Tuesday, 17 May 1988
Seanad Eireann Debate
Mrs. Bulbulia: I was speaking about the hasty manner in which the budget of 1987 and the Finance Bill were put together. Everybody understood that that was the case and, therefore, our general approach towards them was charitable. We did not think it was fair to expect them to be creative, innovative or even radical in view of the circumstances of their genesis.
This year's budget and the Finance Bill which puts it into effect and which we are discussing here today are the products of ten months's consideration. Many people hoped that the Finance Bill would bear some stamp of coherent policy and constructive outlook or even, dare I suggest, a degree of imagination. My party and I  find it dull, unspectacular, largely a figure-juggling exercise and something of a non-event. This is really because some of the most crucial decisions affecting the economy in 1988 were the spending cuts and, of course, they do not appear in the Finance Bill. In 1988, £400 million was written out of the economy and that does not feature in this Bill. It underpins and is the hallmark of Government economy policy. We cannot forget that when we are discussing the Finance Bill. I am sure many Senators will return to it time and time again in the context of the debate.
The Minister in recent speeches has confirmed that the Taoiseach has asked for a further 10 per cent cut in each Government Department, probably totalling in the region of another £400 million. These proposals will be before the Government shortly for consideration. While this is primarily a matter for the 1989 budget and Finance Bill I would like to enter a plea that decisions should be made against a background of coherent social as well as fiscal policy. There is a perception, and I share it, that the emphasis is very much on the fiscal side which, of course, it needs to be and that the social side is to some extent being overlooked, put on the back burner as of less importance. That cannot be so. The two matters should be dealt with equally. I would like to see an adherence on the part of Government to some clearly perceived principles of social justice. I would like to hear clear, unequivocal statements from Government about social justice and the importance, necessity and emphasis which they place on that.
I recognise that the Programme for National Recovery states that the least well-off in our community will not have their position eroded by Government policy and decision making. Those of us on the ground have firm reason to believe that that kind of statement, while fine-sounding as a statement of intent, is very often in practical application purely aspirational and that the reality as we perceive it, and as those who come to us perceive it, is sadly very different. On the positive  side I compliement the Minister on holding the line on Government borrowing, bringing it, at 8.2 of GNP, signiicantly lower than what was expected. He has been generous on the social welfare front but that is only as it should be. The increase of 11 per cent for the long term unemployed is particularly welcome and is a recognition of the reality of so many people's lives in this country today.
The income tax reliefs, such as they are, are welcome but they will not be of most benefit to the lower paid, which should be the case. The Minister has gone some way towards making the system a little bit fairer, but he could have exhibited greater courage and innovation and gone further. This he did not choose to do in the context of this Finance Bill. I notice from his speech that there is a promise of greater things to come. Reform of the income tax code is urgent and the Minister has recognised that fact. Other political parties, and my own political party in particular, feel very strongly about that. Everybody in the country recognises that the income tax code as it stands is disastrous. Many people are fleeing the country because they do not choose to submit themselves to it. Others groan and pay up but they will revolt if it is not a subject for meaningful reform soon. Others, of course, quite simply dodge and evade it. I welcome the provisions in the Bill which strengthen the hand of the Revenue Commissioners, the sheriffs and the county registrars and seek to eliminate what is a scourge — tax evasion.
All in all the Government could have shown more resolution towards reform in the Finance Bill. For my party this is the major disappointment in the 1988 Bill. Fine Gael perceive the reform of taxation, and in particular personal taxation, as being just as important as controlling the national debt. Obviously it will take time and very substantial political and administrative-commitment to bring such a reformed system into being. The first step along the way to this objective must be to reduce the standard rate of tax to 25 per cent and the higher rate  to 40 per cent. I want the Minister to state in his reply to Second Stage debate on this Bill that he finds this is a reasonable objective and not only that, but that it is imperative that we move as rapidly as possible in this direction.
There are huge difficulties in the political and economic choices which this kind of progression involves. Fine Gael have proposed in their policy document, The New Politics, that an all-party committee should be set up to work towards the aim. Without cross-party agreement, no substantial tax reform can be achieved, just as there could not have been progress on the national debt without consensus and cross-party co-operation. This is a constructive approach. The Minister referred to it as being a rather fudgy and insubstantial way of going about things. In actual fact, consensus politics has come of age in this country, or it is beginning to come of age. Would that it could finally reach maturity if we could set up the kind of all-party committee and all-party approach which Fine Gael are attempting to initiate. Fine Gael have put out the hand of consensus on tax reform to the Government and to other parties it will be a very sad day for the country if that gesture is spurned.
There will come a day when that offer will be taken up, just as there came a day when the offer of consensus on the national debt was taken up. I ask the Minister to think and ponder on what I say very carefully indeed. In Fine Gael we will continue to press for this and we hope that other parties will desist from being negative in their reactions and using a purely party political response in attempting to cope with what is a very genuine, very necessary and, indeed, very patriotic gesture in seeking to have forward movement in the area of tax reform. The issue of high taxation and its effect on the personal economies of so many people and on the wider economy in general is so great that it deserves more than a sort of carping, begrudging and negative response from the Government and, indeed, from other parties who choose to spurn the idea.
While some of the measures which the  Minister has introduced in this Bill continue the significant reform of the tax collection and enforcement system which has been undertaken over the past five years, I welcome the provisions in Chapter II of the Bill. Self-assessment to tax liability is Fine Gael policy and we are pleased to see the Government take it on board. In 1986, Deputy John Bruton, then Minister for Finance, invited the International Monetary Fund, as international consultants, to advise on this. My understanding is that this Chapter of the Bill reflects that advice and we support it in principle.
I wish the Minister had said more in his speech about unemployment and emigration. They are lurking in the background and, while he did not dwell specifically on them, I am confident that he is conscious of the 256,000 unemployed — the average figure in 1988. Another matter of great concern is the 30,000 per annum emigration level which it is estimated will take place over the next three years. These are stark statistics and they remind us very forcibly indeed of why we need growth in our economy. The Finance Bill, as presented to us, is based on a zero growth rate. Without growth our problems will continue and they will increase. The Finance Bill must be measured against a yardstick of what it will do to alter radically the unemployment situation and the haemorrhaging of young people away from this country. In my view it passes the cost containment test, but it fails in that it does not present any future vision or hope to the hard-pressed taxpayer, the unemployed or the young. We must improve our economic situation. High taxation and high pay-related social insurance are an impediment to job creation. The only way to find the resources to give substantial tax relief is to extend the tax base or to rearrange the system in some way.
Why are we not looking at options in capital tax? Why are the Government unwilling to talk about property tax? We all recognise that, if there is to be tax reform and if people are to sit down and talk about it, either in dialogue as the  Minister says he would prefer, or in an all-party committee which Fine Gael have initiated, we will have to trot out the various options for a meaningful reduction in tax. No party will make the kind of unpopular decisions necessary. Fine Gael do not oppose the general thrust of Government policies. They are policies which we devised. We roundly criticise this Government for a lack of clear objectives and an absence of a well chartered political agenda. What we see daily coming from this Government is simply and solely cost containment. While that is necessary, we want to see so much more. The economic consensus may be a temporary expedient, and an essential one, to keep the ship afloat. I would like to see it taken up in the area of taxation reform and in so many other areas as well.
I would like to speak now briefly on some of the things that did not appear in the budget. There was no tax on alcohol in this budget. That is, of course, welcomed by the trade and, indeed, by the consumers of so many beverages. I would like to know, and perhaps the Minister would care to confirm, if this was because he recognises that in the area of drink taxation we are into the law of diminishing returns. There is already a very high tax rate on alcohol and a general lowering of consumer spending. Tourist interests are also strongly opposed to increases in alcohol prices. I assume this is the thinking behind the absence of what has become a usual feature of budgets and Finance Bills.
When the Bill was first published it included a measure which affected disabled drivers. It was the proposed transfer of the remission of excise duty and VAT from the Department of Finance, the Revenue Commissioners, to the Department of Health and ipso facto to the eight regional health boards. There was an outcry against this and rightly so. To my knowledge nobody had sought any change in this scheme which was working nicely. It was a harsh and insensitive measure and was quite properly and quite rightly resisted by the Irish Wheelchair Association, the Multiple Sclerosis  Society, which is my nominating body to the Seanad, many organisations which concern themselves with the welfare of the disabled and, of course, the disabled themselves who were most vocal on the matter. The Minister was compelled to withdraw what I regard as an ill-thought out proposal to change the scheme for disabled drivers. I welcome the fact that the Minister backed down on that measure. I am sure I speak for all those who would have been directly affected by it when I express appreciation and relief that that proposal was scrapped.
I do not know who dreamed up the tax on bank cash dispenser cards. Obviously it was introduced with a view to bringing in revenue but it should never really have gone beyond the first memo stage. It was a bad idea. Not only did it amount to a tax on efficiency but it amounted to a charge on customers for withdrawing their own money. In addition, it resulted in several thousand teenagers, who had been given a bank card and a £3 deposit by their friendly bank, finding themselves in the red before they ever activated their new accounts. I am glad that wiser counsels have prevailed and that an expedient was found to drop that measure from the Finance Bill. We could have had great fun debating it in the Seanad and putting down recommendations against it. As somebody who enjoys debate perhaps it is rather sad that we cannot do so. Nevertheless I am very pleased indeed that that tax has been politely forgotten and that it will not be a feature of this Finance Bill. One hopes it will never surface as an idea again because it was nothing short of disastrous.
I had hoped that there would have been more for tourism in the Finance Bill. I would like to know where is the long term strategy. I know £4 million was made available as a special package and that is of course welcomed, but it is somewhat disappointing that, in the context of the Finance Bill, our second major industry, and one in which we see tremendous growth and potential, did not feature for additional support. There is no great evidence, in the Finance Bill at  least, of a long term strategy for developing tourism. Announcements to this effect were made during the general election last year. I think the tourist industry could reasonably have looked to the Finance Bill for more encouragement, greater support and a greater evidence of Government commitment. I will be interested to hear what the Minister has to say about that in his reply on Second Stage.
We consider the tax on investment income of pension funds to be a retrograde step. People should be encouraged rather than penalised for providing for their retirement. I recognise that there is some improvement in the Finance Bill on this measure as presented in the budget. The effect of the proposal on different pension funds will vary. Can the Minister give assurances that no pension fund will be put at risk of insolvency by the implementation of this levy? What guarantee can he give that this will operate for one year only? He reiterated, in his speech today, his assurance that this will be so. I would like more than reiteration. I would like more evidence to the effect that this will merely operate for one year. Anybody who has studied taxation knows that things have a way of lodging and becoming permanent. They may initially have been introduced as short term measures to derive revenue but they tend to hang around a long time. I would like assurances that this will not be the case in relation to this measure.
In general I am not happy about the principle, or indeed the lack of it, underlying this measure because it is discriminatory. It punishes those who have been provident and who have saved. Even allowing for the excluded assets, it still seems to be a measure which breaches a fundamental principle. It amounts to a clear case of double taxation. As the income from pension funds is already subject to tax, it will result in higher pension contributions. It will scoop £16.5 million out of private pension funds and it will be exceptionally difficult to collect. Of course, it will not apply to public servants whose pensions are funded out of Government revenue. I  think it should follow the bank card tax into oblivion.
I would like to speak about the motor industry. I do so with a certain sadness because our able exponent of the motor industry in the Seanad, Jackie Daly, died some ten days ago. He always looked forward to the Finance Bill. He girded his loins, took up the cudgels, armed himself with his SIMI briefing documents, took the Minister on and enjoyed it. Those of us on this side of the House will have to do justice to that section of the Bill for the industry itself and, of course, for Jackie Daly who would have wanted us to give as good as we got in relation to it. There is not much joy in the Finance Bill for the motorist or for the society of the Irish motor industry. I welcome the increase in the benefit in kind relief on company cars proposed in section 22. The motor car industry is very depresssed at present and any measure which will stimulate demand for new cars is of value. My colleague in the Dáil, Deputy Michael Noonan, introduced an amendment, the purpose of which was to assess benefit in kind on the engine capacity of company cars rather than on the market cost. He felt that this would be an even stronger stimulus to car sales.
The 8p increase on a gallon of petrol is obviously something that one would not welcome. It is extraordinary that the Minister should treat the spirit which the motorist puts into the fuel tank as less essential than the spirit of drinkers who got away scot free on this occasion. The budget had the effect of clawing back recent reductions in petrol prices caused by the weakness of the dollar. It now increases the Exchequer take to a massive 71 per cent of £1.85, on a gallon of premium petrol costing £2.61. I am interested in unleaded petrol. It will now have price parity with leaded fuel, whereas heretofore it had been over 4p a gallon more. In most other European countries, however, unleaded petrol is actually cheaper to buy at the pumps and I would like to see that situation obtaining here. We have to give incentives towards the purchase of unleaded petrol which is, as we know, environmentally necessary  and important and which we want to see being used more and more.
The fact that there has been no decrease in the excise duty on new cars is, of course, a major disappointment. The new £6,000 capital allowance represents roughly half the cost of the average company representative's car but it will hardly set the motor industry alight. The Finance Bill, to some limited extent, recognises the difficulties faced by the motor industry. I welcome some of the measures but I would like to have seen a much greater improvement.
Turning to Chapter III, sections 24 to 26, the Government's decision to reintroduce the section 23 tax incentive for apartments is welcomed in that it is an attempt to stimulate the building industry which is sorely pressed. They badly needed a gesture of appeasement, having been led to believe that they could confidently expect a 5 per cent VAT rate and a cash injection of £200 million if Fianna Fáil were returned to office. Last year's Finance Bill gave them no joy whatsoever. I suppose they have to be grateful for small mercies and take what is given to them on this occasion.
I see certain dangers in the reactivation of section 23 while I welcome it in principle. More and more we have seen suburban locations targeted by developers while dereliction in our cities and towns continues to grow.
Mrs. Bulbulia: I was discussing Chapter III, sections 24 to 26 and what is known as the section 23 incentive to the  building industry, and I was expressing concern. It is quite obvious to anyone who is an observer of the building scene that, by and large, suburban areas have been targeted by developers for this kind of department block development. Large infills have taken place in areas which are familiar to me, like Dublin 6, Dublin 4 and elsewhere in the city. At the same time, we are seeing massive dereliction in the Dublin city centre; and the same is true of all our cities and towns. Areas of dereliction in inner cities and towns are crying out for remedial attention. This measure may not mean that they will receive the attention they deserve. The development may continue in the suburban areas and the dereliction may remain reminding us all, in a very gap-toothed way, how very ugly so many of our cities and towns have become. I would have thought that the proposal, as presented, would have been firmly underpinning the Government's urban renewal programme and that the consequences of the reintroduction of this relief would have been to do away with urban blight and dereliction specifically. An opportunity to do that was missed in this section of the Bill.
I am disappointed that the Government have not included an incentive for the restoration of listed buildings. This I consider to be a glaring omission. I hope my colleague, Senator David Norris, will be here when we discuss Committee Stage because he waxes lyrical, as only he can, on listed buildings and dereliction in inner cities. Also, I am concerned that this provision does very little to help the construction industry in rural areas. It will impact certainly on Dublin and on the major cities, but the people involved in the construction industry in the rural areas, by and large, will remain unaffected by the measure. As such, it appears that there is a certain inequality about it.
The greatest disappointment for those in the construction industry will be the failure to reduce the current 10 per cent VAT rate to the promised 5 per cent. Can the Minister indicate that he will  consider such a reduction in the 1989 budget and Finance Bill? I am sure the industry would be very interested to hear the Minister's thoughts on the matter. I would like him to indicate what he expects the introduction of the section 23 provision will cost the Exchequer in any given year, and it is important to know for how long he intends to retain it on this occasion. I think a limit of three years is what is in the Bill, but I would welcome an indication as to whether he thinks that might be extended and it is important to know the cost to the Exchequer. It would be useful also to have as information how many apartment blocks were built during the duration of the last scheme? Have we that kind of detail and information? Is it a fact that about half of these were built in the Dublin 4 and Dublin 6 areas?
Is the argument I make about the saturation of suburban areas with apartment blocks and the dereliction of inner cities valid? As somebody who was born and grew up in Sandymount, Dublin, and who spends some time there now, I cannot but notice that every little green area and every garden of any decent size has been turned into an apartment block, and meanwhile we have to look at the ugliness of the inner cities. While I am on the subject of dereliction, when will the Cabinet introduce a derelict sites Bill which is a long time awaited? How many pounds worth of new buildings does the Minister expect this measure will introduce? Does he think it will be eagerly taken up by the construction industry? What does he think the actual bricks and mortar consequences of it will be on the ground? I will be very interested to hear him speak.
I turn now to the 35 per cent withholding tax introduced in the first instance in the 1987 Finance Act. We did battle on it last year and subsequently. I have to say it is working very unfairly in certain professions, especially as it affects doctors in the GMS scheme. In the 1988 Finance Bill, it is proposed to extend it to payments by the VHI. Fine Gael had an amendment in the Dáil recommending that the VHI and all others offering medical insurance would only have to notify the Revenue Commissioners each month  of the total paid to members to cover medical expenses claimed by medical practitioners, and the names and tax numbers of medical practitioners. If we have got to do that, this seems the better way.
In the past, the VHI refused to give that kind of information, but now I understand they are willing to comply. There is a danger, under the scheme as proposed by the Minister, that, as doctors are now going to have to wait for their money and will get it minus 35 per cent, they might look for it straightaway from the patient and the patient, in turn, might have to borrow to meet medical expenses. That is a situation which I am sure the Minister would not like and I certainly would not wish to countenance. It is also likely that this measure will merely bring about an increase of 35 per cent, or thereabouts, in consultants' fees. That, of course, would be a worry. It is the oldest trick in the book to pass on any increase to the consumer. I am sure consultants are no more immune from that kind of attitude than any other group in the country. That gives cause for concern. Unlike other professions — lawyers, solicitors, barristers and engineers — people in the medical profession determine their own fees in the main. It is often the case that the patient is prepared to pay any price to be cured. That is something we have to remember in the context of this measure.
I am interested in knowing whether the Minister's thinking, apart from merely wishing to bring in additional money which he is charged to do as Minister for Finance, was to reduce the disparity between the doctor working in the GMS and the hospital consultant. I admit there is a certain validity in that argument and in wanting to subject all members of the one profession to the same 35 per cent tax. As a consequence of this measure, there have been enormous cash flow problems for doctors in the GMS. The Minister, when introducing this measure in the 1987 Act, allowed for a hardship clause, but I do not see that operating. In response to Dáil questions he indicated that virtually no returns had been made  on foot of the hardship clause. I have to question why it was put in at all. Was it merely a sop because there was so much antagonism to this tax at the time, or does it mean anything at all?
I am concerned about the fact that as matters stand there is a contractual agreement — a private contractual agreement — between the citizen and the insuring body. I suppose we can talk about the VHI because they, in the main, are the insuring body who look after the health needs of people in a private health care sector. Many people in criticism of this measure have felt very unhappy that the Minister's action constitutes an interference in this private contractual arrangement and that it is, to some extent, a subversion of all we understood the VHI's relationship with the patient to be. There is a certain danger that patient privacy will be interfered with and eroded when third parties get in on the act. Privacy and confidentiality are a hallmark of medical care in this country, and long may they continue to be so. I would welcome assurances from the Minister that patient privacy and confidentiality will not be breached by this proposal.
The Commission on Taxation suggested that withholding taxes should be used as widely as possible where it was fair to do so. However, having had personal experience of the operation of this tax as it affects the doctor in the GMS, and having many close friends and associates who are reeling from it, I can state without fear of contradiction that it is penal, iniquitous and its net effect is to cause great hardship. I would like the Minister to refer to the absence of refunds on a hardship basis since the scheme was introduced over the past year. This element, brought in as a sop and to assuage anger and irritation, was fine sounding and compassionate seeming, but its practical application was nil and it was meaningless. There are many sadder and wiser people who have found that out. The correspondence columns of the Irish Medical Times and other medical magazines are packed with letters from people who find themselves in an impossible situation as a result of this  measure. It is interesting that the hardship factor does not enter into the measures proposed in the 1988 Bill. Does the Minister not feel that consultants will experience hardship? Is this something he would like to refer to when he replies?
We support the proposed changes in corporation tax contained in Chapters IV and V. The trading of reductions in accelerated capital allowances against lower rates of corporation tax is welcome. I would like to see the day when corporation tax would approximate the standard rate of income tax, and I expect that is something we are working towards. Doubtless, we will have a very full and detailed examination of the different provisions of the Bill on Committee and Report Stages. I look forward with interest to what the Minister will have to say in his reply to Second Stage on the various points I raised and, in particular, I would like him to refer to the fact that, as I and my party see it, there is very little evidence of real vision coming from the Fianna Fáil Party. Yes, on the cost containment, and the Government must be reminded that they U-turned massively on that, and the reason they are implementing a stringent policy in this area is the consensus in the Dáil. They have no option but to pursue this course of action even if it means a loss of political credibility. They had to debrief their backbenchers following their massive U-turn on fiscal policy. Having been kept to their immediate task by the Opposition parties, I want to know — and I want the Minister to state clearly — what hope, in a concrete, real sense, are the Government offering to our young, sick and old and our emigrants? Aside from fiscal policy and cost containment, that is a yardstick against which the 1988 Finance Bill will be measured.
Mr. Fallon: Like the previous speaker, I welcome the Minister to the House. This is his second appearance, and I hope we will have him here in 1989, 1990 and 1991. Before making my general observations on the Finance Bill, may I say that I noticed one personal criticism of  the Minister by Senator Bulbulia, on which I would like to comment briefly? She said the Minister backed down on the disabled drivers' scheme. I do not see it like that. Long before the Finance Bill was discussed in the Dáil——
Mr. Fallon: I am sure he is but I want to give my own observations. The Minister had made it clear to me that, if agreement could not be reached with the disabled drivers — he made it quite clear at a packed private meeting — there would be no change in the scheme. I am clearing the air because I know the Minister has not backed down on that.
Most commentators would look on last year as the year the Government took firm control of the economy and began to turn it around after what most people believed was a long period of mismanagement. We are now overcoming the very serious economic difficulties which were steadily destroying all our hopes and our prospects as a nation. The first crucial steps necessary for national recovery have been very successfully implemented. They are part of a clear overall strategy set out in the Programme for National Recovery which was designed to secure a return to economic growth and to increase employment in the nineties.
The 1988 budget — and this Finance Bill which gives legal effect to the budget — is a further necessary step along the planned road to recovery. This year the Government had to follow through and continue the process of restoring order to the national finances and reducing the size of the national debt. That is seen by most right thinking people as an essential prelude to further future growth. What has been started very successfully must be continued.
 The success in managing the public finances in 1987 has also caused some problems. There is a feeling among some people in the public eye that the worst days are over, that we can afford to rest on our laurels and go back to the days of indifferent management and lack of direction and control. If that were to happen it would be tragic because we have come very far along the right road. This was noticeable in the contributions of the Fine Gael Party in the Dáil. They were suggesting that we can relax now. We all know their proposals to reduce the tax rates would cost millions of pounds. We cannot give the impression that we can now relax when it comes to dealing with borrowing and our debt problem. Unfortunately, the opposite is the case. The harsh reality is that the hard grind must continue. There is no joy for Government Ministers, Government TDs or for any of us that that is the position. It is a fact of life.
Over the past 12 or 14 years we have been borrowing quite heavily to improve our health services, our educational and social welfare systems, and we have a highly developed level of public services relating to the national income. We have brought our social services up to par with those countries which are far wealthier than we are. I believe the Government are striving to make all public services more economic and efficient by prudent management of resources and to maintain the real value of welfare services for those who need them most. Everyone concerned should co-operate with what I regard as a very sensible objective, instead of continuing to demand the supply of services at a level we cannot afford in present circumstances. For example, the result of the control and cutting down of abuse of social welfare payments was apparent last year and brought in an extra £20 million approximately. This helped to provide modest improvements in the budget for social welfare recipients.
In the area of health, in the same period we spent about £500 million building new, modern and well-equipped hospitals, and this has been going on for  the past eight or ten years. These new hospitals were built to replace that would be regarded as old and unsuitable hospitals. Having spent a vast amount of taxpayers' money on providing these new first-class hospitals, we now find that there is a continuing demand to keep the old ones. There is a variety of reasons for this for example, people are attached to the hospital where all their children where born. The reasons are mostly sentimental but we cannot continue along that road. Of course, much of the debate on the Finance Bill centres on tax and the problems generally associated with tax and tax collection. The effectiveness of the tax collection system has been impaired over the past number of years because of the extra functions taken on by people in that area. The Government set up a special task force last year and my information is that the task force were successful. They were given a target of £10 million and they collected over £14 million.
The Bill refers to a number of new powers in the area of tax collection, the new power of attachment and the incentive of a once-off offer to waive interest and penalties. That is the amnesty on which I will comment in greater detail later. The proposal on self-assessment in the Bill is a first step towards a total self-assessment system, which could take up to five years to introduce. The main purpose of the new arrangements is to place the responsibility on taxpayers for meeting their own tax obligations, to reduce the level of estimated tax and to streamline the appeals procedures. I believe the self-assessment system must be accompanied by a simpification of the tax code generally because our tax code is quite complicated. I believe it is almost unfair at times to expect individuals to be able to make returns as they should.
I know many traders — and we all know many traders — who should be able to prepare their own accounts. They should not have to employ an accountant. Many of them simply cannot afford the overheads involved in consulting an accountant for a service which many of  them would be able to provide for themselves if the code was simple enough. Indeed, this is recommended in the Commission on Taxation report as, indeed, is self-assessment, the power of attachment and other areas of importance in the whole area of tax. The Minister referred to the blue book, Self-assessment for Income and Corporation Taxes and again the report of the Commission on Taxation made similar recommendations. As Senator Bulbulia said Deputy Bruton, the then Minister for Finance made this point. I quote from the blue booklet on self-assessment:
The present system of tax collection and enforcement is proving increasingly inadequate. Some key features of the system are now too slow and cumbersome for the volume of cases requiring attention. There is a perception among a growing number of taxapayers that non-compliance has reached an unacceptable level, that there are considerable delays in the payment of tax and indeed that large amounts of tax remain uncollected.
The booklet clearly outlines the course to be followed. Some of the objectives are already in place or implemented. The point is made that the enforcement measures which must become available when the self-assessment scheme if fully implemented include a surcharge for late filing of returns, which I think is there already, interest charges for late payment of tax and greater use of existing powers, including powers of entry to business premises, the power of attachment to allow for seizure for financial assets and, if necessary, sale of real or personal property and powers for the Revenue to impose penalties. At first sight those powers appear quite severe. Some of them are tough measures and, as I said, some of them are already in place at present — in particular, the exploits of the sheriff have been well noticed throughout the country. Could the Minister comment on the fear that I and many people have that the power of attachment might become in future a softer option  than the sheriff? That point has been brought to my attention by a number of people.
One of the main provisions of the Bill which I regard as extremely important is the amnesty for tax defaulters. This provision has to be seen as a very useful tool for fighting tax evasion. It is a once-off incentive to defaulting taxpayers. My information — again, I am sure the Minister will comment on this if I ask him — is that it has been very effective in bringing in taxes, far in excess of what was expected. Accountants tell me that it is clearly the most effective tax amnesty they have witnessed and is clearly successful. For example, I know a man who was trying to fix up his affairs hurriedly before the end of April. He paid over a cheque for £90,000 and he told me that if he did not pay that it would cost him another £37,000 for penalties and interest so he was glad to pay up.
I refer to a point made by the previous speaker about the construction industry. Certainly we all accept that during the past seven or eight years it has been going through a protracted period of great difficulty. It has proved almost impossible to sustain the industry in recent years by major public spending programmes and, with the exception of the road network — and Athlone has benefited greatly in this area — the heavy infrastructural demands of the seventies have been satisfied to a large extent. I believe the construction industry is a barometer of the economy and that a pick-up in the construction industry will depend on a pick-up in the economy as a whole. Growth in the private sector demand is important also. It is recognised in the industry that the success of the current economic policies, in particular the fall in interest and mortgage rates, will have a very important and favourable impact on construction in the years ahead. Of course, Government policies, the decentralisation of the Civil Service, the financial services centre here in Dublin and the urban renewal programme in many towns around Ireland, will also help. In the context of the Bill the Government have restored what was one of the most  successful incentives in modern times, the section 23 type incentive, and this will help in a very positive way. This should all be a stimulus to the construction industry as, indeed, will the reduction in stamp duty from 4 per cent to 3 per cent on houses in the £50,000 to £60,000 price range. The lower rate of corporation tax will be of benefit also. Hopefully, all the incentives and programmes the Government have introduced will help to revive the construction industry and thus create new jobs.
There has been some criticism by many people, in particular by the Opposition parties, that the budget and the Finance Bill will do very little, if anything, for employment. I do not think that is fair. It is negative thinking, if you like. I am a great believer in confidence in the economy. The policies being pursued in this Bill and in the budget and Finance Bill of 1987 have led to an increase in confidence throughout the business community. This in turn, of course, will bring increased investment and obviously will lead to increased employment. The pursuit of development opportunities through the economy and the special emphasis this Government have placed on such things as national resources are beginning to have good effect. Last year's tourism package was an example of how the Government's policies on employment have brought about additional jobs and will continue to do so.
I want to ask the Minister to comment on one aspect of job creation which worries me. Indeed, Senator Ferris referred to it last week on the Insurance Bill. Perhaps it was not — I am sure he would agree — the appropriate debate for what he had to say.
Mr. Fallon: It is a point I agree with and I am sure all of us would agree with, including the Minister. The price we are paying for years of economic neglect and  mismanagement is high. Our unemployment rate is very high, dishearteningly high, although it is dropping. We have a high level of emigration which I am sure will be referred to in this debate. I have read the ESRI report and the most worrying aspect is the outflow of profit from the public sector of which only £200 million out of £700 million was invested in this country. That is wrong and should be corrected. The rest of the money, £500 million, went abroad. This is serious and it must be causing concern to the Government. I know the Minister will comment on that when he is replying.
The investment of all of this money in our country is an essential part of our recovery programme. The companies and individuals concerned may argue that money cannot be made in Ireland but I think this is untrue because industry in this country, as we all know, is in receipt of and has been in receipt of very attractive incentives and grants. The Government are taking tough decisions which are bringing the economy around. I believe that the profit makers should also do their bit by reinvesting in Ireland, creating jobs and making further profits, thus ensuring that we all benefit. The tragedy of so many young people going abroad to seek employment is, if you like, a blight on our nation and we must see to it that it stops as quickly as possible. One way of doing that is to keep all our profits here to work for all of us. I will welcome the Minister's comments when he replies to this debate.
One could talk about the importance of the Finance Bill for a long time and we will have an opportunity to do so on Committee Stage. I am quite certain that the people of Ireland know what must be done and they know what the Government are doing to deal with the critical situation in which we find ourselves. A majority of our people understand what is required to put the present difficult period behind us. I believe very strongly that they will support the Government in their efforts, whatever the difficulties may be for them, as long as they are satisfied that the Government have a  clear view of what they are about and will not be deflected by pressure from any quarter.
Mr. Ferris: I join with my colleagues in welcoming the Minister to this House again. The Minister will remember that it was my contribution on the Appropriations Bill before Christmas that triggered his now well known aggravated response in the House to views that did not necessarily agree with his own. It was well recorded and well used afterwards.
Mr. Ferris: I do not intend to be as provocative but I still have worries. I will be honest and say that the Minister's response was welcomed generally by right wing economists and by people who have that viewpoint and see themselves as being in a privileged category. They complain about the tax system but they have all the facilities in the world for avoiding the due process of paying tax. They also feel that, in the event of their ever requiring services, they are wealthy enough to provide them for themselves. They are in a privileged position but they have a total disregard for the ordinary people who have a tremendous record of paying their fair share of tax and are the sufferers always in an economic crisis.
I am not suggesting for a moment — neither did the Labour Party — that there is not a crisis in our finances to be addressed. When the Labour Party were in Government we played a responsible role in trying to ensure that a balance was struck between the widespread disregard  of the public finances and the services that were required. The Minister and his colleagues who are now in Cabinet advocated a total disregard for the economic crisis and week after week made continuing demands for additional expenditure in areas that concerned us. That is the politics of the game. Now that the position is reversed the Minister has adopted his new role with a magnificence that has not been witnessed in the political arena in this country in the past. The Minister has had a tremendous conversion and has managed to convert some of his colleagues to his way of thinking. The results are there.
The Minister in his speech on the Finance Bill stated that, “despite the tough budget, GNP grew by over 4 per cent, one of the best growth rates in the EC. Industrial production rose by 10 per cent and exports grew by 15 per cent in volume terms. The current account of the balance of payments moved into surplus for the first time in 20 years and inflation fell to almost 3 per cent — its lowest level since the mid-sixties. Interests rates tumbled to their lowest level in ten years. This was a major turnaround from the situation a year previously.” The Minister spoke about confidence and referred to these figures he feels are the result of what this Government have done by way of approaching foreign borrowing and lessening the dependence by the State on borrowings.
The Minister is confident that will continue this year, but he said: “Private investment should also advance significantly this year.” I am suggesting — and I know the Minister will disagree with me — that the private sector will never respond to this climate he has created for them. Our experience in the past has been that the private sector has not responded. The private sector has only responded to profits and has had no regard whatsoever for the provision of services for the less well off. That is an unfortunate thing to have to say. That is the experience we had in the past in and out of Government when we have talked about a real effort to reform the tax system.
 In 1973 when we were in Government with Fine Gael we suggested broadening the tax net into other areas in the private sector particularly. The question of the payment of income tax by farmers was opposed vociferously by Fianna Fáil at the time. We felt that there was a genuine need for that industry to make its contribution to the Exchequer. Nobody denied the economic importance of the farming sector. We were the first to advocate that they should pay something to the Exchequer to help us to run the affairs of this country. We were also responsible for the concept of a wealth tax which the Minister and his colleagues dropped immediately on assuming office.
Nowadays other parties talk about the possibility of a wealth tax in a major reveiw of the tax system. We have always believed that wealthy people should pay their fair share to the State and the Exchequer. It has been proven that there are people out there creating wealth for themselves by shuffling paper and money throughout the international money markets, creating no employment for anybody in Ireland in the process and making relatively little contribution to the economic life of this country. Those with land, wealth and property have their responsibilities in the everyday affairs of this country. We have an abundance of land which is now locked into the EC system and it is forbidden to produce outside certain quotas. We have a certain amount of expertise. We have entrepreneurs who succeeded mostly abroad, unfortunately. We have a reasonable number of wealthy people who have the ability to avoid making their contribution.
I wish the Minister luck in his efforts at self-assessment. It is a marvellous system if people are honest with themselves, with their neighbours and with their country and recognise their responsibilities in this area. It would be fantastic if people did not have to be chased by sheriffs or brow-beaten by assessment officers from the Revenue Commissioners who have surrounded the question of income tax with a level of odium that never existed in the past. This crazy system of having exaggerated  assessments sent out meant that none was taken seriously.
If you did not avail of a late appeal system, or appeal the assessment from the Revenue Commissioners, you were in default and whether you owed the amount assessed or not, you finally ended up not only paying it, but paying interest on it. That is why there are lists as long as a week of people who are in trouble. There are stories about the tax collecting sheriffs, the problems they have had, and how they cleaned out whole businesses. You wonder how the taxpayer allowed himself to get into that situation. I submit that it results from this extraordinary system of assessment by the Revenue Commissioners. I say that having listened to people on the ground.
The Irish are notoriously negligent about completing tax forms. The amazing thing is that when Irish people talk about taxation, they are talking about somebody else paying tax. I am defending a section in the community, the PAYE sector, who always paid their share of taxation. They have paid 90 per cent of the total tax take and continue to do so. They have protested and have marched in the streets of this capital in the process. They have looked not for a lessening of their own share but a sharing of the load by others which no Government have yet had the courage to achieve. At least Fine Gael have put up an option on how to share this load. I agree that it has been subjected to critical analysis because it has not been made clear who will pay more so that other sections can pay less.
It is very popular to say that as many people as possible should pay tax at 25 per cent but, if we are to maintain some level of service for the people, we have to say what other sector should be paying more. That is where the problem lies because that is where the vested interests are. We should ask the vested interests at the private sector level to pay more whether  by way of property tax, wealth tax, capital gains or whatever. They do not want to pay more, but they would like to see the working man paying tax, the man who has always paid his fair share, and more than his fair share. What happens to him as a taxpayer? He finds that this Minister and this Government, with the acknowledged support and acquiescence of other people, have agreed to cut the services. It is not stated in the Finance Bill but, because of the tax levels and the cuts introduced by the Minister for Finance, taxpayers in the PAYE net have found that all the services they have contributed towards are being withdrawn. Health, education, social welfare, local authorities, local government services, all the services which affect ordinary people have been curtailed, stopped or withdrawn, but their taxes are still high, higher than they were when this Government took office.
Last year the PAYE sector alone paid £330 million extra. It is not a bad score for a Minister who is anxious to ensure that the national debt is reduced. He has reduced it; he has cut off the services; he has increased taxation on PAYE workers. Why could he not do it? A child from second class could do it in those circumstances. In other words, if you do not have a priority, and if you do not ensure the provision of health services, school services and social welfare services for people who are incapable of working or unable to get work, you can actually cut where you like; you can increase taxes on the people you know cannot escape and you can have the occasional list of the private sector defaulters. The best of luck to the Minister in his plan for self-assessment. It is worth while giving it a trial. I will not condemn it, but I will keep my options open on it. It could be no worse and probably will be better than the present system of the taxman doing an assessment of what other people owe or what he feels they owe in such a way that he actually frightens them.
The Minister can also do what the Prime Minister in a neighbouring country  has done. She has keyed everything into the zone of inflation, interest rates, GNP and everything else, and you can forget the other side of the equation. The answer in most of the economies where this has been done has been that, if you can get all these things right, you should benefit the private sector and stimulate investment but somehow there is a missing factor. Somehow it has not created employment; it has not increased employment. There have been some increases in the technological areas but there has been a net increase in Britain, in the North of Ireland and in Ireland, in the unemployment figures. No matter how we balance our books, if the end result is that we have additional people dependent on those who are producing, our equation can go wrong. The unemployment figures at present in this country vary from month to month and you can have all sorts of different interpretations of them by all sorts of people, depending on which political party you listen to and depending on which newspaper you read. The unemployment figures are up and down but generally we all accept that they are too high.
There is massive emigration from this country. It is a free country and people should be able to come and go as they like, but we are making a major investment in young people, in their education and in their well-being while they are here. We should make an effort to ensure that there is a job for them at the end of the road, if at all possible, in their own country where they would be happier and safer than if they have to emigrate by necessity. Anybody you talk to in any rural town in Ireland can string out names of people who has been customers of theirs or had been companions in clubs and football teams and otherwise, who have gone. People are beginning to say: “There are 25 gone out of town in the past month”. We all know they are not just gone on holidays this time; they have actually emigrated. That is tragic.
I do not see anything in this Finance Bill that will address this problem and if there is, I apologise, because I have not seen it. I have looked at it and I have  read it with interest because I had hoped that when the Minister produced his budget this year there would be some major initiative. A figure of 20,000 jobs was mentioned in the Programme for National Recovery and now the Congress of Trade Unions are becoming quite seriously unhappy about the fact that there is no evidence yet of any of these jobs coming on stream.
The only improvement we seem to have in job numbers is in the social employment scheme. It is a great scheme and it gets people off the dole and into the workplace. So long as it is not used to replace existing workers, it is an excellent scheme. I compliment all the local authorities throughout the country, including my own, and other community people who use the scheme to try to attack the scourge of this nation in this century, that is, the scourge of unemployment.
I do not want to have an argumentative debate with the Minister but I was pleased that he dropped the silly tax that he had on the bank cash dispensing cards. Apart from anything else which was a source of getting money I felt the card system was a move in the right direction in that we could coax people to have their wages paid into banks and that they could withdraw cask in their own time, safely, without transporting cash throughout the country as payrolls which figured in bank robberies to fund other enterprises.
I was also pleased that the Minister saw the light and ensured that the requirements of the disabled drivers were recognised. Here, the Minister at least sat down and listened to other people's views in this area. When he comes to design his budget the Minister does so in consultation with the officials of his own Department and the heads of other Departments and with his colleagues in Cabinet but democracy ensures that, between that time and the introduction of the Finance Bill, further views can prevail at times and all of us defend that. If he had to abolish the tax on these bank cards we accept that he did have to get the additional revenue. I have no qualms of conscience in asking the banking sector to recompense the Minister for the £6  million he lost as a result. At least the industry making the profits in this area has been asked to make a contribution and that is how it should be. Otherwise, we were taxing unfortunate people, in particular young people and working people, on the facility to withdraw their own money. That to me, was unacceptable.
I also suggest to the Minister that one of the errors he made on assuming office was the abolition of the land tax. I will not let that go because in the long term and in the overall it would have been considered to have been the better type of income tax or tax for farmers. Any farming organisations we have met in the meantime have agreed that that type of taxation could not be seen to be a disincentive to production. Land tax was accepted by small farmers as a means of identifying at the beginning of the year what their contributions should be to the State at the end of the year, or by whatever instalments were decided on. Unfortunately, because of a political promise made during the election, it was decided to abolish it.
I know there were vested interests in the farming sector who wanted to have it abolished. Of course there were. Any time any sector feel a tax that will suddenly hit them they use their considerable influence on a sympathetic, prospective Minister in the hope that he will say: “If this is one way of getting additional votes, let us try it.” I was sorry that he went for it; I know he made the same commitment on the DIRT tax but, having examined the figures, he realised that it would have been naïve to have removed the DIRT tax. He now sees it as a reasonably fair system of direct interest-related tax on unearned income. For various sectors it can be claimed back. It removes this anomaly of four bank accounts per head of the population.
Somebody worked that out as one of the relevant figures, an indication of widespread misuse of facilities having separate deposits in every town and village in Ireland to avoid paying tax on an unearned income. In any other democracy, it would certainly be considered as  income and should play its role in assisting the State to provide the services I have talked about as being a major Government responsibility. That is why I object to the process of indiscriminate cuts as they have become infamously known. It seems to be all right to say that we have to close the hospital here, there or anywhere else, or sack the staff, give them voluntary redundancy, or any of the other options which have been offered simply because we cannot borrow any more. If it was as simple as that, at least people would have the option. We do not have the political will to really address the whole system of taxation and the widening of the tax net so that everybody, in particular the special interests I have talked about, could contribute to the national Exchequer.
I have always said — and the figures will stand up — that the PAYE sector are not included in this Bill. They would dearly love to have had some recognition given to them by the Minister in this Finance Bill. They could have expected something a little bit better than what he offered them. The Explanatory Memorandum outlines nominal increases in allowances the Minister has given — £100 in single allowances, £200 for a married couple. They are just tokens, if you like, in recognition of the fact that he has not really done anything for them because he would have to address himself to the whole area of tax reform before he could give anything decent. Things are improving a bit and he wants to be seen to be giving something.
These increased allowances are certainly not what the trade union movement would have expected, having entered into the Programme for National Recovery. They certainly will be the subject of a recommendation from our party which the Minister should consider seriously if we are to be constructive in relation to the people who have always paid. As I said last year in the debate on the Finance Bill in this House, it is like being invited to the wedding when the bride has already gone on the honeymoon. That is one of the difficulties for  the Seanad in discussing the Finance Bill. We have the power to make recommendations only and the Government have sufficient voting power to make sure that they do not have to listen to our recommendations. It means that whatever we are saying now — if the Minister has not gone to Europe — might be considered in the next budget. If he does go to Europe, I wish him the best of luck, anyway, because I would say he would be capable of doing that job as well as he has done this one — the best of luck to him. He is a man after my own heart: he knows what he wants and goes after it when he can.
Much play has been made about the taxation of VHI payments. May I ask one question? Many doctors are not satisfied with the VHI fee. It is commonly known that when you go to doctors now, even with VHI cover, they say: “VHI will not cover my fee”. They protect themselves immediately by saying: “I will be charging you a little more, no matter what the VHI board give you”. Now that the State is making payments directly to the consultants involved of fees accepted and agreed with the VHI board initially what will be the position? This group of people are not in a category who suffered during all the economic crises we have had, and they have done relatively well. They complain quite a lot at health board level — those of them who are represented — as if they have suffered, but the fact remains that they are one of the privileged groups in society. They are a very important group and, as Senator Bulbulia rightly said, a group to whom people will literally pay anything to be cured. I suppose there is a price to be paid for anything and you literally would pay any price if you were going to be cured of some serious illness or disease by the intervention of these people.
I am now looking for clarification. If the VHI are paying this money directly to the consultant, is that to be taken as a full and final settlement of the consultant's bill to the customer, to the person having the operation? If not, and if the consultant feels there is an additional payment due, is the Minister  recommending that the patient might also stop the tax and transmit it to his office? In other words, should all these payments have this retention tax deducted and claimed back afterwards or held to the credit of the consultants who would argue that they are paying taxes as PAYE persons, generally speaking?
There is definitely a difference between consultants and their charges and people in the GMS system. In the GMS system with the arrangements that are in place with the Department of Health, all these doctors produce a tremendously cost-effective service. These arrangements are different for them because they are expected to provide all the capital investment in practice, facilities, equipment, motor cars, reception and telephone facilities. All of these are included in the price of the GMS agreed figures from which the Minister now deducts tax at the source of payment, disregarding all the other costs which are there. Or is any allowance made for these other costs that we know are there? If not, the principle is wrong.
There should be some acceptance that doctors have to make capital investments in practices where there may be two or three doctors. Before they get anything now through the GMS service, this tax is stopped at source and no recognition is given — initially anyway — to the expenditure involved in putting a practice together. That is true also of dentists. These are groups of people who have quite a lot of capital investment, unlike a solicitor, who can literally buy a nameplate, stick it over the door, get a chair and a desk and he is off. Apart from the motor car to drive to the court, that is all his capital outlay. A medical practitioner, veterinary practitioner, or dentist, must buy a lot of expensive equipment which must be taken into account. I feel quite sure, as as matter of principle, that the Minister would want to be reminded at least of this requirement.
I want to touch briefly on the construction industry. If any industry felt disadvantaged by the arrival of this Government into power, it is the construction industry. They really and honestly  believed that once Fianna Fáil got back in to office they were made for life. In the past this industry benefited from the generosity of Governments. They accepted it, they always publicly stated they had it; they voted accordingly in successive elections. They were generous in their funding of the Minister's party which, I suppose, is to be understood and accepted if they benefited to that extent. They certainly have felt since the present Government got into office this time that the industry has been let down. Many promises were made to them during election campaigns which were never honoured. The construction industry, even in the area of public construction, has been left out of subsequent Government capital programmes whether they were hospitals, replacement hospitals, new schools, or local authority houses. The public capital programme has been decimated.
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