Wednesday, 20 April 1994
Dáil Éireann Debate
Mr. Durkan: Before Question Time I dealt with aspects of the Finance Bill which affect the less well off. One should not leave that subject without mentioning the taxation of benefits which can be very traumatic in some circumstances. Members of the Government must take collective responsibility and I am sure none would admit to being personally responsible for deciding to tax benefits. Was sufficient thought given to those at the receiving end of such changes? I am disappointed the Government went down that road and carried out such an unseemly act on people who are frequently disadvantaged. The Minister of State who was in the House before Question Time did not know the rate of pay for an unemployed person who becomes ill in a year subsequent to a year of unemployment. The new rate of pay for a person on unemployment assistance who submits sick certificates, whether in hospital or at home, introduced by this caring and compassionate Government will be £25 per week.
There has been much debate about the problem in respect of pro rata pensions. The National Pensions Board published its report, and in doing so it managed with great dexterity to circumvent some of the obstacles in its path. However, it was not as successful as the Government who avoided dealing with that annoying and pertinent issue. A large number of people has fallen victim to the Government's proposals in the 1988 Act to make pensions available to all on foot of contributions.  A number of people are short of approximately five contributions to qualify for a pension and it is amazing that nothing has been done in that regard. It is argued that there is not sufficient funding but it has been forgotten that additional funds were taken into the system in 1988 to finance it.
I want to cite the case of seriously disabled people who run small businesses. Because such people are not a burden on the State and are not included in the system the only concessions they receive are in respect of duty on wheelchairs. They are expected to fend for themselves in this big wide world as if they were able bodied. I fail to understand how someone in this so-called caring and compassionate Government did not identify that such people are fending for themselves and that the Government should help them. In many cases they barely eke out an existence. They earn slightly over the income limit for a medical card — one does not have to earn a high income to exceed that limit — and they do not qualify for benefit because they have committed the sin of working for themselves. Perhaps the Minister would examine that area in the future?
Apropos legislation and how and when it should be changed, in the past few days we debated a Bill on local government reform. I do not know what inspired the introduction of that legislation, but it reminded me of an ancient Roman in a period of depression who, having pawned the fiddle did not have anyone to perform and nothing to attend to. The fire was burning, there was nothing to do and suddenly someone had the bright inspiration to introduce reform. The theory of reform was embodied in that legislation, but there was no reform.
Mr. Penrose: I welcome the opportunity to contribute to the debate on the Finance Bill and I will take a global view of its thrust to implement the main provisions of the budget. Job creation and a full frontal assault on unemployment should be the main focus of Government policy from now on. When all the economic  parameters and indicators are moving in the right direction, Government strategy should be targeted at a complementary fiscal and tax system which will encourage maximum job potential from the enormous investment available under the Structural Funds allocation. Our tax structure penalises productive earnings and leaves other investments virtually unscathed. It is important that the initial thrust of this policy which was evident in the budget focuses on low paid people as that would help those most likely to face serious unemployment traps.
A number of measures were introduced in the budget in this regard including the abolition of health, employment and training levies for people earning less than £9,000 per annum. Tax exemption limits were increased by £100 for each child and the marginal relief tax rate was reduced from 48 per cent to 40 per cent for those slightly above the income tax exemption limits. Personal allowances were increased by £350 per couple. Family income supplement is being increased and the children's allowance is being increased for families with three or more children. I welcome the abolition of the 1 per cent levy for all income earners. There is a widely held view that measures introduced on a temporary basis had an uncanny habit of assuming an unwanted permanence. It is fundamental that this Bill marks the turning point of our economy. From now on we will be talking in terms of how we should distribute the 5 per cent per annum annual growth rate in the economy which the ESRI review has forecast up to the year 2000.
It is not surprising the Opposition has spent much time carping about minor nitpicking items. The growth by 14 per cent in tax revenues in the first quarter of this year compared with 1993 indicates that the Government will have the scope to reduce the tax burden by the sound policy of creating more activity and expanding employment. That is the only way forward. The issue with which the Government must deal in future budgets is unemployment. I want the unemployment ratio, particularly the 50 per  cent ratio in respect of long term unemployed, reduced. The Minister of State, Deputy O'Rourke, and the Minister for Enterprise and Employment, Deputy Quinn, recently announced the community employment programme. That is only one step in the armoury of policies we must implement to put our people back to work.
I do not expect support from those who have accused us of being a tax and spend Government although they are the first people at local authority level who seek increased expenditure for every item on the agenda.
Mr. Penrose: To those who have been eager to cut public sector employment claiming that it is a major burden on the Exchequer, I suggest that another way we can tackle unemployment is by allocating £1 million to each local authority to employ 100 workers from the dole queues at a cost of £10,000 per annum. The cost to the Exchequer of keeping a person on the dole is approximately £9,000 per annum when account is taken of lost income tax and PRSI payments. The net cost in the wage bill to the Exchequer of employing 3,500 additional local authority workers would be £1,000 per worker. Based on 35 local authorities each employing 100 people the cost-benefit analysis would be positive. Apart from savings in respect of unemployment benefit and the collection of revenue in the form of income tax and PRSI, those employees would represent a return to the old fashioned ways of working in local authorities.
The Minister of State, Deputy O'Rourke, was a member of the local authority on which I serve. This measure would involve a small contribution from three Departments, namely, the Department of Enterprise and Employment, the Department of Finance and the Department of the Environment. Each local authority would have a mandate to employ 100 outdoor staff on road works. Under the old system local authority workers operated within a six-mile radius. If we cast our minds back 20 years  we will recall there were very few potholes because there was an early detection system and people worked on the roads using shovels. The problem arose because some people supported large cutbacks in local authority expenditure. I did not and will not support such measures. I do not apologise for saying that additional people should be employed at local authority level. That would lead to early detection of potholes, water cuts could be opened and this would provide a saving in terms of cost benefit analysis. The employment fund of £1 million could be paid as a wage subsidy. This would lead to sustainable employment and complement the community employment programme announced by the Department of Enterprise and Employment. It would provide jobs for some of the unemployed retrained through the CEP.
The Opposition is aware that the Government will have the financial means to put the economy on a long term growth path. The only matter about which I have heard the Opposition shout is RPT. When has the Opposition demanded radical action to tackle unemployment? I have not heard a murmur about that in the past few months. The Opposition cannot sing the same old tune of tax cuts financed by public expenditure cuts. It must make up its mind if it wants services on the ground which will require increased expenditure or to reduce the tax bands to 20 per cent and 40 per cent which will improve the lot of the better off. Those less fortunate would be left further behind, with no local authority housing building programme or initiatives to deal with waiting lists. That may be what the Opposition wants but it is not what I want. I was elected with a different mandate to ensure, among other matters, that medical card holders would not have to wait three and a half to four years for hip replacements. I make no apology for supporting increased expenditure in those areas. If I only hold office for three to four years and all I achieve as a TD is a contribution  in that regard, my time in this House will have been well spent.
Mr. Penrose: The Government will reduce the dole queue because the Labour Party and my Fianna Fáil colleagues are committed to making unemployment a top priority. If employment is increased by 25,000 per annum other measures will still be needed to help the long term unemployed. Ministers who regularly attend meetings in Brussels will appreciate there is a European dimension to this problem. In the European Union almost eight million people have been unemployed for a year or more. We should ensure every possible policy measure is taken to reduce unemployment.
Everybody knows that local authority finances are in a bad state but we must ensure we can provide services required by those whom we represent. We are all committed to a fair system of funding for local authorities. The Opposition can rest assured that the Government will deal with this issue when it considers all the options. One option I have often considered is that we should use all or a large proportion of the proceeds from motor taxation at local authority level to fund road expenditure.
Mr. Penrose: I am glad it has some policy. One would need to live in Shangri-la to attack the Taoiseach for  suggesting that the financial crisis in local authorities should be dealt with. The party which endorses financial rectitude should make up its mind. It cannot continue to sing the old song about tax cuts and public expenditure cuts.
Mr. Penrose: If Deputy Durkan was in Government there would be many more unemployed. Has it not dawned on the Deputy that the Government will increase economic activity and within the scope of a 5 per cent growth rate it will be able to reform local authority finances and reduce income tax at the same time? The people will benefit from better services and will have to pay lower taxes.
Mr. Penrose: Some people do not like to hear the truth. Ten of those proposals were implemented in the budget. Many reports gather dust but this one resulted in positive action within a few weeks of its presentation. Half of the private sector employment is in our 150,000 to 160,000 firms and 80 per cent of such employment is in the service sector. The total number of start-ups is equivalent to the European Union average. Most people recognise that 40 per cent of new firms fail in the first five years of business. It is important that the report focused on that area. Every measure should be taken to ensure that bureaucratic impediments are removed and that such businesses are not constrained by further bureaucracy.
We have only to listen to the financial institutions to realise there is a place for a third banking force. The Minister for Finance announced in the budget that a £100 million fund will be available from the ICC. That announcement elicited a  positive response from other financial institutions when they realised that a start up fund was available for certain businesses. Some of those institutions decided to match it. That announcement was an important impetus and it highlights the importance of the involvement of a semi-State bank in the provision of funds for that sector. However, one drawback is that funds are restricted to export oriented companies. There is a large number of businesses in the service sector in my constituency. I am not referring to solicitors' practices, although they provide services, but to companies involved in other areas. Funds should be available for those. If each of the 100,000 small firms in Ireland were encouraged to take on one person it would make a large dent on the dole queue. The minimum £50,000 draw down figure is a little too high and should be considered.
I welcome measures such as the £800 PAYE allowance to sons and daughters of families in the business area and the increase in VAT thresholds to £40,000. I welcome the reintroduction of the cash receipt basis for payment of VAT. While there is a ceiling of £250,000, nevertheless, it is an important measure for companies. The decrease in capital gains tax from 40 per cent to 27 per cent is equally important. Other measures include the single tax clearance certificate and the single registration certificate and the measure whereby owners of companies may invest up to £250,000 in the company. The real message from the report is that small businesses are the backbone of the economy. The only way we will make a major impact on unemployment is by focusing our energies and attention on this sector and by providing the necessary inducements and encouragement for it to flourish. Big businesses have had a monopoly of the AAA rate which gave them a 3 per cent or 4 per cent advantage over small businesses. It is important that this rate be applied to small businesses to bring equity into the availability of finance.
A matter which must be tackled by the Minister for Finance is the restriction on the availability of C2 certificates. Very  often people who provide one or two jobs, which are critical in rural areas, are inhibited because they are unable to obtain C2 certificates and, consequently, are unable to submit tenders for major sub-contracts that become available.
The special allocation of £100 million to the health services will address the problem of the accumulated excess debt of health agencies. This debt was funded by bank overdrafts and by running up extended periods of trade credit with suppliers. This imposed a heavy burden on small family businesses who had to wait a long time for payment and on the agencies through payment of interest charges and an inability to secure the best value for goods and services. The injection of £100 million into the service will enable the agencies to deal with banks and creditors on a normal commercial basis. It will also assist traders and those seeking health board grants. It will enable agencies to operate more efficiently in their purchasing and finances.
One of the important initiatives taken in 1993 by the Minister for Health was that in regard to waiting lists. The Minister promised a significant reduction in the number of people on waiting lists and that has been achieved. It was promised that 17,000 additional operations would take place in 1993 and the number of additional operations carried out was 18,768. At the beginning of June 1993 there were 40,000 people awaiting admission to acute hospitals nationally and I am glad that figure has been reduced by 14,757.
The Government is anxious to build on the success of the 1993 waiting list initiative. Its continuation of it in 1994 with the special allocation of £10 million announced in the budget will enable it to make further inroads in this problem area. The principal objective will continue to be the elimination of waiting times in excess of 12 months for adults in the problem specialties and six months for children for ENT and ophthalmology. There should not be a curtailment in health expenditure in this area and I say  that unashamedly. It is the one area where I strongly argue for an increased allocation of resources. Considering the relief to people who undergo hip operations, ENT treatment or ophthalmology, money should not be a barrier to these services.
Miss Harney: I am delighted to have an opportunity to contribute to the debate on the Bill. The 1994 budget, and the Finance Bill, give a clearer indication of the Government's thinking on financial matters than did their first budget which, it told us, it did not have time to prepare. The Government said last year that as it was in Government for only a matter of weeks it did not have time to do any strategic planning. However, it has had a further year to do so and we are entitled to judge this Bill, and the second budget of the partnership Government, on the basis of some criteria.
The first criterion must be the capacity to deal with the fundamental problem confronting our economy, that of high unemployment. Why have we such a high unemployment rate? We have a high dependency rate — for example, for every ten people who work in the economy, they have to keep 22 others. By comparison, for every ten people who work in the Danish economy, they have to keep nine others. Of every ten people who work in the Irish economy, two work in the public sector. Eight out of every 24 people must create wealth and generate income to keep the remaining number — a ratio of 1:3. Perhaps that explains to some extent why taxation is so high in Ireland, but there are other reasons.
The only way to deal with the fundamental problem facing the economy, the only way we will change the high dependency rate is by encouraging more people to become self-reliant, to have an opportunity to participate in the economic development of the country, to have  a job. We can generate jobs through radical pro-jobs tax reform — I will deal with that matter later. That is one way of encouraging enterprise, rewarding those who take risks and making it worthwhile for them to put their money into productive investment rather than leave it lying in a financial institution.
Even with radical pro-jobs tax reform a substantial number of people will not be able to find a job in the traditional way. Recently I dealt with this matter when I published on behalf of my party a programme called A Community Right to Employment. This programme has been criticised and is considered right wing, but I see it as a very sensible programme. It compels people, particularly the young unemployed, to have work in return for unemployment benefit and, in addition to the benefit they receive, they would get an extra £20 which would be an incentive to engage in part-time work. Many people have asked why the programme should be compulsory. It would be compulsory for the individual, but, more important, it would be compulsory for the State, through the voluntary sector, the State sector or the local government sector, to provide these young people with employment. That is the compulsion we need to talk about because too many in our society are excluded from worthwhile participation in the economy.
Normal everyday conversation usually begins with a person being asked where they work, but many unemployed people are ashamed to admit they do not have a job. No society should put people in that position. There are 300,000 people unemployed and a further 50,000 who are not in full-time employment, including part-time workers, those signing for credits on the live register and those engaged in training programmes. There are 350,000 people who do not have full-time work in this economy. Unless we implement as a matter of urgency a programme such as I am suggesting — I published the detailed document — many more people will join that 350,000. Alternatively they will go elsewhere to eke out a living. That is bad for society at many  levels. It is bad for the dignity of our citizens, equality in society and for fairness and justice. It makes many people feel they should not bother to obey a State that has treated them so badly. I wanted to deal with that matter before going on to deal with some of the more fundamental issues in relation to tax reform.
If we are to have effective tax reform, we need to codify, as Deputy Cox said yesterday, our taxation system. It never ceases to amaze me each year the Finance Bill is so long. I have taken the opportunity to examine the legislative proposals from other jurisdictions. Why can they produce the Bill implementing their annual budget in a shorter and much more coherent form? The reason is simple; they have a much more simplified taxation system. We should examine, for example, the American financial Bill implementing their annual budget.
I recently came across two publications, one called Successful Tax Reform: Lessons from an Analysis of Tax Reform in Six Countries by Cedric Sandford and the other titled Key Issues in Tax Reform, also by Cedric Sandford. Both these books make fascinating reading. In relation to the Irish tax system, a chapter was written entitled “Self Assessment and Administrative Tax Reform in Ireland” by Frank Cassells and Don Thornhill. They were two of the civil servants at the centre of the transformation of the Revenue Commissioners in the past decade. In their chapter they outline clearly the huge administrative strides in the way our tax system has been updated and I commend the Revenue Commissioners for that.
In his book, Sandford said that if we had 10 per cent of the effort in relation to restructuring the tax system as we paid to changing its administration we would be much better off. He said: “Despite a comprehensive blueprint provided by a Commission on taxation, the Republic of Ireland saw less reform of the structure of its tax system than many other English speaking countries”. That is from a man who examined the tax system in five other English speaking jurisdictions including  the United Kingdom, New Zealand, Australia, the United States and Canada. He also said: “the essential requirement for successful tax reform is a strong political will; and such a political will has to come from a champion”. He said:
The only effort at tax reform in the Irish Republic was in 1989 when the Progressive Democrats joined in a coalition with Fianna Fáil and promised a complete overhaul of the tax code. The Fianna Fáil-Progressive Democrats coalition was responsible for the biggest reductions in personal income tax; the phasing out of tax relief on life insurance premiums and the attack on fringe benefits; the reduction in corporation tax from 43 to 40 per cent and the phasing out of accelerated depreciation; and for most of the reforms on VAT and excise duties.
I could quote many more fine words about our tax system but it is unfortunate that although the Government has the largest majority ever it has no targets in its Programme for Government, nor were any targets mentioned in the Minister's speech yesterday, on tax reform. What does the Government hope the standard rate of tax will be by the end of its term in Government? At what is it aiming? If politicians do not have targets, nothing will be achieved. Even if we did not achieve ambitious targets, if we were merely on the path to achieving them, we would be doing much better. What does the Government hope the higher rate of tax will be at the end of its term in office?
I listened with great interest to Deputy Penrose's contribution when he referred to public spending. Since the partnership Government came into office, public spending has increased by 17 per cent, which means taxation has also increased by 17 per cent. That spending is over four times the combined rate of inflation. Last year it was 1.5 per cent, this year it is anticipated to be 2.5 per cent.
We must examine the reason that level of spending continues to rise. One of the major contributory factors is the way we deal with pay bargaining in this jurisdiction.  There was much to be said for the Programme for National Recovery which helped to resolve industrial relations problems. The economy cannot sustain or afford the Programme for Economic and Social Progress or the PCW.
I draw the Minister's attention to a fine paper delivered by economist Ciarán Kennedy, head of the ESRI. The Government is fond of quoting the ESRI when it suits it. In a paper delivered to the National Economic and Social Forum on pay Mr. Kennedy suggested pay cuts and said the economy could not sustain another central pay bargaining round such as the Programme for Economic and Social Progress. During the Programme for Economic and Social Progress years, for example, unemployment in the economy rose by 40 per cent. This year the public sector pay bill will be £252 million more. It will increase by 6.1 per cent although inflation will rise by over 2.5 per cent. I am not suggesting lower pay for public servants; I want higher pay and much higher productivity. The numbers in our public service cause the problems. No effort is being made to change this and I very much regret that the Department of the Public Service was abolished. With the exception of the former Minister, John Boland, no real effort has ever been made to reform our public service to introduce productivity or value for money throughout the Civil Service as well as the public service generally.
Instead of that £252 million, what could we have done for tax reform that would have benefited lower paid public servants in particular who are often the reason we are told we need public sector pay rises? We could have reduced the standard rate of tax by 3 per cent, from 27 per cent to 24 per cent. We could have perhaps reduced the top rate of tax by 6 per cent, from 48 to 42 per cent. We could have reduced the standard VAT rate by perhaps 2 percentage points.
Last year the public sector pay bill increased by £347 million. What could we have done with that money? We could have either reduced the standard rate of tax by 5 per cent, the top rate of tax by  10 per cent or the standard rate of VAT by 4 per cent. Any of those choices would have been much better to generate enterprise, encourage those at work and make people realise that we have radical, pro-jobs tax reform in place.
Many people listen to the Budget Statement each year. I carried out an exercise recently, and I will not bore the Minister of State by recalling all the figures, which involved examining the Budget Statements for the past eight to ten years. Every year the Minister said that “X” number of taxpayers will be taken out of the net. This year, with the reliefs and so on, he said 38,000 people would benefit. Figures of 11,000, 15,000 and 18,000 have also been mentioned and if one adds them all up, nobody should be paying tax, obviously some of them are the same people coming in and out of the net.
We have the highest level of tax on work of all the OECD countries and, despite what the Minister for Finance said recently that our tax system compared well with the tax regime of other countries, that is not the case. In terms of the GNP take in tax revenue, it is higher in this economy than in Europe generally and in Europe it is approximately 10 per cent higher than in Japan or the USA. Is it any wonder they have unemployment levels of approximately 2.5 per cent in Japan and 6 per cent in the United States?
We must control public spending. I am pleased that the forecast for growth over the coming years is high. The ESRI recently produced a paper on the medium-term outlook. I want to see that money used to bring in additional revenue. I hope it will go towards radical tax reform — which does not mean bringing in a new proposal to raise £5 million and giving it to a particular organisation. That kind of measure gives tax reform a bad name. The property tax or rates or the service charges, and the manner in which the Government has handled this whole issue, has been appalling.
The Taoiseach's comments at the weekend and the contradictions from the Minister for the Environment, who  seems to be holding the Fianna Fáil line in relation to these matters, have led to a great deal of confusion. The Taoiseach is very adept at clarifying matters; he often clarifies matters he has not been asked to clarify. However, clarity begins at home and the Government must explain its intentions in relation to service charges, property tax, rates and so on.
My party favours broadening the tax base and having an equitable tax system for different categories of taxpayers. Consider the existing property tax proposed in this year's budget to be implemented through the Finance Bill. I will give an example of two taxpayers, one with a salary of £100,000 living in a house worth approximately £150,000 and paying no mortgage. That taxpayer pays the exact same property tax, under the Minister's proposals, as a person in a house of the same value with a mortgage of approximately £70,000 and an income of £25,000. That is not good enough.
Today I received a letter from a group called The Homeowners' Rights Association. They claim to be a non-political organisation formed to oppose the residential property tax. They outlined some of the problems as they saw them. If we are to fundamentally alter the tax system the Government should abandon the proposal which it estimates will raise £5 million and start again.
My party suggested the establishment of an all party committee. Many would say we are foolish and ask what would Labour and Fianna Fáil do if they were in Opposition. Would they consider an all party committee? I am committed to radical tax reform although I hate to call it “radical” because it is so simple. If one is on a low income one is almost better off being unemployed. We need to integrate, as a matter of urgency, the tax and social welfare systems. A married person with four children and a dependent spouse living in local authority accommodation would have to earn £300 a week to be as well off working in net disposable income terms as he is on social welfare. That does not encourage self-reliance and enterprise.
At Question Time the Taoiseach spoke  about the national plan and how we would make up the shortfall of £800 million. He said it would not be through increased taxation or borrowing but yet it would come from the Exchequer. He did not say it would come from the private sector. I suspect it will come from what is described as tax buoyancy.
I read an article by Martin Fitzpatrick in The Sunday Independent of 10 April following his briefing by a Department of Finance official on the first quarter Exchequer returns. He asked where the money for the increase in public sector pay would come from since it had not been provided for in the Estimates. The official said that about 50 per cent of the increase in public sector pay immediately flows back to the Government. The interviewer inquired about the balance. “That is coming from tax buoyancy” repeated the official. This tax buoyancy — the increase in growth which will obviously generate increased revenue — must go towards tax reform and reducing the tax burden.
As regards tax compliance, there is a company which owes the Revenue Commissioners £11 million and owes £6 million to the revenue authorities abroad. The company has a C2 certificate and was able to engage in work and put other companies out of business by not allowing them compete. It will get away with paying 20 per cent of what it owes. That is a disgrace. A constituent of mine who owes £4,000 to the Revenue owns a small minibus, is involved in school transport and earned £11,000 last year. If the person availed of the tax amnesty the tax liability would have been cleared. The school transport service was withdrawn because the person did not have a C2 certificate. To treat a person with an income of £11,000 and a mortgage of £60,000 in that way and allow a company that owes £11 million and has a C2 certificate to get away with paying 20 per cent of what it owes is nothing short of a disgrace. Where is the equity and equality the Government, particularly the Labour Party, talk about?
... large-scale tax compliance cannot be achieved solely by threats and penalties. The tax system itself, if badly structured, can contribute to poor compliance simply by its own inefficiencies. This can lead to a perception of inefficiency, lack of openness and a person feeling there is no point as they will not be rewarded for being honest with the Revenue Commissioners.
Mr. M. Ahern: I wish to share my time with Deputy Ryan. Since 1987 Fianna Fáil has aimed to reduce the tax burden on all sectors especially the lower paid. The aim is to make the system more equitable and this is being achieved by increasing tax free allowances, widening the tax bands, a change in the orientation of the revenue authorities and through the acceptance by the self employed of the self assessment system which has resulted in greater tax compliance.
The Finance Bill has a role not only in levying and collecting income tax but in the promotion of sustainable employment. In this Bill the Minister recognises the need to make changes to improve competitiveness, promote the productive use of resources and stimulate and reward genuine enterprise.
Over the past number of years, Fianna Fáil recognised that all sectors must work together to ensure continued growth and an improvement in employment through the Programme for National Recovery, Programme for Economic and Social Progress and Programme for Competitiveness and Work. It recognises the vital importance of small businesses in job creation. Not only did Fianna Fáil talk about the necessity of doing something but it set up task forces in the small businesses, jobs and services areas. Reports were not left to gather dust on shelves, rather the deliberations were  taken into account in formulating the budget and Finance Bills.
Many Opposition Deputies spoke about tax reform as if it was a panacea and about job creation but always in general terms without backing up their statements with facts and figures. They call for tax reform, meaning a reduction in taxation, and at the same time look for increased expenditure by Government in health, education, social welfare and so on without saying where the extra revenue is to come from. It is time they told us where they would get the extra money from, while at the same time reducing taxation. The Government is acting positively as any objective analysis of the considerable improvement in the overall taxation system will show. Tax relief under this budget will amount to £330 million. If that does not represent a reduction in the tax burden what does?
The reduction in PRSI will cut the cost of employment to employers. In the area of capital taxation the tax base has been widened and there is a reduction of 10 per cent in corporation taxation. Indirect taxation and VAT have been reduced from 25 per cent to 21 per cent and the 12.5 per cent rate has been extended to a wide range of employment incentive sectors. The Government has made it clear that its taxation policy is aimed at providing the most favourable climate for employment. Many of the measures are directly related to job creation.
Sections 1, 2 and 3 represent considerable improvements in the income tax code. Personal allowances have been increased by up to 8 per cent and the standard rate tax band has been widened by 7 per cent. Exemption limits have been increased and the top rate has been reduced from 48 per cent to 40 per cent. There has also been an improvement in children's allowance which is a continuation of the Government's policy over the past number of years and shows its commitment to lower paid workers and the family.
Section 10 extends the list of persons who must operate the withholding tax scheme when making payment for professional services to individuals and companies. This scheme can restrict the level of cash flow to recipients and in many cases can have a negative impact on those engaged in professional activities such as engineering, consultancy and medicine. Sometimes the amounts withheld are out of all proportion to the eventual tax liability. Now that the self-assessment system is effectively in operation the original justification for the introduction of the withholding tax no longer exists. The requirement that a person must have a tax clearance certificate before doing business with public sector bodies should be a sufficient safeguard against tax evasion. I look forward to hearing the Minister's views on this point.
The seed capital scheme introduced in the 1993 Finance Act was too restrictive — only six applications were approved during the first six months. The changes introduced in section 14 will lead to a greater take-up of the scheme, thus providing the necessary seed capital to expand and create more employment. The introduction of a special capital gains tax rate for individuals in respect of shares in most unquoted trading companies is very welcome and will attract investment funds which heretofore were kept in bank vaults.
I also welcome the extension to the wider services sector of the roll-over relief under capital gains tax for equity investment in unquoted trading companies. This relief was introduced in last year's budget for investment in business in certain sectors. There is great potential in the service sector for job creation and the extension of this relief will make it more attractive to invest in unquoted trading companies.
One of the greatest hindrances to young people taking over family businesses is a lack of cash flow, which has often been caused by family settlements. The new business assets relief under capital acquisitions tax will facilitate the  handing over of businesses to young people and give them the opportunity to develop those businesses.
In recent years I have repeatedly referred to the necessity to revise the VAT thresholds and I am glad that the Minister has finally done this. The new registration thresholds of £40,000 in the case of goods and £20,000 in the case of services will enable a number of businesses to continue in operation and provide a proper income for the families involved. The regulation which required VAT returns to be made on the basis of invoices created serious cash problems for many small businesses. I welcome the decision to introduce a cash basis of accounting for VAT purposes where the annual turnover is less than £250,000. This change will not only help to secure businesses but will also give business an opportunity to develop.
The urban renewal scheme has proven to be an outstanding success in recent years, revitalising as it has derelict areas in cities and towns. I welcome the extension of the scheme to other towns, particularly to Mallow in my constituency. However, I am disappointed that the scheme has not been extended to all areas in need of improvement, for example, Youghal and Cobh, where there is considerable unemployment and dereliction. The extension of the scheme to those towns would help to revitalise them. I hope that the Minister and the Minister for the Environment will be in a position in the years ahead to extend this scheme to cover towns where it would have a practical and beneficial effect.
Agriculture is still one of our major industries and I acknowledge the need for the introduction of measures to benefit agriculture and encourage the transfer of farms to young enterprising farmers. Section 33 provides for increases in the level of capital acquisitions tax reliefs for agricultural land and buildings and relief in inheritance tax. For the first time ever a relief has been given for assets such as livestock and machinery. Farmers can qualify for a relief of up to 25 per cent in such cases. The Bill also provides for a  reduction by two-thirds in the level of stamp duty chargeable on the transfer of agricultural land and buildings to farmers under 35 years of age who have completed an approved course. In the majority of cases this will mean a stamp duty rate of 1 per cent, down from 3 per cent, for transfers between relatives and of 2 per cent, down from 6 per cent, for transfers between non-relatives. The Bill also provides for probate tax relief at a rate of 30 per cent in respect of agricultural land and buildings. Transfers between spouses will be fully exempt from probate tax. I welcome these measures.
The Minister has provided for an improvement in the capital allowances regime for farm buildings by reducing the write off period from ten to seven years. The Minister should consider granting capital allowances of up to 100 per cent in cases where farmers have to carry out pollution control works required by environmental regulations. In many cases such capital outlay can cause severe problems. The Minister said that these measures, when taken together with the EU early retirement scheme and the scheme of installation aid for young farmers, should help to improve the structure of this most important sector of our economy.
I refer to the advantages enjoyed by the International Financial Services Centre and the Shannon zone so as to encourage development. Why has the Cork area not been given a similar incentive? The Minister should redress this imbalance so that all areas can complete on a level playing pitch.
Foreign entertainers do not have any withholding tax deducted from their fees. As a result very large sums of money are leaving the country — approximately £20 million left the country last year. This means that less spending power is available for our entertainers. Other countries deduct withholding tax from the fees of foreign entertainers — the rate in England is 27 per cent. The Minister should re-examine this issue.
I will refer in depth to many other aspects of the Bill on Committee Stage,  for example, the capital allowances for the computer software sector, section 26 which deals with the patent income relief, the increase in the valuation of motor vehicles for capital allowances and the reduction in the rates for benefit-in-kind and preferential loans. All these elements are aimed at improving our economy. It is generally accepted that the policies being pursued by the Government are the correct ones. Interest rates are down, there is greater buoyancy in the markets, the number of cars sold since January is up 40 per cent on the number sold during the same period last year, there is a tremendous buzz in the house market and building industry and there is a general air of confidence which had been missing for years. Like previous Finance Bills, this Bill is moving in the right direction in terms of tax reform, having as its central concern job creation. I wish the Minister continued success in his efforts to make our tax system more equitable and efficient.
Mr. E. Ryan: I congratulate the Minister on the introduction of this Bill which has been widely welcomed by the business community, economists and the media in general. This Bill, which does not add to the red tape, should lead to greater investment in start-ups and existing businesses. The Bill aims to create and sustain employment and for that reason must be widely welcomed.
Since the Bill was published the ESRI has issued a report on the future of the economy which gives a very positive outlook for job and wealth creation in both the short and longer terms. While the present level of unemployment is obviously unacceptable, there has been a recent welcome reduction in the number of people out of work. Many Fine Gael Deputies blamed the Government for the unacceptable level of unemployment. I agree that our unemployment level is unacceptable, but I would refer them to a recent article in The Irish Times by a former leader of their party, Dr. Garret FitzGerald. This excellent article, which should be read by everyone, cites the huge growth in population and the large  number of people coming onto the jobs market every year as two of the reasons for the increase in unemployment. I recommend that members of the Fine Gael Party read that article. Indeed they might not be in their present difficult position were they to follow the very reasonable line of their former party leader. The recent ESRI report supports that theory in many ways, and one reason it took such a positive outlook was the falling birth rate.
The Minister must be congratulated on broadening the tax base which all Members would agree is essential if we are to get our affairs in order. I also welcome the changes in capital allowances for motor cars which will create a significant number of new jobs, giving the motor industry a great boost. The two amendments to the Finance Act, 1987 regarding the film industry which is at present going through a very positive phase with a huge potential for growth and job creation are welcome. There is a renewed interest in the film industry here. As a former member of the Irish Film Institute I know that when I served on the board there was a great deal of pessimism among its members. They are very much more positive about its prospects, feeling the industry has turned the corner, will expand greatly in future years and employ many more highly paid, well qualified people.
I also welcome the extension of the urban renewal scheme which has been of enormous benefit to many areas. It has given a fantastic boost to this city where approximately 7,000 new apartments have been built in the inner city, with a huge new area created in Temple Bar. The Financial Services Centre and the quays have been practically transformed as has the whole approach to the city along the Liffey. A person who had not visited Dublin for approximately 12 years told me of how amazed he was at the improvement effected. People cannot believe how well the city looks and the great buzz that is everywhere. This scheme has allowed us to do something we thought impossible, restore life to the  inner city. It is extremely important that the north inner city be given a boost in any new designation because that area has many derelict sites and old buildings. That area is in need of a boost to restore it to its former glory.
The Bill generally is to be welcomed. The Government is moving in the right direction, has kept public sector borrowing under control and is well placed to take full advantage of the upturn in world economies. It would be quite an achievement if we could maintain our growth rate at 5 per cent and that would help resolve many of our social problems.
I welcome also the changes proposed in the capital gains tax. I appeal to the Minister to reconsider the matter for next year because one of the greatest problems experienced by business here is a lack of adequate capital. Despite what might be thought there is not much wealth here and any created usually is held by middle-aged or older people and much of it tied up in property or in company shares. Were the Minister to reduce the rate of capital gains tax from 40 per cent to, say, 27 per cent on all company shares held over a five-year period that would be of enormous help. While excluding speculators it would help investment in companies because what they need is long term investment and five years is a long term. Anybody who invests money in a company for five years should be allowed withdraw it and pay tax at the 27 per cent rate. I do not believe that people should, or do, pay tax at the 40 per cent rate. Rather they leave money in their wills from which the State receives no return in the form of capital gains tax and such money is tied up rather than being invested in more productive areas of our economy.
I wish to refer to the way this Bill, and others, are drafted. We are committed to open Government but we are turning our backs on open Government by maintaining a tradition in the way our Bills are drafted. Many sections are incomprehensible, not on account of the necessarily complex wording but because of the cut-and-paste approach adopted  to the amending of legislation without setting out in full the amended section or sections involved. Sections of this Bill include tables and the consequences of the amendment proposed can be clearly seen and understood. However, by the time we reach section 10, that practice is abandoned and one must resort to the Explanatory Memorandum to ascertain what it is one is expected to vote on. In regard to section 10, the side note to the section should explain what the Second Schedule to the Finance Act, 1992 is about. An even worse example is section 32 where the side note reads; Amendment of Chapter VII (Urban Renewal: Temple Bar and other Areas) of Part I of the Finance Act, 1991. How is one to ascertain what is meant there? Much of it appears to be a game played by civil servants determined to exclude everybody else from playing. We should remember that not only legislators need to know what is intended but the general public also. It is not acceptable that any member of the public should have to pay £200 to £300 per hour to a tax consultant or lawyer to explain the meaning of these provisions. The parliamentary draftsmen may be under great pressure, they do an excellent job, but there is need for a greater effort to make legislation generally comprehensible. All amending sections should contain tables showing the relevant Acts being amended and all side notes should refer to any other Acts or provisions affected by the changes proposed.
Mr. Deenihan: I thank Deputy Ryan for acknowledging the success of the urban renewal programme which was initiated by the Fine Gael Party. I am glad it has served its purpose and rejuvenated not alone Dublin's inner city but also parts of Limerick, Cork, Galway, Waterford, Tralee and several other urban centres. While acknowledging that its provisions have been improved and that this Bill will render it more attractive, my only regret is that it was not extended to include traditional seaside resorts like Salthill, Ballybunion, Tramore and Bundoran. They are feeling the  pinch at present and are experiencing great difficulty competing with resorts like the Canaries with which they did not have to compete in the past. The Minister was approached by a number of organisations, including the Ballybunion development association, to have the scheme extended to such resorts. Unfortunately he appears to have ignored their pleas but he may accept an appropriate amendment on Committee Stage. The scheme has helped generate economic activity generally and its extension to traditional seaside resorts would create even greater economic activity in addition to substantially upgrading and improving such resorts and the facilities and accommodation available in them.
Mr. Deenihan: As Opposition spokesperson on tourism I will confine my remarks to that area. The more favourable reliefs on gifts and inheritance tax should facilitate the transfer of family businesses to younger people. I welcome this provision which was sought by the Irish Tourism Industry Confederation — ITIC — and other interested groups in tourism. I thank the Minister for responding to a degree. This provision and the more favourable reliefs on gifts and inheritance tax will ensure that businesses are passed on to family members at a younger age; 75 per cent of the hotels in Ireland are family owned. In the past, our tax system served as a major disincentive for families to pass on hotels and other property but this Bill ensures more favourable circumstances for families in general.
The inheritance tax provision in the Finance Bill, 1994, which makes no provision for families, with more than four children, who wish to pass on their business, should be inclusive rather than exclusive. Any tax regime whether it  refers to the passing on of agricultural land or hotels should encourage the passing on of and investment in hotels and in tourism.
The improvements in capital allowances for the hotels sector which will enable hotels to write off capital expenditure over a seven year period rather than over ten years are welcome. Between 1978 and 1989 hotels had annual writing down allowances of up to 100 per cent. This provided a major incentive to investment and reinvestment in the nation's accommodation stock and related plant. Under the provisions of the Finance Acts, 1989 and 1990, accelerated allowances were phased out. I hope this move will indicate a return to the previous position which undoubtedly encouraged investment in hotels with consequential job creation. Other provisions, such as the reduction in employers' PRSI and employees' tax, will be beneficial to the tourism industry. However, the threshold of £9,000 for the special PRSI concession should be extended on a phased basis; a cut off point of £9,000 is stark. On average, the social cost of employing people is about £25 greater here than in England. That puts any industry, and especially our tourism industry, at a disadvantage especially in regard to competitiveness.
I wish to highlight the proposed taxation of unemployment benefit. Despite what the Minister or Minister of State may say this will have an adverse effect on the tourism industry because of the seasonal nature of that industry and also because of the type of people who work in that industry, in many cases the wives of husbands who are in permanent employment in the tourism industry. This provision will be a total disincentive for these people. There is a large pool of experts, for whom it will not be worthwhile to work in the tourism industry. When replying to a Private Notice Question some time ago the Minister pointed out there are plenty of young people to do this work. I accept that, but they do not have the expertise which these people have built up over a long period in terms of meeting with customers, general hospitality and how they treat people. Tourists  appreciate the level of expertise in hotels and in the traditional tourist areas. Year after year these people are involved on a part-time basis in the tourism industry. They do this work to supplement the family income. The feedback I am getting from places such as Killarney, Waterville, Tralee and throughout Kerry indicates it will have a detrimental effect. Women will find that it will be more advantageous for them not to work but to claim some of the benefits to which they will be entitled.
The Minister has made some minor concessions in regard to part-time work but he should examine the overall question and its effects on the tourism industry. Also, he should monitor its effects during the coming months and especially towards the end of the year to determine whether it will have the effects I predict. Perhaps my interpretation is not correct but I will certainly know at the end of the tourist season. I asked the Minister for Tourism and Trade to keep a close look on this whole area.
In this Bill I expected a provision in relation to higher education grants and tax reliefs for hard-pressed families. I am disappointed that there is no reference in the Bill to tax concessions for hundreds of middle income families who are hard-pressed to send their children to third level institutions. Despite numerous promises made by Fianna Fáil and the Labour Party before the last election regarding free third level education there has been no significant concession for that group during the past two years. I had expected that provision would have been made for them in this Bill but this hard-pressed section of the community will not benefit from tax relief on third level education costs.
The same segment will be affected by the changes in mortgage interest relief. Tax relief on mortgage interest will be reduced from the marginal rate of tax to the standards rate of tax over four years. The lowering of the ceiling to 80 per cent of the allowable mortgage interest relief will hit lower income families. This provision will have a major effect on the  aspirations of many young couples to own their homes and people will no longer have as great an incentive to own their homes.
Government backbenchers have referred to the major tax concessions during the past five years. While concessions have been made in the rate of personal income tax, the reliefs have been eroded. Income tax relief on mortgage interest payments gave couples an incentive to enter into long term commitments with banks and lending societies to buy a house but unfortunately this relief is being eroded continuously. Those with mortgages for five years or more were given no prior notice of the changes. While there are certain positive taxation aspects, the reduction in mortgage interest relief is not welcome.
Will the provisions on stamp duty, inheritance and gift tax and other reliefs for farmers be backdated to the date they were announced in the budget rather than the date stated in the Bill, because a number of transfers were made on the presumption that the provision would be backdated? The provisions should be backdated to budget day at least.
I omitted to refer to corporation profits tax when I was speaking on the tourism industry. There is no reason whatsoever that the 10 per cent manufacturing rate should not be extended to the tourism industry. We expect that the tourism industry will provide 35,000 jobs during the life of the National Development Plan over the next five years but at the same time a very repressive taxation regime is being imposed on the industry. Manufacturing industry, including foreign operators who are providing much needed employment, is not creating the same number of jobs but will pay tax at the 10 per cent rate. Tourism is an indigenous industry, with very few foreign operators and it has been built up by families who have been involved in the business for years. They are providing very valuable employment in areas where no manufacturing industry would locate and they should be given the tax concession of 10 per cent profits tax. The Irish Hotels Federation and a number of  other tourism interest groups have called continuously for this provision. I accept there is a cost factor but in view of the significance of the tourism industry it is important that their contribution be recognised and that they be granted this concession. I realise it may not be possible to lower the rate to 10 per cent overnight but the 40 per cent of tax should be reduced on a phased basis. This would give a major fillip to the industry.
The introduction of new provisions in relief for investment in films, aimed at assisting low budget Irish films is very welcome. I have been involved in the production of five videos on north Kerry writers. I found that the little help that was available was not very useful. Those who invested in the project qualified for special tax exemption under section 47 but the existing supports do not provide sufficient incentive. We were fortunate that RTE could provide funding from its grants to encourage local initiative but we had to raise the rest of the funding in America. I hope that this new provision will help not only in making major films and low budget Irish films but also the production of videos. There is massive untapped potential in this country for producing videos and there is very interesting subject matter that may not be available in ten years time. We need to encourage people to make videos in their communities.
Mr. Jacob: I am very pleased to be afforded the opportunity to make a brief contribution on the Bill, one of the most, if not the most important Bills we will deal with this year. There is an onus on all Members to portray the legislation accurately. There is also a need to project it with confidence to the business community to ensure we meet our aspiration of creating sustainable employment. The Minister is continuing the process initiated in recent Finance Acts. Last  year's Finance Act had the same laudable aims.
The public accept that they have to pay taxes and that the system must be fair. In the past some people were able to avoid paying their fair share to the detriment of others. Most people are now complying. There was a time when well heeled individuals could buy expertise to circumvent the legislation and evade their responsibilities, but those days are gone. This is welcome because the fall guy was the PAYE taxpayer who was carrying the can. Happily, the position has changed dramatically. I welcome the changes in taxation provided for in this legislation.
I also welcome the remarks by the Taoiseach in the House yesterday that the Government is committed to reducing the overall burden of taxation. The Minister is continuing the process initiated in recent Finance Acts.
In the course of the debate on the Finance Act last year I was highly critical of the decision to introduce the 1 per cent income levy. This move was regrettable. I expressed the hope that it would be a short term ploy and that the Minister would find himself in a position to remove it. I had an aversion to this measure because of the implications for pensioners who had not budgeted for it. I am grateful to the Minister for removing it.
The Bill is geared towards the creation of jobs and contains measures to help small businesses. We lag far behind our European partners in terms of the number of small businesses per head of the population. This indicates the potential of the small business sector to create jobs. It is incumbent upon us to ensure that every encouragement is given to small business people who have the guts to enter business to provide employment for themselves and others. I welcome the provisions in the Bill to help these business people.
I have great expectations for the county enterprise boards. I hope these boards will not be brought to the ground by the malaise which affected other agencies in the past. The responsible Minister is committed to ensuring that this will not happen.
 The Government's efforts to promote job creation are producing results throughout the country among ordinary people and at local authority level. Yesterday the local authority in County Wicklow held a special seminar entitled “Wicklow: A Jobs Strategy 1994-1996”. Long may this continue.
I welcome the changes announced in the urban renewal scheme. Last year I called on the Minister to include other towns. I am pleased that at least one town in most counties is being included. In my own constituency the town of Wicklow is being included. I would like to see Arklow and possibly Baltinglass and Blessington included in the not too distant future. The scheme is of immense benefit.
I am very pleased with the good news concerning the film industry. The incentives provided reflect the realisation by the Minister and the Government of the recent successes of Irish film makers and the potential that lies within that industry for job creation. In my own constituency there is a tradition of film making in the town of Bray which, I hope, will not go unnoticed by all concerned.
I listened to Deputy Deenihan's aspirations for tourism and wholeheartedly agree with him. I welcome the measures the Minister has included which will undoubtedly help tourism which, with other service areas, has been the chief provider of jobs in recent years. Certain provisions have been made to assist hotels, but in my county of Wicklow accommodation is a problem. There are just not enough bedrooms to meet the demands of tourism in the county. We are thankful for the vast improvement in the industry in Wicklow but it is necessary to encourage people to provide more accommodation, particularly in family-owned hotels. Mechanisms like the BES have been availed of to upgrade such hotels, but there is a need for further funding of such projects to provide a quality tourism package for visitors.
The Minister emphasises the importance of agriculture. I particularly welcome the measures that facilitate the  transfer of land from fathers to sons. Until recently there was no incentive to hand on the farm to educated young farmers. In this Bill there is stamp duty relief for trained young farmers, and other aspects in the budget will help them. Perhaps the Minister and his colleague, the Minister for Agriculture, Food and Forestry will look in the near future at the scheme of installation aid which has remained at the same level for a number of years. This scheme, combined with the early retirement scheme and the other provisions, is part of an overall package of incentives for young farmers to take over the farm. It needs to be updated. Perhaps the Minister would review the scheme with a view to upgrading it at this time.
Mention of the peace efforts by the Taoiseach, the Government and all concerned might at first glance seem out of place in a debate on the economy. I think it is appropriate that it be mentioned because of the implications for the economy of this whole island if peace can be achieved. The benefits to tourism would be unlimited. We would also benefit in our dealings with other countries who, perhaps, see us as a war zone much of the time. Let us hope that the trojan efforts of all concerned, led by the Taoiseach, will bear fruit.
Mr. Crawford: I wish to share my time with Deputy Enda Kenny. There are some aspects of this Bill that I welcome. I am glad the Minister has seen fit to do something about the mistakes he made last year and earlier this year. He introduced the 1 per cent income levy which, although it was voted through this House, was unacceptable to everybody here. The Minister has realised his mistake and that situation has been remedied. The probate tax also had major implications. Once again the Minister has realised his mistake and moved somewhat in the right direction. That movement is to be welcomed but it has not gone far enough. Probate tax is a death tax. It was done away with some years ago and it should have been left that way. It is a sad day when we have to tax people facing the trauma of a death in the family. Although  a spouse can now inherit the property without having to pay the probate tax, if one of the spouses has already died the family still has to pay probate tax when the death of the remaining spouse occurs. That is fine if a person has lived his natural span of life. However, if a person is killed by accident or dies from a serious illness, young families are left to bear a burden that they cannot afford.
We also welcome the Minister's back tracking on the introduction of means testing of widow's pensions. We welcome the introduction of pensions for widowers. However, matching that with a means test for both widows and widowers had major implications and we are glad that is not being done. It should never have been suggested, causing trauma to the people concerned.
The right to own property seems very much a blind area to the Minister. Few people realised at the time of the budget how serious were the implications of the cutbacks in mortgage interest relief. One only has to talk to any young couple with a high mortgage to realise how serious the implications are. The cutbacks in mortgage interest relief, with the cutbacks in relief on VHI contributions and the proposal to do away with that, fly in the face of the promises made to the electorate before this Government was formed that neither would be touched but were to be improved. The measures in the Bill in this regard have serious effects on the take-home pay of couples and individuals which will become far worse in time to come.
We heard glib assurances from the Taoiseach that he wants to reduce the level of income tax, not increase it. I am concerned that the running down of the county roads structure and the hidden comments about the need for taxation from local sources is a ploy to prepare the public for the reintroduction of rates. It may be in the form of a property tax, but if the revenue derived from it is paid into the national Exchequer rather than to local authorities there is no guarantee the potholes in Monaghan, Cavan or elsewhere will be repaired. However, I welcome the changes to the property tax  brought about as a result of comments from this side of the House and lobby groups outside.
I welcome the Government's commitment to reduce the level of stamp duty required to transfer property to young farmers. This is a step in the right direction towards the position which obtained when our party was last in Government when such transfers were not subject to stamp duty. Will the Minister consider a request on behalf of a small group of people? The stamp duty relief came into effect on 11 April, but some people transferred property between budget day and that date in an effort to benefit from the retirement scheme. Will the Minister give some relief to those people? The Minister for Agriculture, Food and Forestry saw fit recently to backdate to 1 January the changes in reactor grants. Will the Minister backdate to budget day the reduction in stamp duty on property transfers? Many people believed there would not be a change in stamp duty after the budget was announced and proceeded to make property transfers. This matter is important for the small number of people involved. Farmers' sons and daughters are not given similar treatment to the sons and daughters of the business people. Will the Minister consider that matter? Those are minor issues in the overall national finances, but have a major impact on farming families.
I welcome the extension of the urban renewal scheme. The town of Monaghan has been granted urban renewal status and I want to ensure the maximum possible acreage is included. As 20 acres were included for the town of Longford, we would like a similar acreage for Monaghan town which will benefit greatly from the change in status. Towns in the Border region have suffered a great deal in recent years and any assistance is appreciated. While the tax increases on petrol and other items may be of minor significance in areas further south, they have major impact on Border regions and but for the decrease in oil prices such taxes could have seriously affected cross-Border trade. The introduction of the Single European Act and taxation agreements  between North and South have brought about tremendous improvements in trading between those two regions, but we must ensure nothing is done to affect that detrimentally.
The low interest loans available for various sectors were referred to earlier. Because of the major interest in the scheme from both a tourism and small industry point of view, will the Minister increase the £100 million available? The high interest rates last spring did enormous damage to small industries, but that can be rectified by a fixed interest rate for that sector which could provide much needed jobs.
The taxation of part-time workers will have major implications for the mushroom, meat and tourism industries. Last weekend many people made representations to me about their tax free allowance being cut in half. In one case a person's allowance was reduced from £112 last year to £56 this year. I understand the Minister has promised to rectify that position by way of amendments to the Bill. It is crucial that this is done. Otherwise, many people employed in seasonal industries will be adversely affected. For example, tourism is at a high point in the summer but does not provide year round employment. The meat and mushroom industries have their valley periods and if part-time workers in those industries are taxed in the manner proposed in the budget the implications for families will be dire. Many of them will be forced to apply for full social welfare benefits. The Minister should not merely alleviate the position for a few months, but confirm that he will withdraw the proposal.
Deputy Leonard played a major role in the setting up of the mushroom industry. It is regrettable that corporation tax on that industry has been increased from 10 per cent to 40 per cent. Approximately 900 full-time and 4,100 part-time jobs have been provided in the industry and it generates enormous wealth from exports. Will the Minister reconsider the matter and minimise all possible damage to that industry which is vital in the area  I represent and many other parts of the country? He must look to his European counterparts in order to do this, but if he is willing it can be done.
Mr. E. Kenny: I listened with interest to Deputy Jacob's speech and share his aspiration for peace and his sentiments about the general economic and social benefits peace would bring about. We must continue to work towards peace.
I also share the sentiments of Deputy Crawford in regard to the mushroom industry. A number of enterprises have grown up in the west in recent years and they are facing closure because of this increased taxation. I hope the Minister will accept Fine Gael amendments on Committee Stage to allow the mushroom industry, which has prospered in recent years, to stand on its feet.
The ESRI report forecast a period of boom and bloom for this country in the years ahead and in general we share that optimistic outlook. One recalls the ESRI's 1989 report in which it predicted the budget surplus would be £1.2 billion at this stage, but there is a deficit of £0.8 billion at present. It also predicted 100,000 fewer unemployed than at present. ERSI and other economic forecasts are only partly true and must be judged on the circumstances that apply on the day.
While sharing the generally optimistic approach of the report the competence of the Government to deal with those implications must be called into question. The Minister spoke for 45 minutes but did not refer to the controversial statement by the Taoiseach in Killarney when he proposed an amalgamation of the residential property tax and other service charges into a super-tax to be levied on all householders next year, nor did he indicate that if taxation of this nature is introduced — which will be fought hard and long by this party — and paid to local authorities that the rate support grant would be reduced proportionately for those local authorities. That would transfer the difficult task of raising finance to local councillors.
 The competence of the Government to deal with the implications of the general optimistic outlook is questionable when one considers the Minister for Defence failed disastrously in an 11 : 1 defeat in Europe on a marine issue, an area of great potential for this country. He returned to this country, said he and the Government had acted in our best interests and tried to placate the outraged fishermen by compensating them with £5 million for the inclement weather conditions of the past 12 months. Deputy Andrews did a good job as Minister for Foreign Affairs but that is not the case in respect of the Marine and Defence portfolios. We have been scuppered in the area of the marine and the period after 1996 will tell its own tale.
Mr. E. Kenny: The Minister for Agriculture, Food and Forestry did not put up a defence of our beef industry following the proclamation by the Germans to restrict imports of Irish beef. That export business is worth £100 million and involves thousands of jobs. The reports of German supermarkets displaying signs they do not sell Irish beef are disgraceful. Not only are they against the spirit of the Single European Act and the Maastricht Treaty, they also breach the law and if the German Ministry for Health and Agriculture pursues this restriction we should take court action.
Mr. E. Kenny: The Government said that none of the projects to be financed by those funds will be abandoned, they will be delayed and taxpayers will have to make up the difference. That is appalling treatment of the Irish electorate and calls into question the competence of the Government to deal with an independent  forecast of an economic boom in the years ahead. The Taoiseach's invitation to meet the Unionists at any time, anywhere or any place reminded me of the Martini advertisement which says you can drink it any time, anywhere or any place.
Mr. E. Kenny: The Taoiseach is talking about the introduction of a new super-tax, the Minister for Finance is making a sterling defence of the residential property tax and the Minister for the Environment is making a play for leadership from a long way out by saying he will stand like Horatio on the bridge in his opposition to a reintroduction of rates. However, given the large majority of the Government we know it can railroad through any legislation. If residential property tax, or family home tax as I prefer to call it, is amalgamated with service charges it will crucify hundreds of thousands of people and develop into a super-tax which will be fought tooth and nail. The odium which the poll tax in Britain, under the redoubtable Mrs. Thatcher, caused a number of years ago will pale into insignificance when our electorate deal with this Government's outrageous intention to introduce such a tax.
In 1993 public expenditure increased by 9 per cent and taxation this year is due to increase by 9 per cent. Despite the Government saying that people will have more money in their pockets, the tax free allowance has increased from £1 to £2 which is disgraceful when one considers that for the next 12 months the black cloud of the new Reynolds-Spring super-tax will hang over people's heads. The officials in the Department of Finance must be driven around the bend by this proposal but they will hear more about it because the Taoiseach and the Tánaiste will not get away with this. It is disgraceful treatment of the electorate and I condemn it out of hand.
Mr. Leonard: The Minister made three relevant points, the first dealt with the creation of sustainable employment by promoting productive use of our resources and rewarding entrepreneurs. He said he had taken account of the views of interested parties. He is willing to meet groups and listen to representations from TDs on behalf of constituents. He talked to the members of the task force on small industries and on the service sectors. If we stick to the three points made by the Minister and make the best possible use of available funding we will develop our economy and create jobs. We will receive regional funds, we have a guarantee in respect of funds from the International Fund for Ireland and in respect of INTERREG II and Leader II which I hope will come on stream at the end of the year. Substantial funds have also been made available for small industries through county enterprise boards.
During the first term of a cross-Border fund which ended last December some stand alone developments were set up on each side of the Border but the fund was not used in a true cross-Border sense. I hope there will be a breakthrough in talks and that at the end of the term of that fund we will be in a position to make better use of such funding.
During the past few weeks the 10 per cent corporation profits tax on the mushroom industry has been increased. To comply with a European Union directive the Government had to increase that tax and section 32 of the Bill provides for that. We are aware that earlier this year the European Union ruled that the application of that tax to the mushroom industry was a State aid and incompatible with the EU ruling. It was increased partly because the English market for mushrooms was taken over by Irish growers who produced a high quality product. The position is somewhat similar to the export of beef to another EU member  state. The Commission has set up a formal procedure in this area which does not favour Ireland. Under Article 9.3 of the Treaty Ireland as a member state of the EU is obliged to comply with the Commission's ruling.
A number of mushroom growers will continue to be taxed under income tax. I welcome the fact that compost production is eligible for the 10 per cent tax rate. I discussed this matter with the Minister and I know he considers mushroom production as a good money spinner. The success of the mushroom industry is well documented. It has gone from strength to strength since its inception in the early 1980s and it is still developing. It has generated substantial income for the country and, more importantly, for my constituency which accounts for about 60 per cent of production — output stands at £53 million.
The industry employs 5,000 people, including full-time and part-time employees. With the decline in the number of small family farms, spending power would be greatly reduced were it not for the mushroom industry. One has only to look at the number of planning permission applications in County Monaghan to see that on a weekly basis people are applying to set up units. Each unit costs about £25,000, with an investment of £100,000. I stress the importance of this industry.
In late 1992 and early 1993 the mushroom industry experienced a serious crisis, but due to the efficiency of growers, a cost cutting exercise and a sympathetic response from the Government, it overcame those difficulties and is now poised to make greater inroads into the export market. There is a very good manufacturing and canning side to this industry which would cater for any contingencies that arise. There is room for expansion in this area. I request the Government to do all in its power to ensure the continuation of this viable industry which benefits a large part of the community.
There are often down sides to successful enterprises and in this case it is a deterioration in road conditions. With  the substantial increase in heavy trucks using our roads — delivering compost and transporting waste compost, the daily collection of the produce, the delivery of feed for the poultry and pig industries and the delivery of milk to our cooperatives — the condition of our roads has rapidly deteriorated. Irrespective of cutbacks in EU funding, the scheme as outlined by the Minister for the Environment, Deputy Smith, of a six year period of funding for non-national roads should be adhered to. I would go further and ask that additional funds be provided for roads which in a region such as mine are the lifeline of rural communities.
I listened yesterday with great interest to the Leader of the main Opposition party who outlined his five year plan for roads. However, when he was asked how he proposed to fund the scheme he suddenly realised that money would be needed to do so and he was unable to respond.
Mr. Leonard: If I wished to buy a product the first thing I would think of is whether I have the money to do so. In the four year period of a Fine Gael dominated Government, between 1983 and 1987, Monaghan received a total of £1.9 million for non-national roads. However, in the following four year period, after the return to power of Fianna Fáil in 1987, that county received £5.7 million.
Mr. Leonard: We did not. Taking 1993 as a base year, we had the highest return on the rate support grant of any county. The Minister for the Environment will launch a farm waste study this week which will clearly demonstrate the need for the recycling of mushroom waste compost and poultry litter. Following the launching of this study, money should be provided under INTERREG or some other programme for recycling.
Mr. Kavanagh: I think all of us agree that the greatest national problem is unemployment and that any Government would have to apply all its efforts to ensure that problem is tackled. In recent years the Government has proceeded with that in mind. Since the last election there has been a greater urgency in the approach to that difficulty.
The macro-economic indicators of recent months seem to be positive. This results from firm Government action in dealing with our finances. Debates on finance, the economy and aspects of that area are not popular with the media, as is obvious from the number of people in the Press Gallery today. However, small topics such as missing Ministers' cars attract people to the House. The approach to our economy in the last year has been a success story. I say that not because I am on the Government backbenches and wish to please the Minister; it is the considered opinion of people in business.
I welcome the ESRI report and the overview of the eminent economist, Mr. Kieran Kennedy, director of the ESRI. He did not say that everything is rosy in the garden and that everything will be great. He pointed out that there are problems to be tackled by Government. He said that the position has vastly improved over the position that existed a few months ago and that the trend could continue to improve if the Government kept a vigilant eye on all areas of economic activity, as it is doing.
I do not normally look to documents from IBEC as a means of putting forward my argument. Down the years I opposed some of its statements, but I have always respected its analysis on our economic position. It gives its analysis on the basis of trends, departmental figures and returns in various areas and therefore they are statistically correct. It is worth quoting IBEC's comment in its quarterly review ending March 1994. Under the heading “Stronger Growth in 1994” it states: “The prospects for a return to stronger economic growth in 1994 and a substantial increase in output of employment  appear good”. That is a welcome appraisal of the situation.
One of the major triumphs of the Government and of the Minister is the national wage agreement, which is now contained in the Programme for Competitiveness and Work, to maintain the sound trends in our trade union movement which has co-operated fully in that area. Over many years the movement has adopted a considered approach to our problems and has entered into agreements for the betterment of all people, for the reduction of unemployment and, at the same time, looking after the interests of their members, which is their first duty. A continuation of policy such as that contained in the Programme for Competitiveness and Work is regarded by the trade union movement as being beneficial for its members and for the whole community.
In commenting on the national wage agreement, IBEC, in its quarterly report, state that this will prove particularly beneficial to indigenous industry serving the domestic market where it believes there will be substantial growth and that this in turn ought to lead to an increase in employment over the course of the year. It further stated that the budget will have imparted some stimulus to consumer spending, particularly at the lower income levels, through the abolition of the income levy and the income tax concessions and that these developments ought to stimulate both employment and increased spending. That is an important comment and we must continue the policy outlined in the budget and put it into effect through this Bill.
Already we can see some green shoots appearing throughout the country as a result of a slight upturn in our economy and more confidence coming back into the economy. Though this view may not find favour with Deputy Yates, I particularly welcome an increase in employment in the public sector area. For too long there was a decline in that area; from 1987 to 1990 there was a reduction of 21,000 people employed in the public sector. With such a reduction in employment,  obviously there is a resulting increase in unemployment commensurate with the reduction in that area. During that period employment in our local authorities and all Government Departments reduced substantially, although perhaps this action was necessary.
We must employ more people in the public sector. We need more people working in our local authorities. This is demanded by all of us at local level regardless of which side of the political divide we are on. In his contribution to this debate, Deputy Yates demanded a cut in public expenditure——
I am happy to see life coming back into our economy and that in my town of Wicklow 30 local authority houses are being built in addition to over 60 private houses. This is not the only area in our constituency where house building is taking place, it is happening all around the county. Car sales are improving because of measures in the budget and this may result in an increase in car imports.
The only cautionary comment I would make to the Minister is in regard to the slight increase in the inflation rate. I know he is aware of this and is taking action in that area, but the ship has steadied and it is going ahead. None of us wants to see inflation rates increasing again. We want to see steady progress so that the levels of unemployment will decrease, as has been suggested in the IBEC quarterly report, and see more people getting back to work as a result of Government policy.
Mr. Foley: I welcome the Bill and, in particular, the opening statement of the Minister for Finance that it implements an important range of measures designed to promote and assist the creation of sustainable  employment. I hope to see this reflected on the ground. I must refer, in particular, to my constituency of Kerry North where unemployment is now well above the national average. In July, one of our major industries in Tralee, Klapman Industries, will lose approximately 148 jobs. This will be close on 300 job losses in this company within the past two years.
While commitments have been given by the various State agencies over the past number of years that north Kerry would secure a major industry, nothing has happened. The Minister emphasised that the measures in the Finance Bill should not be viewed in isolation but rather as complementing and enhancing the initiatives for enterprise and employment enshrined in the 1993 Finance Act and that they must be seen in that context by the Government's broadly based strategy for economic progress in the interests of job creation. How can I explain this to the many people seeking employment who attend my clinics week after week?
The Minister for Finance should consider the submission of Kerry County Council which could create up to 300 jobs within the local authority provided it can qualify for certain subsidies. I do not propose to elaborate on the submission at this point; it is well presented and documented and could be taken as a pilot scheme with the co-operation of the Department of the Environment.
I welcome the statement by the Minister with regard to unemployment benefit which has been made reckonable for tax purposes from 6 April 1994. It has been decided, however, that in recognition of their special circumstances, workers who, on 5 April 1994, were participating in a systematic short-time working arrangement recognised by the Department of Social Welfare, will be exempted from the new tax arrangements. This exemption will apply in respect of unemployment benefit payments received in relation to systematic short-time working for the duration of an individual's current unemployment benefit claim or to the end of the present tax year — 5 April 1995 — whichever is the earlier.
 I welcome the Minister's statement that he will table a Committee Stage amendment to this effect, but I ask him to take into account the many genuine workers involved in short-time employment. In this respect I refer to County Kerry where in excess of 7,000 people are affected by this measure. I realise a number of submissions have been made through the various industries in the area who are now on short-time, in particular Pretty Polly, and I ask him to consider this also on Committee Stage.
I welcome the measures with regard to agriculture, in particular, those which will benefit and encourage the transfer of farms to younger, more enterprising farmers. The measures include a substantial improvement in agricultural relief under capital acquisitions tax, relief in respect of probate tax and a new stamp duty relief for young trained farmers. These measures, when taken together with the EC early retirement scheme and the scheme of installation aid for young farmers, will certainly help to improve the structure of this important sector of our economy.
I compliment the Minister for the money being made available to the many local authorities throughout the country for housing. We have certainly benefited from this in Kerry and we hope to improve our position during the year. Last year, as a result of the additional funding, we built in excess of 164 houses, which was second only to the Donegal local authority who built 200 houses. I hope the same commitment will be given this year because we have a serious problem in Kerry with regard to housing.
Minister for Finance (Mr. B. Ahern): I thank Deputies who contributed to the debate, in particular, Deputies Yates, Cox and Rabbitte. I do not accept the proposition by Deputies Yates and Cox that the Government has no coherent tax strategy. Everyone agreed the overriding  economic and social objective is to resolve unemployment. Ensuring taxation policy is pro-employment is essential and is the focus of the Government's tax strategy. This means continuing the process of tax reform which has been underway for a number of years. It is aimed at increasing the rewards and incentives for working and reducing the cost of employing workers. We should not forget the significant progress made by successive Governments from the point we were at ten years ago where we had 65 per cent, 58 per cent and 35 per cent tax bands and 50 per cent corporation tax. This year significant steps are being taken in implementing the Government's taxation strategy, in particular to lighten the tax burden on earned income. By any standards the reliefs in income tax are substantial costing £330 million in a full year.
It is the Government's policy to continue, within responsible budgetary parameters, to ease the tax burden on earned income and, where necessary, adopt appropriate base-broadening measures. In the Budget Statement I set out what the Government regard as the guiding principles for a pro-jobs taxation strategy. The same principles are reaffirmed in the Programme for Competitiveness and Work. These concerns underpinned this year's budget and Finance Bill and will remain the barometer of progress on taxation over the coming years.
I make no apology for the steps that are being taken to assist the development of firms, particularly smaller indigenous businesses. I refute categorically the allegation that the specific targeted measures proposed are in any sense a reversal of the base-broadening measures put in place over recent years. People who say that do not understand what has been happening over the past few years.
Some Deputies have argued that the Government has lost control over Government spending, that somehow this is a tax and spend Government with no concern for the proper management of the public finances.
I notice very often that those who  argue in this way do not spell out in any detail how they impose cuts on public spending. However, this does not stop these critics from going on to call either for tax reductions or for expenditure increases. There were calls in this debate to spend millions of pounds on all kinds of projects.
We have made significant progress in bringing order to the public finances. With the recent slowdown in the international economy, Irish public spending increased during the period from 1990 to 1993, reflecting, in particular, the pressures which high unemployment has imposed on Government services, especially health and social welfare.
This was a development common to all our European partners. Nonetheless, public spending in Ireland compares well as a percentage of GDP to that of our European partners. EU statistics on general Government expenditure indicate that Ireland is significantly below the EU average. The 1994 budget targets — which once again meet the Maastricht guidelines — show that the Government is determined to maintain this performance in the years ahead.
If the argument is that Ireland's public sector is pre-empting an excessively large share of national income, then this is not borne out by these figures. If a relatively small public sector confers any competitive advantage, then, on this evidence, Ireland is certainly in a better position than our European partners.
The House will be aware that social services — health, education and social welfare — account for a very high proportion of spending in Ireland. If the Government contemplated substantial cuts in the level of provision, the quality and scale of these social services would also have to be reduced. It is far from clear that there would be any support for measures of this sort from any group of opinion, perhaps not even from those who have been arguing today that aggregate levels of public spending are too high. Deputy Yates is calling for a major cutback in health and social welfare. It is the only conclusion that one can come to.
Mr. B. Ahern: The Government is continuing the work of all Governments since 1987 in steadily and sensibly reforming the income tax system. We tackled the immediate problem faced by us in 1987 which was to reduce the very high rates of tax. I doubt if even Deputy Yates would argue that a standard rate of 27 per cent and higher rate of 48 per cent are excessive by international standards. In fairness, he has acknowledged that they are not.
Mr. B. Ahern: Our main concern now is to remove as many low income families as possible from the tax net and to ensure that only high income taxpayers are obliged to pay tax at the higher rate. That is what the partnership Government is committed to and I was glad to be able to move substantially in that area. This involves a raising of the threshold at which taxpayers become liable to the higher rate of tax over and above the rate of earnings growth on a phased basis. Middle income taxpayers will be the main beneficiaries of this threshold raising exercise.
Naturally base broadening must be an element of tax reform. To make out, as Deputy Yates does, that not only can you leave all existing reliefs untouched but that you can add new reliefs and simultaneously effect major reform of the taxation system is unsustainable. The tax reform measures we have put in train, notably the increase in the standard rate band, will be of particular benefit to the middle income taxpayer. The Programme for Competitiveness and Work makes clear the Government's intention that the progressive increase in the yield from the standardisation of discretionary reliefs should be used, as a priority, to expand the standard rate band. What we have said is that what will be achieved by taxing  everyone in the same way will be used to widen the bands. Some Deputies said we never gave that commitment and that is why I reiterate it.
The circumstances which obtained at the time of last year's budget forced the Government to introduce a temporary income levy in the context of exceptional budgetary difficulties arising from the repercussions of the international recession. It was a means of seeking an equitable contribution from all income earners in a position to bear such a burden at at time of crisis. Its introduction had to be seen against the backround of the income increases and tax improvements in recent years which produced a significant improvement in real take home pay generally and of the progress made in implementing measures envisaged in the Programme for Economic and Social Progress.
I stressed at the time I announced the levy that it would be a temporary measure but I did not anticipate the total abolition of the levy would be feasible in this year's budget. We do not have the benefit of hindsight in these matters. We made the right decision and there is no inconsistency in the honest and responsible approach we took in introducing the levy and, when there were sufficient resources available, removing it. I know that creates a difficulty for Deputy Yates because his party brought in two levies in the mid-1980s which still exist although they were temporary measures.
Mr. B. Ahern: The fact that the tax free allowance certificates issued to taxpayers with mortgages have shown decreases over the 1993-94 tax year in the allowance in respect of mortgage interest has been mentioned. I am glad most Deputies understand it. Taxpayers will see the full benefit of the budget improvements in their other allowances. All taxpayers, apart from a few previously exempted on account of having a medical card, will benefit. Decreases in tax free allowances have arisen mainly from the fact that the Revenue Commissioners have reduced the interest shown on TFAs in line with  interest rate reductions. If they did not do that they would be looking for their money back and hitting taxpayers excessively at the end of the year. This part of the reduction reflects an unavoidable feature of all tax reliefs in respect of expenditure, namely that relief depends on what the taxpayer spends.
Mr. B. Ahern: The only element of the reduction which can be attributed to the changes in the 1994 budget — this applies only to higher rate taxpayers — is the scaling down on account of the move to standard rating. It is clear that tax free allowance reductions have very little to do with the 1994 budget changes which will only have a modest effect this year.
The case for standard rating discretionary reliefs has been well ventilated but for the benefit to Deputies I will repeat some of the main arguments. Standard rating is a central part of the Government's strategy to broaden the tax base so as to improve mainstream income tax allowances and bands. It is designed to put all taxpayers on an equal footing as regards the extent of support given through the tax system. This means that the equity of the system is improved and at the same time funds are raised to contribute to reductions in tax rates.
Many reputable bodies have recommended that short term social welfare benefits, including disability and unemployment benefit, should be treated as income for tax purposes. I thank Deputies for their support for the changes I propose to make on Committee Stage. We are following the recommendations made by the Commission on Taxation, the Commission on Social Welfare and the NESC. Deputy Yates appears to have conveniently forgotten the substantial increases provided this  year in disability and unemployment benefit rates.
Deputy Cox referred to the question of capital allowances on cars. I would refer the Deputy to my Budget Statement in which I set out my intentions on the future development of the capital value threshold for company cars. I think the Deputy use the word “ad hocery”——
Mr. B. Ahern: I forget the term he used, and I think he left for Africa as soon as he finished his speech. I have set out my intentions on the future development of the capital value threshold for company cars for the next three years. The measures in this year's Bill reflect only the first instalment of a three year phased increase in the threshold. The threshold will be increased to £14,000 next year and by 1996 it will equate with the average cost of a 1.6 litre car and its value will be reviewed annually thereafter. As in the case of everything else, our policy in this area is logical and consistent.
Deputy Cox referred to the patent income relief. The changes I am proposing in this area are designed to tackle unintended abuses of the scheme. These changes were supported by Members on all sides who will be aware that over the past year or so the tax relief on patent income has become the focus of critical media attention, notably on foot of the revelations that certain financial institutions had apparently established patent holding companies so as to enable the payment of tax efficient remuneration to certain directors. The Government is aware that companies are using the relief as a means of sheltering company income from tax which would otherwise be taxable at 40 per cent. The decision no longer to allow the relief in respect of royalties derived from non-manufacturing activity where the payments are made between connected persons will prevent unintended abuses of the scheme and preserve the basic industrial policy thrust of the exemption.
On the question of the withdrawal of  the 10 per cent rate of corporation tax from mushroom growers, I was glad Deputy Cox acknowledged that the Government was bound by an EU Commission ruling and had no choice in the matter. If Deputies read the section a little more carefully they will see that I did not decide to withdraw the 10 per cent rate overnight. If necessary, I can spell out the reasons——
Mr. B. Ahern: Some of the mushroom growers who visited me come from the Deputy's county and they are very happy with the change. Mindful of the difficulties which an overnight change in tax treatment would have on the mushroom sector, the Government couched this legislation in such a way as to provide a considerable degree of breathing space to allow those affected to adjust to the new regime. The Bill applies the higher 40 per cent rate of tax to income earned in accounting periods beginning on or after 1 June. This will allow affected companies the flexibility to commence an accounting period on 31 May 1994 so that the higher tax rate will not apply in practice until the accounting period beginning 31 May 1995. Because corporation tax is not paid until six months after the end of an accounting period, the above arrangements mean that a major mushroom company or an incorporated grower will not have to pay the tax due at the higher rate until November 1996.
Mr. B. Ahern: This group was set up to examine the taxation system with a view to reducing the burden on taxpayers. As in previous years, the Government is endeavouring to reduce the burden on taxpayers. Deputies opposite should compare the position which obtained some years ago when there were three tax rates of 65 per cent, 58 per cent and 35 per cent with the position today when we have two tax rates of 48 per cent and 27 per cent. This year I introduced the biggest increase in the tax bands since 1984, at which stage the tax rates were 65 per cent and 58 per cent. The Government has done an extraordinary job in the area of taxation. The tax strategy group will continue to try to reduce the burden on taxpayers.
Briscoe, Ben. Ellis, John.
Hilliard, Colm M.
Kitt, Michael P.
Browne, John (Wexford).
Doherty, Seán. Moynihan, Donal.
Ó Cuív, Éamon.
Browne, John (Carlow-Kilkenny).
De Rossa, Proinsias.
Dukes, Alan M.
Durkan, Bernard J.
Noonan, Michael. (Limerick East).
O'Malley, Desmond J.
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