in our financial situation the past few years of hardship have brought about.
What was the Government's response in the budget? They raised child dependant rates by about £1, increased the children's allowance by 19p per week and through various other measures  exempted about 30,000 people from the tax net. As was the case in 1989, the vast bulk of the relief granted in the budget, representing the beginning of an assault on poverty, will benefit the better off sections in our community. In a nutshell the budget was a rich man's budget and that trend is continued in this Finance Bill.
When the budget was published the Labour Party said that while many of the individual items in the budget 1990 were welcome, in overall terms it was a budget that tinkered with our many social problems rather than addressing them in any fundamental way. There is nothing in the budget that seriously attempts to address the unemployment and emigration cancers that affect us and not nearly enough to address the growing crisis in health. The crisis in our health services generally has been almost totally ignored. There is nothing here to shorten waiting lists, to reopen the acute beds that are urgently needed or to employ doctors and nurses. On income tax it is surely typical of a Fianna Fáil-Progressive Democrat coalition that it would offer more to the highest paid taxpayers in our country than to the lowest paid. The combination of measures outlined today will ensure a disproportionate benefit to those on the highest income.
Many of the measures applicable to low pay will have effects that are more cosmetic than real. Child benefit is increased for the first time since 1986 but continues to lag well behind inflation. In general, the provisions in this budget for children show that the Government have not studied the evidence available that shows that the cost of nurturing children is almost twice what the Government are providing. In this context an increase of 19p per week in child benefit can only be described as a cynical gesture, especially when set beside the continuing favourable treatment for companies and profits. Few people, apart from the very well paid will see significant improvements in their living standards when all these factors are taken into account. There is nothing in  this budget to deal with the growing housing crisis, nothing to alleviate overcrowding in the classrooms.
I see no reason to change our judgment now. The reality is that our economy needs fundamental reform in order to bring justice and equity to our society. The task of reform holds no interest for the parties now in Government. Nowhere is that lack of concern more evident than in regard to the housing crisis which is growing daily and which is increasingly at the core of family poverty in Ireland. In the week Willie Bermingham died there is a tragic irony in the fact that this Government's appalling provision for housing should need to be raised in a debate of this kind. A fiercely independent and caring man, Willie Bermingham devoted the last years of his life to highlighting the plight of old people living alone and helping them to find the dignity that old age deserves. The organisation which he founded, ALONE, was more than a charity, it was also a political pressure group in the best sense of that word. He used that organisation to help individuals and to prick the conscience of the community. Willie Bermingham would not particularly welcome any fine words from politicians, what he would want instead is to be remembered and for the work of ALONE to continue. Indeed, his hope was that some day an organisation such as ALONE would no longer be necessary as the community would have accepted the responsibility of ensuring that its old people lived in security, comfort and dignity. Unfortunately, the work he wanted to see made redundant will be necessary as long as we have a Government in Ireland who do not even recognise the need to provide public housing.
Pádraig Flynn's and Mary Harney's allocation for housing in next year's Estimates is a fraud. They provided money in two ways. The first allocation is £6 million from the State to enable local authorities to build houses. That will build between 250 and 300 local authority houses in the whole of Ireland. They have also said that the local authorities can build up to £45 million worth of houses  next year provided they raise the money themselves. How are they supposed to do that? They will have to do it by selling the houses they already own to sitting tenants. On average each local authority house will yield somewhere from £12,000 to £15,000 but in Dublin, for instance, it will cost the corporation about £50,000 to replace that house. This means in effect that every local authority will have to sell three houses to build one. That might be all right if there were a glut of local authority houses but the opposite is the case. There are now 25,000 individuals and families on waiting lists all around the country, 5,000 of them in Dublin alone. A year ago there were 20,000 on the waiting lists, and a year from now no more than 500 or 600 at best will have been accommodated.
The real scandal in all this is that the Government are hoping emigration will solve the problem. Waiting lists would be even bigger if so many young couples had not left Ireland. While the Fianna Fáil-Progressive Democrat Coalition Government wait in hope that the rest of this social problem will be driven away, hundreds of families in every town in Ireland are living in overcrowded conditions and losing hope day by day of ever getting decent accommodation.
Side by side with this problem is the increasing ghettoisation of many urban areas. There are parts of our major cities now with 75 per cent unemployment and all its attendant social problems. One of the main reasons is that tenants in these areas who have jobs have simply moved away, tired of coping with bad planning, lack of amenities, high crime and all the other evils that go hand in hand with deprivation and the collapse of community spirit.
Mr. Taylor: The Minister Deputy Flynn and the Minister of State Deputy Harney. I want to say a few more words about some of the issues in this Bill. No doubt when we get to Committee Stage there will be opportunities to elaborate on these issues in greater detail, but I must advise the Minister strongly that his provision for self assessment by the self employed will have to be brought back to the drawing board, I have already pointed out that the proposal to change the basis for self assessment for the self-employed includes a provision which could turn into a once off bonanza for many self-employed people. As I said, one year, 1989-90, is no longer going to be used as an assessment period for many self-employed people. This means tax due this year will be assessed on income generated in 1988 and tax due in 1990 will be assessed on income generated in 1990. Therefore, there will be an incentive for some people to declare inflated incomes in respect of 1989 in order to minimise the income on which tax will be assessed in 1990. The scope for abuse in this provision is enormous. I know the Revenue Commissioners will be alert to the possibility of this loophole being used on a significant scale, but we all know the Revenue Commissioners do not have the resources or powers to police these new provisions effectively.
On Committee Stage we will be arguing that without new powers for tax inspectors, specifically the power to treat these situations in exactly the same way as at present the cessation of trading is dealt with, the provision simply will not work. Already many accounting firms are drawing up plans for seminars and leaflets to advise their clients on how the new method of self assessment can be used for transitional gain. Without effective counter measures this will turn into a major mistake by this Government. In addition most of the accountancy firms spent last week end heaving huge sighs  off relief that the curbing of the Business Expansion Scheme has turned out to be largely cosmetic. Many worthwhile endeavours have been started under that scheme but too many others have been used simply as risk free guarantee vehicles for tax avoidance. It is essential, not only in the public interest but also in the interest of job creation, to get back to first principles in relation to this scheme.
There is a strong case for a tax scheme which provides an incentive for people to invest savings in productive and risky enterprises but the BES no longer functions to that end. It is time that scheme was scrapped and new schemes devised to maximise investment in truly productive enterprise.
One of the features of this Bill is the relaxation of the Government's original intention to curb the use of section 84 lending. That would be understandable if the banks were in trouble or were being asked to increase their contribution to the economy in some other way, but at a time when the two largest banks in the country continue to report huge increases in profits it is surely appropriate to reflect on the way they continue to fail to make a social contribution to the economy in which they thrived. We know what the Government are prepared to do for the banks: give them further relief in this Bill from decisions already taken to phase out the advantages of section 84 lending. Clearly this is not a Government who expect a social contribution from the wealthiest companies in the economy.
In the end of year Exchequer returns published last January we can see that the tax contribution from nearly all sectors has risen but that the contribution made by companies has fallen by about £30 million despite the fact that the profit repatriated by the multinational companies has reached the staggering figure of £2 billion. Against that background how do the Government attempt to justify the decision, without any mandate, to extend the most favourable tax regime in the western world to the year 2010? One wonders who the Government consulted about that decision.
 As a result of this Bill it will be possible for the beef barons to continue to claim the 10 per cent manufacturing rate for processing meat. Why should they be able to continue to avail of that high advantageous rate? What story are we not being told? Why do this Government insist on talking tough about the Larry Goodmans of this world yet still ensure they get every advantage that is possible to dish out behind the door?
Submissions have been made to the Minister and other Deputies from the ICMSA regarding the treatment of farm families on the question of tax free allowances, particularly on the basis of treating all taxpayers in the PAYE system in the same way. That also applies to employee relatives of self-employed persons. The Labour Party support them in their representations and will be raising amendments on that issue on Committee Stage.
In summary, there are too many aspects of this Bill which are dangerous and too much failure in the background of the Bill for us to be able to welcome it. We will be opposing the Bill on Second Stage and making every effort on the later Stages to highlight its inadequacies further. This Bill is a monument to a Government who have long ago decided to pay no heed to the poor and deprived. It amounts to a confession by this Government that they are prepared to continue to preside over a society which becomes more unequal and unjust by the day. This Bill and the economic and fiscal policies behind it are yet another failed effort by a Coalition Government who have no imagination, no compassion and no sense of justice.
Mr. Rabbitte: I want to share in the remarks that have been made concerning the Minister's presentation being helpful in the context of what is indeed a very long complex and, may I say, even tedious Bill. I agree that the Departmental backup provided in the Minister's speech makes the purpose of the provisions of the Bill a lot clearer, even if I do not agree with some of them. The Bill faithfully reflects the two great failures of the budget which I described at the time  it was introduced as the failure to tackle any real structural tax reform and the failure to reduce the number of people out of work. I am glad the Minister for Finance has returned to the Chamber because in his capacity as the great soother of the nation he has failed to use the Bill as an instrument of economic policy to encourage any real dent in the extent of the employment crisis.
The Bill fairly reflects the complacency that is at the heart of the Minister's steady-as-she-goes policy by seeming to accept that high unemployment and emigration will in themselves remain instruments of economic policy in the Ireland of the nineties. Certainly, one would never get the impression from reading the Bill, or listening to the Minister's presentation, that we have the worst emigration since the nadir of emigration in 1955 or that we have virtually the highest unemployment in the European Community. Indeed, the Taoiseach seemed to communicate the same damning complacency in the television interview he gave in the aftermath of the recent Fianna Fáil Ard-Fheis. In the course of that interview he conceded that it was puzzling, and disappointing, that the jobs were not coming onstream as they were supposed to in the new climate. He said that economists told him that if there was a repeat of about 3 per cent growth over a few years the jobs would come. That represents the politics of self-delusion. The economists of that climatology school ought to know by now that getting the climate right will not by itself produce more jobs. Private enterprise is motivated by profit and if extra jobs materialise that is a bonus.
The Minister for Finance, who was previously Minister for Industry and Commerce, has ignored the fact that Irish industrial policy is a costly failure. It has not brought a greater degree of industrial employment, not to mention full employment. It has not encouraged or increased the disposition on the part of Irish firms to export or, amongst indigenous exporters, to diversify overseas sales to a signficant degree away from the United Kingdom. Our industrial policy, and the Minister's  approach, has been dealt with at some length in the contributions so far. It is difficult to put the Finance Bill we would all like before the House if we do not manage to generate and create more wealth in the economy. Having 250,000 people unemployed is an enormous burden on the declining number at work and unless more people are put back to work the wealth cannot be generated to support the services we would like to see.
Policymakers in the Minister's Department, in the Department of Industry and Commerce and, I suspect, in the Department of the Taoiseach are fully aware of the extent of the failure of current industrial policy. I await with great interest the publication of Mr. Frank Roche's report for the Department of Industry and Commerce which the Minister for Finance properly commissioned when he was Minister for Industry and Commerce. That report concerns industrial performance. My understanding is that the report identifies the extensive shortcomings of our industrial policy and makes specific recommendations. It is the comprehensive nature of the indictment of existing industrial strategy that has caused the panic at the heart of Government about its implications for the future. Beyond acceding to the IDA's request to extend the 10 per cent rate of corporation tax to the year 2010 the Minister has largely chosen to ignore the opportunity presented to him in the preparation of the Finance Bill to refocus industrial policy. Our industrial policy is so bad against the background of all the favourable indicators that we have heard trotted out by Minister after Minister over three years that steady-as-she-goes down the tubes would be a more accurate comment on their philosophy. Steady-as-she-goes down the tubes will continue to be the Minister's maxim if he does not frankly admit the extent of failed industrial policies.
Deputy Noonan asked how this decision to extend the 10 per cent rate to the year 2010 emerged when the dogs in the street were aware that industrial policy was the subject of major discussion, debate, argument and difference  within a number of Departments. I do not wish to reopen the political question Deputy Noonan raised about whether this reflects a difference in approach between the Minister for Industry and Commerce and the Minister for Finance. However, the fact remains that it is extraordinary when there now seems to be a consensus that existing industrial strategy has failed, and failed miserably, when a number of experts are advising on this matter, and when the triennial report is due to be published soon, that the Minister ought to have proceeded before the conclusions of the study were published and included this provision in the Bill.
It is not long since the Taoiseach answered a question by me on this point. The Taoiseach said he regarded the review as a major one as far as our industrial policy was concerned. He said he had now come around to concurring with the Minister for Labour that the jobs were not coming on stream or that major private employers were not showing returns in any commensurate fashion for the favourable climate that had been created for them. As a result, the jobs are not coming. When the Minister for Labour expressed his frustration initially concerning the performance of the leading private companies, the Taoiseach's secretary was wheeled out to a meeting of the Federation of Irish Employers to reassure them that this was not really the view and that they were doing a very fine job. I was glad to see in a frank interview after the Ard-Fheis that the Taoiseach admitted that the jobs are not coming on stream. What depresses me is his statement that he is now advised by the same economists that if there is a repeat growth rate of the order of 3 per cent for three or four more years sequentially the jobs will come.
The jobs will not come. Private enterprise is there to make a profit; if it creates jobs it is fortuitous and everybody will welcome that. A rechannelling of money that goes towards industrial policy will have to feature in any review of industrial policy. I should like to indicate in this regard the extent of the cost to the  Exchequer of the reliefs and allowances that we make currently to industry. In reply to a Parliamentary Question on 22 November it was stated by the Minister for Finance — I think it was the Minister for Finance, perhaps it was the Minister for Industry and Commerce — that the cost to the Exchequer of the export sales relief was £729.2 million, the Shannon relief scheme cost £116 million, manufacturing profits were reduced by 10 per cent, costing £131.4 million taking in accelerated allowances and so on, giving a total of £1,186.2 million. That is a lot of money and the time has come to examine whether we are getting value for that money. I say that we are not and it is premature to advance — as the Minister has — the extension of the 10 per cent rate to the year 2010 without first having an opportunity to look at the comprehensive set of proposals which, I hope will emerge from the current review.
It is extraordinary that in the eighties the figures for industrial output have been taken out of context. Taken in isolation they are correct. There has been a fantastic increase in industrial output and in productivity and the same applied to the balance of trade. In the eighties industrial output expanded by 50 per cent while industrial employment over the same period went down by one-fifth or 20 per cent. That is the kind of relationship which has us all at sixes and sevens. The climate that private entrepreneurs asked for has surely been created. I know that interest rates have started to get out of hand again but we have had unprecedented pay moderation and reasonable inflation for the past three years. Workforce productivity and output has been unprecedented in the last 20 years and yet the jobs are not coming on stream.
This Coalition Government and the last Coalition Government have not grasped the nettle of tax reform. Last January was the tenth anniversary of the unprecedented tax marches which brought 750,000 people on to the streets of the cities and towns looking for tax reform. Ten years later the tax system has got more complicated and unjust. The Minister will say that he has given so  much in tax relief. I agree that he has given tax improvements but not tax reform. The Fianna Fáil Government's initial response was to set up the Commission on Taxation which Deputy Noonan suggested might now be reconstituted to report on the up-to-date situation within a short period. The Commission on Taxation published five excellent reports. I am not saying that The Workers' Party agree with everything in each of these reports but internationally they have been accepted as the basis of a more equitable tax code and would also encourage industry.
One of the fundamental tenets underlying the philosophy of the Commission on Taxation was that there should be no expansion but rather a retraction of exemptions and allowances. Governments have constantly gone against this and indeed the 1990 Finance Bill extends the exemptions. Worse still, it extends them for those who can best afford to pay their fair share of tax.
Last week The Irish Times revealed that the average industrial worker on PAYE is no better or no worse off now than he or she was ten years ago at the time of the great tax marches to which I referred. Therefore, as far as the PAYE worker is concerned there has been no tax reform and there is a hell of a difference between tax improvements and tax reform.
People on the average industrial wage have entered the first year of the decade with no gains in take-home pay compared with people in corresponding earnings brackets ten years ago, an analysis of wage rates, income tax and inflation during the period shows.
That the take-home pay of those on the average industrial wage has remained virtually unchanged after a decade suggest that the chances of achieving substantial gains from changes in the tax system are low in the long run.
 The cost of living doubled during the decade, eroding the value of most pay increases. While the average industrial wage before tax rose by about 10 per cent in purchasing power, this gain was eaten up by rises in income tax and PRSI deductions.
Indeed, a married head of household with a dependent spouse and two children, and earning the average industrial wage of £11,000 per annum can expect to take home £162 per week at present compared with £164 per week (at 1990 values) ten years ago, when the average wage was £5,000 a year.
I argue that there cannot be tax reform when the barrage of exemptions and allowances to the business sector, self-employed and large farmers have been continuously expanded. In the run-up to the last two budgets it was widely expected by all commentators — particularly by business magazines — that there would be a considerable tightening up of exemptions and allowances to the corporate sector. This has not happened although the Bill contains changes that were not presaged at the time of the budget. Export sales relief or the total exemption of taxation on profits derived from exports ended this month but only because the EC demanded that it should. I believe — although I have seen the figures projected by the IDA — that in the present calendar year there will only be a minimal accrual from that measure.
I should like to refer to specific sections of the Finance Bill which deserve comment. The Government have failed to introduce tax credits which would have been more equitable. While the Government introduced a new exemption for extremely low paid workers they should have done the proper thing and exempted PRSI up to the point of personal income tax allowance and converted these into tax credits. I made the point during the budget debate that the Minister's statement that 31,000 low paid workers would be taken out of the tax net altogether was not valid for longer than it took the Minister to read out the budget speech. The facts are that between the impact of  fiscal drag, inflation and wage increases a number of those people have already found themselves back in the tax net.
In addition, the PAYE allowance should have been at least doubled because these people have no opportunity to fiddle their taxes as many self-employed and corporate interests do, and will continue to do. The PRSI allowance has not been raised for many years. I do not know why the Minister will not take this on board; he probably knows my party have some connection with the origin of this allowance but it is now lower than it was originally. While the Government cut the top and standard rates of tax it should be pointed out that this is of greater benefit to the higher paid and in any event does not constitute tax reform. The Government do not appear to be concerned with tax justice.
After the budget and in advance of the publication of the Finance Bill, The Workers' Party published a five point programme against tax evasion calling on the Minister for Finance to use the opportunity of the Finance Bill to launch a major offensive against those who fail to pay their fair share of taxation. All of us in this House claim to regard abuse of the tax system through evasion, avoidance or non-payment as a social crime. Yet the success of the tax amnesty establishes beyond doubt the frequency and magnitude of this offence against society. Expert advice has assured me that notwithstanding the tax amnesty the problem continues to exist. One pound cheated by the tax dodger is £1 extra on the PAYE workers' bill. Those who refuse to pay their fair share of tax cheat the old age pensioner, the young child, the hospital patient and the unemployed. If the five point programme we have published is taken on board I believe it would, as a minimum, stimulate a serious and informed debate on tax evasion.
During my contribution on the budget debate I referred to our submission, which contains 31 proposals under the heading of tax reform in advance of the budget. Few of these proposals were taken on board. I do not want to take up  the time of the House now going over those 31 proposals, but obviously the Finance Bill deals in a major way with the whole question of taxation. Taxation is a fundamentally important issue in this economy and society. While people in the PAYE bracket are bearing the lion's burden of taxation and the people who own wealth in our society are paying an army of professionals to find loopholes so that they can evade or avoid paying their tax, this major issue must remain on the political agenda and must be tackled. For that reason I will dwell on it for a moment.
In our five point programme we set out the significance of tax evasion. A tax evader is someone who fails to submit a return to the Revenue Commissioners for any tax showing the full liability to tax. This applies most often in relation to PAYE, VAT and income tax. The staff of the Revenue Commissioners inspect any returns submitted to them. In the case of PAYE and VAT returns this involves a visit to business premises to inspect the records and to seek to ensure that the returns are complete. During a recent year, £69 million in VAT under-payments and £32 million in PAYE underpayments were discovered on such visits to a relatively small number of businesses. The inspection of returns for income tax in the tax inspectors office has up to now been ineffective in detecting evasion.
Mr. Rabbitte: Under self-assessment the Revenue Commissioners have instituted a system of field visits involving an indepth examination of the business at the place where it is carried out. However, this will apply only in a very small proportion of cases and the other returns will be accepted without question. The proportion of income tax reforms selected for audit by the inspectors must, therefore, be high enough to pose a realistic deterrent to tax evasion by the understatement of income. We recommend, therefore, that there should be a statutory minimum level of inspection of returns. Obviously the place to enshrine this provision is in the Finance Bill. For example, in the case of income tax, VAT or PAYE 10 per cent of businesses should be visited at least once every three years.
The Workers' Party are also concerned at the attitude taken by the Revenue Commissioners to evasion when it is discovered in PAYE, VAT and income tax. They seem content to take the corrected liability for the one year being examined and if the business can sustain it may reopen a number of earlier years. On top of the tax they seek a level of interest which is derisory compared with the interest on penalties due under the tax law. No serious effort is being made to deter tax evasion by the majority on the application of the full rigours of the law to those who are caught evading tax. This is because the Revenue Commissioners have discretion to waive interest and penalties in part or in full. Restriction of the discretion of the Revenue Commissioners to waive interest on penalties to ensure a minimum payment of 50 per cent in addition to the tax due where evasion is detected is necessary. The Minister may well say that this would have the effect of putting some companies out of business. That would not be the purpose of it and presumably the Revenue Commissioners could exercise their discretion in that kind of situation.
The Revenue Commissioners recover interest and penalties either by an agreed settlement or by taking civil proceedings in the courts. This latter system is very  inefficient and we propose to improve it by staffing the Revenue Commissioners solicitor's office and by the creation of courts which would deal exclusively with cases brought by the Revenue Commissioners. However, the taking of a criminal prosecution which could lead to a jail sentence is rarely, if ever, taken and the prospect of anyone going to jail, unlike the case in Britain for the crime of tax evasion, remains remote. We recommend that there should be a legal obligation to take a criminal prosecution in any case where the tax involved exceeds £100,000.
Workers generally do not have the opportunity to engage in tax evasion because of the PAYE system. However, many workers are being driven into the self-employed sector by employers who change their contracts of employment so that they become sub-contractors. This makes it possible for the workers concerned to operate within the black economy, evading tax and PRSI, possibly fraudulently claiming social welfare support as well. The fact that payments to such sub-contractors are often pitched at a low level by employers — in the knowledge that a living income will be obtained only by not paying tax or PRSI and by claiming social welfare as well — results in lower labour costs to the employer who then competes unfairly with employers operating legally, in addition to the removal or negation of workers' protection legislation. We recommend amendment of the tax law to ensure that such sub-contractors are treated as employees and are not excluded from the PAYE-PRSI system.
Tax evasion is a serious, prevalent crime against the community. Those who pooh poohed this in the past must have changed their view when they saw the returns from the tax amnesty campaign. The Workers' Party are concerned to eliminate this strain on the largely PAYE-funded public finances. The recommendation in this submission will be of assistance to the Revenue Commissioners in tackling tax evasion. However, all the legislation in the world will not prevent evasion. Legislation must  be effectively implemented by adequate levels of Revenue staff. Additional resources must be made available to the Revenue Commissioners to be used specifically for tax evasion work.
The Finance Bill would seem to confirm there is little political will on the part of the Government to tackle fundamental tax reform or even seriously minimise evasion and/or avoidance. I am advised there has been a reduction of something of the order of 600 in the staff of the Revenue Commissioners since 1981. The general secretary of the Irish Tax Officials' Union told the annual conference of the Irish Congress of Trade Unions last summer that effectively the self-employed were being given an opportunity to write their tax bills. I welcome the provisions of this Bill for the self-employed to be taxed on a current year basis. I also welcome some of the other minimum measures designed to close some of the loopholes for tax avoidance, the limited measures to extract some additional revenue through restricting the terms of reference of the business expansion scheme and limit section 84 lending, by redefining what is involved in the process of manufacturing. However, these are limited, minimalist, when set against the background of the scale of the problem I have just outlined.
I agree with Deputy Taylor. Belatedly the self-employed are being taxed on a current year basis and it is regrettable that is should have been done — and I say this with the utmost respect to the Minister — by this sleight-of-hand, demanding very little creative accounting ingenuity to ensure that the scope for abuse is reduced. It is my understanding that up to 5 April 1990 it is possible for a self-employed person to have his or her tax returns compiled on the basis of their income of the previous year whereas the earnings of the self-employed for 1990-91 onwards will have to be returned on a current year basis. It does not require too much ingenuity to envisage how that loophole will be exploited in terms of returns made to the Revenue Commissioners. I look forward to hearing  from the Minister on Committee Stage how it is proposed to police this measure in order to avoid this, albeit once-off, scope for abuse inherent in the manner in which it is being suggested.
As far as I am concerned the provisions of section 6 are no more than a ruse to extend relief to the wealthiest section of the farming community. In the absence of real tax reform I see no justification for supporting positive discrimination in favour of those with substantial productive assets.
The Workers' Party are extremely disappointed the Minister did not avail of the opportunity — as had been expected by many within the business community — to completely revise the so-called business expansion scheme as it relates to tourism. It is quite clear there has been a lot of abuse in this area. We had the scandal of the holiday homes in the middle of Dublin 4, moderate compared with the abuses we have seen in recent months. Tens of millions of pounds have been poured into these schemes which are of benefit to the higher paid income group. These people can write off up to £25,000 a year from their investments in these schemes which have been guaranteed and are virtually risk-free notwithstanding what was in the minds of the people who formulated that measure as a vehicle for risk capital being channelled to the manufacturing, wealth-creating sector of our economy. In parliamentary questions to the Minister on the numbers of jobs created by these schemes so far he has been unable to give any precise information. It can be argued — though I am not sure I could accept the argument — that the schemes are of help to manufacturing.
Generally speaking I believe — and I have given some figures already — there is sufficient assistance given to manufacturing every year, of the order of £500 million in tax breaks and subsidies, so that this scheme is merely more cream for those who can avail of those tax breaks. Belatedly the Minister is outlawing schemes where there is no risk to investors. Why that is being done from 5 April 1990 only is incomprehensible. It is time  the Minister considered abolishing this scheme altogether. The number of jobs created has been minimal. The building industry is booming and does not need these risk-free hotel projects. Its provisions seem to benefit the very wealthy only.
Neither Deputy Noonan nor Deputy Taylor referred to section 8. I am surprised because I have had aggressive representations already concerning the proposal contained therein which, as I understand it, sets out to increase the liability to taxation of PAYE workers on any lump sum on retirement or on termination of employment. That is the only occasion in the working life of somebody in the PAYE system when they can look forward to a lump sum, within certain terms, not attracting further taxation. In other words, when one retires I think one is at present entitled to the equivalent of one and a half years' salary without attracting tax liability. As I understand it——
Mr. Rabbitte: For example, I had a number of people to see me today who are being made redundant in a major company in the city. They have worked out, presumably with advice, the actual difference between the status quo and what will be the position if this provision is enacted.
Mr. A. Reynolds: It does not interfere with the one and a half years' salary entitlement. There were certain abuses being concocted but it does not interfere with the one and a half years' entitlement.
Mr. Rabbitte: I take it the Minister is saying in the case of retirement, where there is an entitlement of certain years' salary, it does not interfere with that  entitlement but that it would interfere in the kinds of circumstances we have witnessed so frequently in the 1980s of redundancies, of companies shaking out workers in order to introduce technology or whatever, when substantial payments were made in compensation for loss of employment. From my reading of the Bill I am quite certain that such lump sums at a certain threshold will now attract a tax liability that did not exist heretofore. If the Minister can assure me on that, I can assure him, in turn, there will be a great number of people very pleased to hear it.
Mr. Rabbitte: Certainly, I will. If my understanding is correct it is my intention to table amendments on Committee Stage. I would ask the Minister to have a re-think, that this cannot constitute an area of significant abuse. I cannot understand why somebody who has worked their lifetime and paid tax should be subjected to tax a second time on their lump sum. Secondly, I cannot understand why somebody finding themselves out of work or redundant should be subjected to tax on any compensation involved. It is not fair that such payments should attract a tax liability at a threshold that did not obtain heretofore.
Mr. Rabbitte: I look forward to hearing from the Minister on that. I am talking as a trade union official although I know there is a theological argument about whether I remain one. I am talking as a trade union official who negotiated settlements I do not believe were exorbitant or were abused. I contend it is  unfair that such payments should be subject to this penalty; that is as I read it. I take some comfort from what the Minister is hinting at, if I read it correctly.
On Chapter II, I have already dealt with the question of the self-employed being assessed on a current year basis. Apart from the caveat I entered, I welcome this measure. Turning to Chapter III, I would like to look at sections 25 and 26 and ask the Minister to tell us, given the building boom in Ireland, if he is overheating the economy and acting in a counter cyclical manner in extending the period during which urban renewal reliefs will apply to 1993? Can the Minister explain the reason for this? The section on taxation evasion, section 27, is to be welcomed but, again, I would like to point out that all of these exemptions for the money classes lead to loopholes. As sure as the Minister closes this loophole some clever accountant, whose patriotism is measured by how well he serves his wealthy clients rather than by how well he serves the State, will come up with a new loophole.
I also welcome section 29 which attempts to plug a loophole. It relates to the so-called Disneyland scheme to which the Minister referred last summer. I would like the Minister to quantify if he can, how many millions have been lost through the abuse by essentially rich people of the Shannon export sales and business expansion schemes.
In Chapter IV, section 32 reduces the rate of corporation tax from 43 per cent to 40 per cent. While this section must be read with sections 59 and 70 which reduce capital allowances, I would like to take this opportunity to say that these nominal rates of tax are just that — nominal — and that the average rate of tax paid by companies in Ireland is less than 10 per cent and declining. The rate of corporation tax in 1988 was 50 per cent but this has been progressively reduced. What The Workers' Party would like to see is an effective rate of tax of 20 per cent on all non-manufacturing companies and an effective rate of 10 per cent on the manufacturing sector. In plain  English we would like to see companies pay tax on between 10 per cent and 20 per cent of their profits depending on what line of business they are in. This would save a lot of time for tax inspectors, accountants and everyone else.
Section 36 extends section 84 loans. I would like to point out that section 84 was introduced as a counter-avoidance measure to outlaw directors' loans. There was never any intention to use it to provide subsidies to the industrial sector. I would also like to point out that during 1987-88 section 84 loans cost the Exchequer a staggering £95 million. This is outrageous. According to the section it appears the Government are going to allow loans up to a limit of £170 million. This is also outrageous. Each year the IDA give out over £100 million in grants to companies. Given these tax avoidance measures which are supported by the Government, we do not know what is happening. We are greatly disappointed that the Minister did not see fit to abolish section 84 loans. It must be remembered that along with industry the major beneficiaries of these loans are the banks who made profits of over £400 million last year and paid virtually no tax largely because loopholes such as the one in section 84 exist. We also believe that building societies and the trustee savings banks should be taxed on the same basis as other companies and it is a myth that either are acting in the best interest of their members as both are run by selfperpetuating oligarchies. The Workers' Party welcome Chapter VII which deals with offshore funds but, again, we hope such complicated legislation will not be found to be full of loopholes by the very vigilant accountancy profession. We also welcome the measures which reduce  capital allowances. I note that accelerated allowances cost the Exchequer over £100 million in 1987-88 and it would not be untrue to say that many companies over-invest in capital equipment because of the existence of these allowances. Indeed, in regard to those areas outside manufacturing, it appears that capital allowances are far too generous as can be seen by the constant upgrading of public houses and other non-productive areas. In relation to section 89, The Workers' Party oppose the continuation of unrestricted accelerated capital allowances for the Custom House Docks area and Shannon airport. In 1987-88 Shannon airport relief cost the Exchequer £116 million. We have yet to find out what the Exchequer is going to give by way of tax subsidies to the Custom House Docks area. It seems ironic that the most profitable institutions in the State — the financial services sector — should get special tax deals.
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