Tuesday, 24 March 1998
Seanad Éireann Debate
Minister for Finance (Mr. McCreevy): Senators may remember with sadness that on this occasion last year the House was addressed on the Second Stage of the Finance Bill by the then Minister of State at the Department of Finance, the late Deputy Coveney. I want to add my tributes to those which the House has just expressed and to say how saddened and shocked I was at the terrible news of Deputy Coveney's untimely death. I had the greatest regard for Deputy Coveney, both as a person of great charm and courtesy but also as a very able and effective politician and member of the previous Government. It is a matter of great poignancy for me that just two short weeks ago I was facing him across the floor in the other House on Report Stage of this Bill. I know that the Members of the House present share my feelings over this tragic event.
This is my first Finance Bill as Minister for Finance and I hope to see many more of them through the Houses of the Oireachtas. As Senators are aware, the Bill's primary function is to give effect to the budget tax cuts — a budget which cut tax rates for one million taxpayers by two percentage points, introduced a greater degree of effective tax equity by cutting back on tax shelters and gave a fillip to productive enterprise and endeavour. The Finance Bill also contains many other necessary and substantive changes to our tax law which I will go into in a moment.
The budget delivered over £500 million in personal tax reductions for all income levels, for the elderly, for the widowed and those on lower pay generally. The public will see the benefit of this in the next two weeks when the new tax year starts on 6 April. There are peculiar reasons why the income tax year starts on that unusual date. If, as I feel, the income tax year should start on 1 January, they would be experiencing these benefits already.
Senators will note that the income tax, corporation tax and capital gains tax provisions in the Bill all refer to the recently passed Taxes Consolidation Act, 1997. That Act is a great testimony to the efforts of all concerned in the public and private sectors and in the Houses who saw it through to completion. It is also a testimony to my predecessor, Deputy Quinn, who made the introduction of the Act a keynote of his term as Minister for Finance. I take some credit myself for putting the Bill through both Houses last year.
For the benefit of the House I would like to run through the main provisions of the Finance Bill. I will be more than happy to go into greater detail on particular provisions on Committee Stage. The first few sections of the Bill give effect to the changes in tax rates, bands and allowances, income tax exemption limits and the increased  widowed bereavement allowance announced in the budget. The budget package will deliver substantial gains to ordinary PAYE taxpayers — in the case of single people the gains in net take home pay range from over 2.5 per cent to 4 per cent and for married couples, with two children, the gains range from 2.5 per cent up to 5.5 per cent in some cases. These sums are before pay increases under Partnership 2000.
Many workers on low pay will get more from this year's budget than they got from the 1997 budget. For a married couple on £14,000 per annum, just under the average industrial wage, their average tax rate has dropped from over 21 per cent in 1996-97 to under 17 per cent in the forthcoming 1998-99 tax year. For a single person also on £14,000, the corresponding drop in average tax rates is 6 percentage points from 28.2 per cent in 1996-97 to 22.4 per cent in 1998-99.
At the same time, I have cut back substantially on a number of excessive tax shelters in order to ensure a fairer distribution of the tax burden. I recently published the results of a survey of 400 high income earners undertaken by the Revenue Commissioners. This pointed very clearly to how certain tax reliefs are being overused by some to reduce their taxable income almost to nil. The action I am taking will counter that unacceptable position.
The income tax provisions in the Bill also contain a number of anti-avoidance measures. Section 8 is intended to counter tax avoidance arrangements relating to the commencement rules for taxing the profits or gains of trades or professions. Under current rules some firms can engineer a situation where profits in the second year of assessment can fall out of charge. Action is now being taken to prevent this. Section 12 is a further anti-avoidance measure to remove the risk of certain individuals moving assets offshore to avoid tax. This arises from a UK court case which cast doubt on the effectiveness of British tax law on which our 1974 legislation in this area was modelled.
Section 15 closes off a loophole by which certain share incentive schemes for employees could be constructed to provide remuneration to top earners at the 20 per cent capital gains tax rate instead of the normal 46 per cent income tax rate applicable in such cases. There are other anti-avoidance provisions which I will elaborate on shortly.
Section 10 makes a number of operational changes to the tax relief introduced last year for certain pay restructuring deals. These will ensure that there can be a greater take-up of the relief where this will save jobs.
Section 11 improves the tax reliefs available for the purchase by employees of new shares in their company by reducing the minimum holding period for relief from five to three years. It also deals with an unintended anomaly whereby if an individual held a block of shares which were relieved partly under more than one relief — for example this particular relief, the BES and approved profit  sharing — a disposal of any of those shares could trigger a withdrawal of relief under all the relevant provisions.
Section 14 introduces a special tax free allowance of £5,000 per annum for seafarers under certain conditions. The aim of this allowance is to encourage the fortunes of our maritime transport sector through increases in productivity and profitability of the sector. The new relief will have to be earned through new working arrangements in that sector. Section 14 also makes it easier for certain seafarers to avail of tax relief under the foreign earnings deduction regime.
Section 16 of the Bill sets out in detail how the tax relief for the employment of the long-term unemployed will apply. This is a two-pronged initiative aimed at giving the employer an incentive to hire a person out of work for 12 months or more and affording that person an incentive to take the job offer. I have every hope of this scheme succeeding and I have made arrangements to have the scheme actively promoted by the Revenue Commissioners.
Section 17 sets out the conditions to be fulfilled to obtain tax relief on personal and corporate donations to disadvantaged schools. I am glad to be able to give effect to this relief, which the Minister for Education and Science put forward at budget time.
A number of new schemes of tax relief for investment are set out in section 20 in respect of capital allowances for airport buildings and structures, in section 22 in regard to capital allowances for the construction, extension or refurbishment of approved nursing homes and in section 23 in relation to investment in the renewal and improvement of vessels in the whitefish fleet.
Section 24 makes a number of changes to urban renewal and enterprise areas reliefs. Firstly, the deadline for the 1994 urban renewal scheme is being moved from 31 July to 31 December 1998 to cater for certain projects which were unable to be completed for reasons outside the control of the promoters. Secondly, in relation to airport enterprise areas, the range of functions which can be undertaken there will include freight forwarding and related services. This is subject to EU approval. Finally, the termination date for the enterprise areas of Cherry Orchard/ Gallanstown, Finglas and Rosslare Harbour, as well as any such areas to be designated immediately adjacent to the regional airports, is being brought forward to 31 December 1999 to comply with EU requirements under State aid rules.
Sections 30, 34 and 35 in this part of the Bill provide for the implementation of the major budget changes on capital allowances and on the BES. These changes are important both in tax equity terms and in refocusing tax reliefs more narrowly on clearly defined sectors.
 The budget day Financial Resolution limited the amount that an individual passive investor can set off by way of capital allowances against non-rental income to £25,000 in any tax year. This restriction applies to all types of commercial and industrial premises, with the exception of hotels, which I will come to in a moment. This initiative was taken after it became clear that the availability of unrestricted capital allowances on these properties was being used by high income earners to reduce their tax liability on earned income by very significant amounts. The closing off of this tax shelter will have lasting effects in ensuring a fairer sharing of the tax burden. As with all measures restricting reliefs, it was necessary to provide for transitional provisions to let through certain projects well in hand or committed to by firms and investors prior to budget day. This we did initially on budget night. However, on further examination, a number of modifications proved to be necessary to the transitional provisions so as to allow certain borderline cases to proceed. I announced the changes to both the main capital allowance and BES budget day provisions on 29 January.
In the case of capital allowances, the amendments to the qualifying conditions for transitional reliefs were as follows: exclusion of refurbishment projects where 5 per cent of the cost of the project was incurred before budget day; the extension of the deadline for investors to sign a binding contract for investment in the project from 1 February 1998 to 1 May 1998; the removal of the condition to have individual investors in place for the project prior to the budget for any project where the IDA had in the two-year period prior to 3 December 1997 given approval for grant aid; and the addition of a condition to allow promoters to satisfy Revenue that detailed discussions had taken place before budget day with the planning authority as an alternative to having made an actual planning application to a planning authority.
These changes will allow a number of pipeline projects to avail of unrestricted capital allowances. They do not go as far as some promoters wish, but I found it impossible to accommodate some of these cases without throwing open the whole relief and thus undermining the provisions of this important tax equity measure which must provide for a definite and firm cut-off date.
In the case of hotels, I announced in the budget that there would be a total ringfence of capital allowances whereby the allowances can be set off only against rental income in the case of individual passive investors. However, this ringfence does not apply to hotels above a certain standard located in counties Cavan, Donegal, Leitrim, Mayo, Monaghan, Roscommon or Sligo except for those hotels in designated seaside resorts in any of those counties. Capital allowances may be set off against all the income of a passive investor's total income, without restriction, in the case of those hotels. I see this as an important incentive to investors to fund good quality accommodation  in areas which to some extent are off the beaten track and which have not so far shared to their full potential in the increased tourist activity in the State. This incentive is subject to EU approval which is currently being sought.
In the case of BES the aggregate amount that a company can raise under the scheme was reduced from £1 million to £250,000 with effect from budget day. This will refocus the relief on riskier projects which require tax relief to obtain investment in them and which would not be prime candidates for investment from other sources such as the banks. I note that despite prognostications a significant number of designated funds are still in operation and that the funds are being focused on smaller projects. Judging from the financial papers there are also quite a number of individual projects seeking to attract small scale investment.
To cater for projects that were well advanced prior to budget day, the budget night Financial Resolution included transitional arrangements for such BES projects. The transitional arrangements caused unintended difficulties for a small number of companies who fell foul of the requirements. To deal with this, the Bill amends these rules so that projects that had been certified prior to 3 December 1997 by a development agency will be able to raise the amount for which they were certified up to the maximum limit of £1 million. The need for binding contracts — which was part of the transitional arrangements passed on budget night — will not apply in these cases. The deadline for the issue of shares to investors is being extended from 30 June 1998 to 30 September 1998. These changes cater for most of the projects affected by the budget day change.
Advance factories can continue to raise up to £1 million provided the company is engaged solely in the construction and leasing of an advanced factory. I have done this because the provision of advance factories is a community based initiative designed to address the difficulties faced by certain communities in attracting employers to their regions.
The reduction in the BES limit to £250,000 also affected the seed capital scheme, which is aimed at assisting individuals who give up employment to start their own business. The scheme provides a refund of PAYE paid in the five years prior to setting up on one's own. Seed capital projects can also seek BES moneys. In order to ensure that the budget day change does not impact unduly on these new start-up projects, I decided to provide for the Bill to allow seed capital projects to raise £500,000, with no more than £250,000 of the £500,000 being raised under the BES scheme. This hybrid approach fuses the good elements of both schemes into one focused approach.
Section 36 amends the tax reliefs introduced last year to allow employees to acquire a substantial shareholding in their company through an  employee share ownership trust — ESOT. These reliefs were introduced under Partnership 2000 with the Telecom situation in mind. The changes I am now making reflect further input received from both the company and the union side representing the staff. Section 36 will exempt dividend income received by the ESOT on shares in the company from income tax where the income is used for certain qualifying purposes — for example, to fund the purchase of shares in the company or to repay borrowings used for that purpose. The section will also provide that where the shares are held in the ESOT for a minimum of three years under certain conditions, they may be passed to the employee free of income tax via an approved profit sharing scheme and disposed of without further delay. The section also makes a number of further changes in the structure and scope of an ESOT which will align the trust provisions more closely to those that apply to approved profit sharing schemes.
Section 37 extends the relevant contracts tax — RCT — system to the poultry processing trade and certain haulage operations in the meat industry generally. The existing RCT system covers payments to subcontractors in the construction, red meat processing and forestry sectors and is commonly referred to as the C2 or C45 system. The system is essentially an anti-evasion measure designed to ensure the deduction of tax in subcontracting situations which might otherwise not be collected. There is however an essential issue of deciding what is a subcontracting situation and what is actual employment liable to PAYE. Principal contractors and subcontractors must certify that the arrangement concerned is a genuine contract of self-employment. However, if it emerges as a result of an investigation that an employment rather than subcontract exists and PAYE/PRSI and levies are not being deducted, the principal becomes liable for the PAYE/PRSI and levies.
Revenue is currently engaged in a nationwide campaign to ensure that declarations made by principal contractors and subcontractors represent the true situation. The campaign commenced in November 1997 and the results at this stage indicate that in the Dublin area 74 per cent of the cases examined were correctly designated as subcontractors, leaving 26 per cent to be reclassified as employees. Resistance to reclassification has been met from some principal contractors. Revenue intends to visit every principal contractor in the State to ensure compliance with the PAYE/PRSI and levies system.
Section 45 of the Bill proposes certain changes to the self-assessment system which have proved somewhat controversial. The current arrangements for the payment of tax and the filing of returns are complicated. If a firm has an accounting year ending in the current tax year — 1997-98 — preliminary tax must have been paid on 1 November 1997, the accounts and return for that year filed by 31 January 1999 and the balance of tax paid by 30 April 1999. Thus, if the accounting year in the 1997-98 tax year ended on 30 April  1997, the accounts for that year would not have to be filed with Revenue for 21 months until 31 January 1999. If the accounting year end were 31 March 1998 the filing gap would be ten months.
The Bill proposes to bring forward the filing date by two months to 30 November and to delay the payment of preliminary tax by one month from 1 November by moving that payment date forward also to 30 November. This will bring the two dates together. There are a number of good reasons for doing so. First, it is a simplification measure and, second, it will help clients avoid interest charges on underpayment of preliminary taxes.
At present, the amount of preliminary tax to be paid can be calculated as either 90 per cent of the estimated tax liability projected for the current tax year or 100 per cent of the previous year's tax liability. Most taxpayers use the 100 per cent rule because of uncertainty at the time about the current year's liability. However, given that under the current system final accounts for the previous tax year do not have to be filed until three months after the preliminary tax payment date, there is often no reliable figure on which to base the 100 per cent. This leaves the taxpayer open to interest charges which can be substantial. If the return filing date for the previous year and the preliminary tax payment date for the current year were harmonised, this would greatly assist in the payment of correct preliminary tax and the avoidance of interest charges. This is in taxpayers' and tax advisers' interests. To help support the change the Revenue Commissioners are also prepared to reduce significantly the documentation that must be filed with the return.
However, strong representations have been made by certain accountants and advisers representing smaller practices to the effect that bringing forward the filing date by two months will cause significant problems for them. The fears and difficulties envisaged, while genuinely put forward, are overstated. Several accounting practices have written to me supporting the changes. Nonetheless, I have provided that the section will be subject to a commencement order so as to give the Revenue Commissioners time to sort matters out and to allow a fuller impact assessment to be made before going ahead.
All income tax should be put on a calendar year basis. The 6 April date arises from a time when the financial year ended on 25 March and debts fell for payment on that quarter day. When the calendar changed in Great Britain and Ireland in the mid-18th century 11 calendar days ceased to exist. To compensate for this the year end payment date was deferred by 11 days from 25 March to 5 April. If, instead of this historical anachronism, the income tax year ended on 31 December, accounts could be required to be filed by 30 June following and the balance of tax paid by 30 September. That is a far more rational approach and would be my ultimate aim. The full  practical and budgetary implications would have to be worked out. I have asked my Department and the Revenue Commissioners to set up the necessary procedures to examine the practicalities and timing of such a change.
Section 45 also proposes that capital gains tax, which is collected in the tax year following the year of assessment, should be paid in full on the preliminary tax date and not at the rate of 90 per cent of the liability as at present. The section also proposes to put the instalment system for the payment of preliminary tax on a tax year basis in order to encourage take-up. Only 1 per cent of self-assessed taxpayers use this facility each year. I consider this package of proposals in the Bill as balanced and progressive and I am confident that we can make progress.
Another important feature in the Bill is the technical measures in section 47 and the Second Schedule to the Bill to deal with the proposed introduction of the euro from 1 January 1999. The basic thrust of the proposals is to make the change to the euro as tax neutral as possible without departing from current taxation principles. Section 50 amends the anti-avoidance provisions in the Taxes Consolidation Act, 1997, to prevent the exploitation of tax losses by passive investors in certain tax-driven partnerships. The two areas of concern relate to oil and gas exploration and film distribution partnerships.
Among other measures dealt with in this Chapter are the extension of transitional provisions for capital allowances for certain Northern Irish hotels until 30 September next, improved capital allowances for farm pollution control measures, changes to the scheme of capital allowances for certain third level educational projects, revised and extended reliefs for mining operations, the phased abolition of tax credits and advance corporation tax in respect of dividend payments to shareholders and related alterations to the tax treatment of scrip dividends as announced in the budget, technical changes to tax law to reflect the new US/Ireland double tax treaty, a number of changes to assist investment in the IFSC and Shannon and the closure of a tax loophole on assets leased abroad by domestic financial institutions using IFSC and Shannon companies to avoid the effects of existing ringfencing provisions.
Sections 55 and 56 give effect to the reduction in corporation tax from 36 per cent to 32 per cent and from 28 per cent to 25 per cent in respect of the first £50,000 of company profits announced in the budget with effect from 1 January 1998. With regard to the phasing in of a single 12.5 per cent rate of corporation tax for trading activities, discussions are continuing with the Commission to secure their final sign-off on the planned time-table for achieving that single low rate.
Section 58 continues the exemption of the income of credit unions from corporation tax. Section 60 introduces an improved double taxation relief for dividends received by Irish parent companies from their foreign subsidiaries.  Sections 61 and 62 set out the proposed new reliefs for company donations to charities and for investment by companies in certain renewable energy projects respectively. The new scheme for renewable energy requires EU approval and this is currently being sought. Section 63 amends the limits on donations which can be made tax free by companies to the Enterprise Trust Limited set up under social partnership arrangements to promote enterprise in disadvantaged areas. Section 64 rectifies a number of technical deficiencies in the taxation of the profits of life assurance companies.
Sections 65 to 75 in Chapter 5 deal with capital gains tax. I have been slated by certain Opposition spokespersons for cutting capital gains tax to 20 per cent. Perhaps they should look to the British Labour Government which has taken a leaf from my book and cut capital gains tax to as low as 10 per cent in certain cases. I wonder if the same noises will still be made here about my cutting capital gains tax. I have been strongly of the view for some time that a reduction in capital gains tax will encourage investment and growth in the economy and over time expand the revenue from capital gains tax. In my experience, many taxpayers simply would not realise investments at a 40 per cent capital gains tax rate and invest in new wealth generation. One needs only look at the increased activity in the level of the average daily turnover on the Irish Stock Exchange since the budget. It is widely held that some, although not all, of the increased activity results directly from the cut in the capital gains tax rate. I decided that, except for development land where windfall gains are involved, a cut across the board was the best way to proceed. While the UK Government has cut capital gains tax in a different manner, its aims and mine are at one — to encourage risk taking and investment.
With regard to specific capital gains tax provisions, sections 65 and 66 provide for the general 20 per cent rate while retaining the 40 per cent rate for development land, foreign life assurance policies and certain offshore roll-up funds to ensure broad equity of treatment as compared to the tax treatment of similar domestic investments.
Sections 67 and 68 address a tax problem in relation to a waiver of property under the State Property Act, 1954. The provisions ensure that any subsequent disposal of the property by the person acquiring it in this way will be fairly taxed. Section 69 provides for relief in certain circumstances from the capital gains tax liability of a trustee of settled property where a life interest is disposed of.
Section 71 affords capital gains tax roll-over relief in respect of the disposal of financial assets by certain sporting bodies. Section 72 allows a person in certain circumstances to avail of capital gains tax retirement relief notwithstanding that the person had previously participated in the EU farm retirement scheme. Section 73 extends to greyhound racing tracks roll-over relief on the disposal of development land where the proceeds  are reinvested in race track facilities. A similar relief was given to racecourses in last year's Finance Act. This section also grants roll-over relief to transfer of lands from a statutory body to the Dublin Docklands Development Authority. Section 75 provides that a capital gains tax exemption limit of £1,000 will apply per individual. This is an increase in the limit of £500 per annum proposed in the budget and is aimed at relieving the capital gains tax liability on smaller investors.
Section 76 introduces a new scheme of tax incentives to promote urban renewal. The scheme provides accelerated capital allowances in respect of expenditure on the construction or refurbishment of industrial and commercial buildings with a double rent allowance for lessees of qualifying premises. Reliefs are also available for owner occupiers of residential accommodation and for expenditure on rented residential accommodation. It is intended that the scheme will operate for three years from 1 August 1998. However, due to considerations relating to the state aids provisions of the EU Treaty, a distinction must be made between the business incentives which will run initially from 1 August 1998 to 31 December 1999 and the residential incentives which will apply for the full three years from 1 August 1998 to 31 July 2001. The position of the business incentives will be reviewed when the post-1999 EU regional aid position is finalised.
The new urban renewal scheme will: introduce a more structured approach to the urban renewal process; focus on issues of physical development along with wider issues of socio-economic benefit; be based on integrated area plans prepared for priority areas identified by local authorities involving widespread public consultation and involvement, and entail a more selective approach to the application of incentives, including tax incentives, to any designated area. Although a similar range of tax incentives will be available under the new scheme as had been available under the 1994 urban renewal scheme, there will be no blanket entitlement to all the tax reliefs for any qualifying area. The incentives may vary in mix in different areas and there is provision to discriminate between different types of commercial development for tax incentive purposes.
A new process of designation will be employed under this scheme. Based on their integrated area plans, the local authorities will recommend areas for designation to a Department of the Environment and Local Government advisory panel, which will then make recommendations to the Minister for the Environment and Local Government. The legislation provides that the Minister for Finance may make orders applying one or more tax incentives to areas designated by the Minister for the Environment and Local Government.
 Upper Shannon region and it will cover all of the counties of Longford and Leitrim and parts of Counties Cavan, Roscommon and Sligo based on a district electoral division, the details of which are set out in the Bill. Formal EU Commission approval is needed before the scheme can commence. Once that is obtained the scheme will begin on the date of a commencement order to be made by the Minister for Finance and it is proposed that it will last until 31 December 2001.
The incentives consist of accelerated capital allowances in respect of expenditure on the construction or refurbishment of industrial and commercial buildings with a double rent allowance for lessees of qualifying premises. Reliefs are also available for expenditure on rented residential accommodation where the lease is for a minimum of 12 months and the accommodation is used as the sole or main residence of the lessee throughout the period of the lease.
Part 1 of the Bill deals with direct tax measures and Parts 2 and 3 relate to excise and VAT. Sections 78 to 82 deal with VRT and give effect to the reduction in rates of VRT on cars announced in the budget. There are also provisions to tighten up the law in relation to the registration of vehicles in a crashed condition, the refund of VRT on demonstration or replacement vehicles in the motor and car hire trade, and the forfeiture of vehicles which have been converted privately, for example, from a car-van, liable at 13.3 per cent, to a car as such, liable at 22.5 per cent, without payment of the additional VRT.
Sections 83 to 103 deal with miscellaneous matters concerning excise duties. The provisions here may be categorised as follows: confirmation of the increases in excise rates on tobacco and certain road fuels announced in the budget; changes in the licensing arrangements for betting shops and gaming and amusement machines to allow extended opening times; other changes include a tightening of the law on the use of rebated diesel in certain vehicles; the introduction of new rules governing the commencement of customs proceedings and the production of samples of products in court prosecutions, and the confirmation of the powers of members of the Garda to arrest suspects in relation to certain excise offences; miscellaneous provisions to tidy up excise law to remove an archaic restriction on the grant of wine on-licences; to abolish certain duty relief for hydrocarbon oil used in the operation of lighthouses; to redefine cider and perry for excise duty purposes; and to provide that duty charged on spirits in late December be given the same deferment arrangements as beer and wine and a number of technical amendments to implement EU directives on the control and movement of excisable products involving mutual assistance between member states, certain documentary procedures, territorial scope and treatment of losses.
The changes I am making to the opening hours of betting shops is to acknowledge the reality of  betting practice nowadays and the staging of sporting events in the evenings in summer and on Sundays. It recognises the reality of the situation. However, to allow time for the new opening hours to be put in place and for staff arrangements to be settled to everyone's satisfaction, I am providing for these changes to come into effect from April 1999. The law on extended opening hours is permissive. Betting shops will not be required to open for the extended periods if it does not suit them.
The Bill contains a number of important changes in the area of VAT. Much of what is in the Bill is of a technical or sectoral nature dealing with VAT self supply rules, the charging of VAT on telephone cards and certain financial services, VAT on AI products and services, and on live poultry, the deductibility of post-letting expenses for property and VAT on air traffic control services.
The Bill also gives effect to the increase in the farmer's flat rate of VAT from 3.3 per cent to 3.6 per cent together with a corresponding change in the related VAT rate on the supply of livestock, live greyhounds and the hire of horses. There is also the proposed reduction in the VAT rate on magazines from 21 per cent to 12.5 per cent with effect from 1 May 1998. I have asked my Department to liaise with the Director of Consumer Affairs to help to ensure that the reduction is passed on to the consumer.
Sections 111 and 113 seek to safeguard VAT revenues by amending the rules on restricting VAT deductibility of cars used for business purposes. These changes take account of a recent European Court of Justice ruling on car leasing and VAT. Sections 114 and 115 contain important new provisions on the assessment and refund of VAT. Within the past few years there has been increased focus by tax planners both here and in other member states on exploiting the opportunities in EU VAT law for new interpretations of VAT provisions. Given that the yield from VAT is considerable and that successful VAT planning schemes can be costly, it is important to seek, from the Exchequer's viewpoint, to limit the potential damage. In this context, it is also important to reduce the exposure of the Exchequer to claims for VAT refunds.
Section 114 reduces the time limit within which a VAT refund may be claimed from ten years to six years. Accordingly, VAT refund claims in respect of VAT taxable periods arising from 1 May 1998 will be subject to the new six year time limit. There will be transitional arrangements in relation to VAT taxable periods before 1 May 1998. In such cases, the new six year time limits will apply as and from 1 May 1999. For reasons of equity, section 115 also applies the reduced time limit to VAT assessments by the Revenue Commissioners. Furthermore, the new period will correspond with the existing requirement for traders to keep records for six years.
The advance notice of one year for possible pipeline claims is consistent with the approach  taken in other areas when the use of a tax relief, such as BES, is being restricted. In addition, section 114 clarifies the rules designed to avoid windfall gains which may occur with VAT repayments, taking into account the outcome of cases in the European Court of Justice, in the courts in other member states and in domestic appeal commissioners' cases.
Sections 118 to 125 in Part 4 contain a number of technical amendments to the stamp duty code and repeal a series of redundant stamp duty provisions in various Finance and other Acts dating back to 1830. The impact overall is to extend stamp duty exemptions and to lighten the burden of administration on the taxpayer. Section 119 is an anti-avoidance section. It makes contracts for the sale of bearer shares liable to stamp duty.
The sections in Part 5 dealing with capital acquisitions tax rectify certain shortcomings in the existing provisions dealing with business reliefs and appeals against CAT assessments. Section 126 gives effect to the budget proposal to increase the relief for capital acquisitions tax purposes in respect of part or all of the family home inherited by an elderly person from a deceased brother or sister. The section also introduces a new relief in similar cases where the home is inherited by a close relative of the deceased owner, for example, a niece, where both parties have been living in the house for at least ten years prior to the inheritance. The relief means that the value of the home for CAT purposes will be reduced by 80 per cent, or £150,000, whichever is the lesser. The existing relief for brothers and sisters was 60 per cent, or £80,000 whichever was the lesser. The new and revised reliefs will reduce considerably the amount of CAT to be paid by the inheritors in the situations I have described.
The final Part of the Bill contains miscellaneous provisions. Section 131 provides for the increase in the rate of DIRT on special savings accounts from 15 to 20 per cent announced in the budget. The section also provides that credit unions will no longer have to report to Revenue interest paid on their members' deposits. Despite the withdrawal of my Finance Bill proposals, it should be noted that under existing law all dividend and interest income on credit union shares and deposits has for many years been liable to tax at the recipient's marginal rate of tax and must, irrespective of the amount, be returned by the individual to Revenue, regardless of whether it is reported by the credit union.
I am setting up a working group with the Irish League of Credit Unions under an independent chairperson to examine the general issue of the taxation of the return on credit union savings, bearing in mind the special and particular nature of the credit union movement, its contribution to society and the wider taxation issues involved. The working group will report to me by 30 September 1998. I do not need to recount the experience of the credit union taxation proposals in the Bill as published. I believe it is one of the few  times a Minister has been castigated by a representative body for doing what it asked him to do. I have, however, learned from the experience.
Section 132 contains enabling provisions for the extension of tax clearance to solicitors and counsel who are on the criminal legal aid scheme panels. Section 133, and sections 124 and 127 earlier in relation to stamp duty and probate tax, reduce the rate of interest either charged by Revenue on unpaid taxes or paid by Revenue on refunds of certain taxes. Section 134 permits the publication by the Appeal Commissioners of their decisions in appeal cases. This is to assist taxpayers and practitioners in being clear on how tax law affects them. The identity of taxpayers, however, may not be divulged in such publication. Section 135 amends the Freedom of Information Act, 1997, to ensure that the declarations of non-disclosure certain Revenue officials are required to make under tax law will not prevent the disclosure of information in accordance with the Act. That concludes the substantive provisions of the Bill.
The issue of extra Revenue powers has been the subject of recent debate. I made it clear in the Dáil that Revenue has a wide range of powers to combat evasion. It has powers to access bank accounts, although only in certain specified circumstances where it has the names of the account holders. I also outlined the kind of new powers which could be given to Revenue to seek information from financial institutions in the case of organised tax evasion schemes. I will act to counter such activity and take new powers where these can be shown to be desirable and likely to be effective.
The best approach is for such decisions on new powers to be taken in the light of all the relevant and available information. This includes information and recommendations which the Moriarty tribunal may provide. It would also mean taking account of what the authorised officers appointed by the Tánaiste under section 19 of the Companies Act, 1990, may discover in their examination of the companies concerned. It would also include material or facts thrown up by more recent events. There are many views and contributions on what should be done in this area. It is important all relevant contributions and evidence be listened to before deciding.
Mrs. A. Doyle: I thank the Minister for his kinds words about our late colleague, Hugh Coveney. I am sure the Minister will be pleased to hear that my appetite for being combative on this Bill has been deflated. I read through Hugh's contribution on Committee and Report Stages in the Dáil to ensure a consistent response in this House from my party's perspective to the Finance Bill. It is very hard to read the last contribution of a fine colleague having just buried him last  week. The good has gone out of the debate we shall have today.
Apart from being a party colleague, Hugh was a personal, political friend. As other commentators said, he was one of the most fair-minded people one could meet in any walk of life. He was a family man, a businessman, a sportsman, a party man, a politician and a public servant extraordinaire. He was a wonderful ambassador for all that is good in political life and for the profession of politics which, because of the recent actions of a minority, has taken a battering. We have lost one of the finest examples of what it is to be a public servant through public representation. I extend my personal sympathy to his wife, Pauline, Rebecca and the boys. May his gentle soul rest in peace.
I thank the Minister for attending the debate. It is a compliment to the House that a busy Minister for Finance attends and does not send a Minister of State to do his bidding. The Finance Bill is the annual legislation introduced by each Minister for Finance. At the end of his or her term, history will not judge them by the PR events, the press releases or even their budget statements. What endures is a legislative legacy contained in the Finance Acts they introduced. A strategic vision, a passion for social equality, a fair-minded approach to all citizens and an awareness of the needs of the country mean nothing in well publicised speeches. They exist only if the Minister translates them into law.
This is the Minister's first Finance Bill and it fails to bring into law many of the promises and much of the vision promised by him and his Government colleagues before they were elected. Much of it was enunciated in their programme for Government. It has proved to be empty rhetoric. My late colleague in the other House was conscious that, above all, it lacked fairness. That is strong criticism coming from one of the most fair-minded people in the two Houses. Hugh Coveney indicated that this legislation lacked fairness. Second to that was the Bill's lack of any strategic vision.
Let us examine how the Finance Bill might lack fairness. It is unfair to the majority of taxpayers on low and middle incomes because, after this budget, almost 20,000 more will now pay at the high rate of tax for the first time. These 20,000 homes are not interested in whether the top rate is 48 per cent or 46 per cent. What they care about is that this Government and Minister are trying to convince us that the path to tax reform means 20,000 more people must pay at the high rate. This Government and this Minister who promised that 80 per cent of taxpayers would only pay at the standard rate find it necessary to ask 20,000 more families to pay tax at the higher rate. I cannot see how fewer numbers paying tax at the higher rate can be achieved when, in the first budget and Finance Bill, the number paying the top rate is increased by 20,000. To borrow Hugh's expression, this is not fair or evenhanded.
 It is not fair that the wealthiest get an income tax reduction of 2 per cent with the reduction in the top tax rate while the lowest paid get so little. It is not fair that the wealthiest have capital gains tax reduced from 40 per cent to 20 per cent while the average industrial earner must abandon the dream of owning his own home. It is not that we do not welcome the reduction from 40 per cent to 20 per cent when it will stimulate investment in more productive areas and release capital for reinvestment. It is just that it is unfair in the overall context of the Finance Bill, when so little was given back to the low and middle income earner, that there should have been such concentration on the top end of the market and the top income earner. In his Budget Statement, the Minister proudly announced the largest tax giveaway ever. The average taxpayer will feel little of this.
The social partners met the Minister and told him that the income tax measures in this Bill do not match the spirit of Partnership 2000. That is a matter of some concern. The economic success and the incredible growth in recent years in this country can in large measure be attributed to social consensus. If this Minister and Government undertake the measures in this Finance Bill and start to unravel the consensus which exists in Partnership 2000, no amount of tinkering around with tax rates will be able to ensure the lifestyles people have come to expect in recent years. The next generation will not experience what this generation is experiencing. Social partnership is the bedrock on which the economy will continue to develop. How could our social partners feel that the measures in this Bill match the spirit of Partnership 2000? Instead of reducing tax rates, the Minister could have, for the same cost, increased the married couple's personal allowance by £1,000 instead of £500. He could have widened the standard tax band for married couples by £2,000 instead of £200. He could have increased the exemption limits by £2,000 instead of £200. With the same money those measures would have made an enormous difference to lower and middle income earners. Had he done this he would have taken more people out of the tax net altogether and reduced the number of people paying tax at the top rate.
That is what tax reform should be about. He would have given an incentive to people to choose work in place of welfare. He would have introduced a fairer distribution of resources consistent with social partnership and would have started on the way to meeting his own promise that 80 per cent of taxpayers would pay tax at the standard rate. He has gone in the opposite direction to his own promise with 20,000 more taxpayers at the top rate. That means 20,000 taxpayers have jumped from 24 per cent tax to 46 per cent tax. They do not worry about the top tax rate being reduced from 48 to 46 per cent. All they know is that their tax has risen from 24 to 46 per cent. The Minister opted for the headlines provided by high profile rate cuts. It is not as politically sexy to sell increases in exemption limits  and widening of bands, it is hard to translate that to many people. To talk in terms of 2 per cent off the top and standard rates has a greater impact. It is a political soundbite, even the media can sell it more comfortably. Rate cuts will make the front pages, but you have to turn to the business or economic sector of the media before they will explain that increased exemption limits and wider bands are the real way to put money into people's pockets, particularly lower and middle income earners. Everybody benefits from increased exemptions and tax bands.
The Minister's legacy in this Bill is that the amount by which he widened the standard band is less than inflation and the increase in the exemption limits, so important to the elderly and low paid, barely covered inflation. The legacy of the 1998 Budget is that over 20,000 additional people will pay tax at the higher rate this year, the complete opposite to the statements made in the Fianna Fáil Programme for Government.
There are strengths in the Bill, some of them in areas where I have an interest. I acknowledge these strengths and thank the Minister for them. We welcome the further restriction of tax shelters. However, I support those who find off the wall the criticism of investors who have taken advantage of legitimate tax shelters to encourage tax designated development in deprived areas. What is the point in legislating for urban and rural renewal to attract investment in tax designated development and then criticising the amount of tax top income earners can save by investing in tax driven development? I do not understand that. We must restrict tax shelters which are not being used as intended or where there is blatant unfairness in their use. But if successive Governments introduce tax driven development, there is no point in seeking headlines by criticising those who use them. It is only those who are better off who can invest in tax driven development. We need this development. Look at the development which has taken place throughout the State spawned by the original urban renewal scheme and its successors. John Boland, as Minister for the Environment in the late 1980s, introduced the first such scheme. Successive Governments have recognised the wisdom of tax driven urban renewal in designated areas.
I applaud the Minister's support for renewable energy projects. Everyone is in favour of developments in this area. It may be a little and it is certainly late but we need to implement these as quickly as possible.
I welcome the tax provisions for seafarers and cross-Border workers. Workers in both these areas have made an important contribution to our economy and for years Governments have been requested to examine tax anomalies for Irish seafarers working abroad and the problems of cross-Border workers. I thank the Minister for his moves in these areas.
I applaud the Minister for providing incentives to improve the white fish fleet. This is an area I have been concerned about for many years. The  whole fleet is underdeveloped — the average age of the vessels is 27 years. In many cases they are in poor condition and put the lives of our fishermen in danger. The Minister's tax incentives will, I hope, attract investment into the industry and allow the purchasing of replacement vessels and the refurbishing of the existing vessels. We sold out on the Common Fisheries Policy in the early 1970s because of the benefits we expected for farmers as members of the then EEC. We have subsequently sold out large numbers of farmers with the Common Agricultural Policy and the reform of the CAP. The Santer Proposals will further restrict farmers ability to produce cost effectively. Two major sectors are unhappy with European Union policy in their areas. We must help the fishing fleet in any way we can and I applaud the Minister's move in this direction.
Section 77 of the Bill deals with rural renewal and general improvements. I have difficulty in accepting the small number of counties to which the Minister is extending this section. I cannot believe such a restrictive outlook is needed in many parts of rural Ireland. I ask the Minister to look again at the limited number of counties involved. The problem of rural decline is not new. No cohesive plan to address the destruction of an entire social and economic structure has been developed. Successive budgets have introduced an ad hoc, patch and mend system for many years. This area requires new solutions but the Bill does not indicate any new thinking.
Many Members live in rural areas and can point to empty houses, villages without shops and the migration of the younger generation to cities and abroad. We can also point to the huge numbers leaving the land and the difficulty in getting the next generation to farm unless there are sizeable, viable holdings available. Senators who live in urban areas can see the continued rapid growth caused by inward migration. National action is required to tackle this problem. The incentives introduced by the Minister seem well structured but limited. No one denies the economic problems in Sligo, Leitrim, Roscommon, Longford and Cavan. However, I cannot believe the Minister is suggesting that these are the only regions suffering rural decline and an erosion of agriculture — a sector which will decline further as Agenda 2000 comes closer and the Santer proposals loom. Neither do I believe that the worst affected areas are in the counties identified by the Minister. He will argue that this is a pilot scheme. However, he should consider a broader scheme applying for a limited period which could also be a pilot scheme. He could restrict the period and expand the scheme into more areas and have the same effect.
I have another significant difficulty with the Minister's proposals on rural renewal. Throughout rural Ireland there are a number of organisations charged with promoting economic development funded by the EU and the Exchequer. These include LEADER groups, area partnerships, county enterprise boards, local  authorities, vocational education committees, local employment services and many others. In introducing these incentives, the Minister had an opportunity to allow these bottom-up, self-help groups to prepare unified economic strategies for their areas and to support the agreed strategies with tax incentives. One of the problems with previous rural renewal schemes was the lack of targeting as identified by many outside consultants. However, we do not seem to have moved in the way suggested by the private sector. There are a multiplicity of untargeted, bottom-up, self-help groups whose focuses rarely meet in terms of the best use of scarce resources. In introducing the scheme in the Bill, the Minister had an opportunity to do a great service for rural areas and the groups dedicated to reversing rural decline. An economic plan prepared by those involved at local level is the one most likely to work. Instead of requiring this type of co-ordination, the Minister has again gone for the shotgun approach.
The cost of private care for the elderly is an increasing burden faced by families. The Minister should consider this problem to see if some form of income tax allowances or State subscription could be introduced. Public long term care for an elderly person costs the State £573 per week. The Minister should ensure that families retain responsibility for the care of their elderly wherever possible. A tax incentive or income tax allowance would make a huge difference. Capital allowances for nursing home development should be carefully monitored and applicable only to established nursing homes and bona fide applicants. We must avoid a charter for speculators so that the proper care of the infirm and the elderly is always the yardstick by which applications are assessed.
The Minister should comment on the Institute of Taxation's difficulties with his proposed changes for the filing dates for tax returns and self assessment. I am not sure whether this is a case of methink they doth protest too much. I can see difficulties in the first year in bringing everyone back to the November deadline and ensuring preliminary tax payments. However, I cannot understand the institute's argument on behalf of tax practitioners that there will be continuing problems in subsequent years. Shortening the first year into a nine or ten month year to get returns in by November will cause logistical problems which will need special consideration. However, if we are on a 1 November deadline for each subsequent year it will be no different from the 31 January deadline at present. I am not sure if I am right in this assumption but there are major problems which have been well articulated by the Institute of Taxation. The Minister should develop his response to the case it has made to see if we need to introduce amendments and if there is a substantive issue to be dealt with.
There are obvious strategic deficiencies in the Bill: 20,000 more people will pay tax at the top rate; there is no attempt to ease the path from  welfare to work; personal allowances did not increase even by inflation; there has been no reduction in PRSI, none of this will help the unemployed get back to work; there is nothing to help first time buyers realise their dream of owning a home, average workers cannot afford to own a home without other compensatory measures such as Fine Gael's proposed stamp duty exemption on second-hand houses; the cut in capital gains tax from 40 per cent to 20 per cent has given investors a further incentive to compete with genuine first time buyers; there is nothing to provide fiscal incentives or disincentives to alter our travel habits which lead to traffic congestion and chaos in our cities; there is nothing to help agriculture which is facing major threats as a result of CAP reforms, farmers are now required to spend significant sums on pollution control without any budgetary relief; there is a disappointing approach to rural renewal.
Overall, the Bill lacks vision or strategic initiatives. It fails to deliver on the Minister's promises on income tax. There is nothing in the Bill for the disabled, the handicapped or women trying to return to work. The Bill fails to introduce the new low 20 per cent tax rate promised by Fianna Fáil. This was held out as a carrot before election day and then abandoned. The Government tried to tax credit union savers and the less well off. It has increased the number of people paying the top rate of tax. Above all the Bill does nothing to address the damage being done to Ireland's reputation by criminals using Irish registered, nonresident companies but time does not allow me to develop my thoughts in this area.
There are some good provisions in the Bill. My criticisms are different from those of some of my colleagues. I do not disagree with any incentive to make those who have money use it productively and part of the CGT reduction will achieve this. I disagree with allowing investors liquidate money to enter the housing market, thus driving house prices further out of the reach of first time buyers, particularly those who work in cities. Their task is very difficult. I thank the Minister and look forward to his response.
Mr. Finneran: It is appropriate that we have an opportunity to debate the Finance Bill. While the House does not have a direct input into financial matters, for the first time this year it debated the Budget Statement on the day it was announced. This was very constructive and we now have a further opportunity to debate the Finance Bill. I have no doubt there will be many contributions to the debate and that the Minister will pay attention to them.
It was stated that there was no support for the control of farmyard pollution. The Budget Statement and the Bill provides for an increase in the eligible limit for a 50 per cent capital allowance for expenditure incurred in providing necessary farm pollution control measures from £20,000 to £30,000 with effect from 5 April 1998. This very  welcome measure will continue until 6 April 2000.
Fianna Fáil did not promise that the lower rate of tax would be decreased to 20 per cent in 1998, but the commitment that the rate would drop by 1 per cent per year over the period of the Government to 20 per cent has been exceeded. The Minister has reduced the rate from 26 per cent to 24 per cent in the first year and has reduced the higher rate from 48 per cent to 46 per cent.
It was also claimed that there was no support for back to work schemes. However, there has been an increase of 5,000 in the number of places available on back to work schemes in 1998, bringing the total number of places to 27,000. These are positive measures introduced in the budget and contained in the Finance Bill. We should also note that for the first time in the history of the State the Minister for Finance has increased a couple's old age pension by £10. The Minister should be complimented on this unique move as not so long ago increases were of the order of £1.50 for individuals or £3 for a couple. A balance has been achieved and the Minister addressed many of the areas in need of attention. Welcome developments are the £500 million which has been returned to taxpayers and the additional £37 million which has been granted to the health services.
There is a section of the community in the tax net which still feels somewhat aggrieved, namely, single people, including young graduates, in reasonably good jobs with wages of between £13,000 and £15,000 who are paying tax at the higher rate. The Minister should address this grievance in next year's budget by showing greater support and providing greater incentive for this group.
The Finance Bill contains some very innovative and welcome provisions. The proposal for rural renewal is very welcome. We must be conscious of rural decline and the threat to infrastructure and services such as Garda stations, schools, etc., as a result of population decreases. This provision in the Finance Bill is an attempt to halt the decline, redress the problem, stimulate growth and provide an opportunity for areas such as the Upper Shannon region to reactivate and create an economic climate which will attract investors. Hopefully such investment will attract back people and regenerate communities along the Upper Shannon. I would have liked to have seen the lower region of the Shannon, particularly southern County Roscommon, included in the scheme. South County Roscommon has suffered from flooding and other impediments which are no fault of the local communities. However, the Minister used the guideline of a decrease in population in deciding on areas to be included, thus excluding south County Roscommon, which has seen a fairly substantial increase in population.
We are awaiting further decisions regarding urban renewal and I understand that approximately 30 centres will be designated later this  year. Roscommon town requires further urban renewal and I hope the Minister for the Environment and Local Government, who has final responsibility in such matters, will look favourably on the town. If he looks at Roscommon he will see the benefits which have accrued to the town as a result of urban renewal status and tax designation over the past three or four years.
When historians and economists look back upon 20th century Ireland they will agree that Ireland's accession to the European Union was extremely positive and paid off in large dividends. In 1973 the average standard of living in Ireland was 55 per cent of the EU average: it now stands at over 85 per cent. This has been partly achieved through the allocation of over £30 billion in European Structural Funds, transferred from central Europe to Ireland in the form of regional, social and agricultural assistance. Furthermore, we are now in a position to join the first phase of EMU, which clearly demonstrates the real strength of the economy. While this is a rosy picture, it is important we examine what is available in employment and development, particularly in the west and north west where I come from. I appreciate that the EU cannot succeed without a thriving private sector which can operate effectively within the structures of the Internal Market. I note the recent comments of the Irish Commissioner, Pádraig Flynn, that one third of all jobs in the private sector in the EU are in enterprises of fewer than ten employees, while another third are in enterprises of fewer than 250 employees. In the west and north west we can clearly identify with enterprises of fewer than ten employees. For this reason we continue to strive for a better economic atmosphere which is conducive to investment in small enterprises. The Government must focus on this issue, particularly as it applies to the west, as the possibility of multinationals setting up in rural towns and villages is limited — they want to be located in centres of population. We must seek other opportunities in the west, the midlands and the more deprived regions.
I also support the comments of the Commissioner when he referred to the necessity to create an enterprise culture in the European Union. Such a culture will be reflected in Ireland. High interest rates, complex legislation and red tape all create difficulties for small industries. Potential entrepreneurs are often deterred by the complexities involved in setting up a business. It is not the responsibility of the European Commission or member governments to create employment. It is their responsibility to create conditions which are conducive to investment and job creation. Job creation is largely the responsibility of the public and private sector. However, if we are to create much needed jobs in the west of Ireland and in the Border region it is essential that favourable economic conditions exist in terms of competitiveness and labour market flexibility. Competitiveness needs adequate infrastructure and there is a clear infrastructure deficit in the west of
 Ireland and in the Border region. This was clearly identified in the NESC report and I cannot emphasise it often enough. The Department of Finance must be conscious of the findings of the NESC report and must address these needs when further negotiations with the EU are taking place. Improvements are urgently needed in transport and telecommunications. When funding was being allocated for railway development, the Ballina and Westport lines did not qualify because our negotiators did not look past the Shannon. Our officials must broaden their horizons when negotiating EU funding.
I fully recognise the commitment of community groups to the development of the region. They have contributed to the harnessing of local resources to the optimum. However, it is not their responsibility to build roads, airports or ports. This responsibility lies with the Government, supported by EU Structural and Cohesion funds.
While I make reference to the major transfer of funds from the European Union, particularly since the Edinburgh summit of 1992, I qualify these comments by stating that this money has not been dispersed on a fair and equitable basis throughout the regions of Ireland. This is primarily the reason there is such a lack of infrastructure in the Border counties and in the west of Ireland.
It is now generally accepted that Ireland as a unit will no longer qualify for Objective one status because our GDP exceeds the 75 per cent Community threshold. The time is now opoportune for regionalisation. I have heard it said that this may not be acceptable but I believe this should be pursued vigorously. The west of Ireland and Border region must retain Objective one status because its average standard of living is less that 75 per cent of the EU average. This region must qualify for the higher rate of grants during the next round of Structural and Cohesion Funds which will be paid between the years 2000 and 2006. The Minister and the Government should pursue this matter to the bitter end. Ireland will, of course, receive mainstream Structural Funds during the next round of European co-financing assistance until the year 2006. This is known as a soft landing approach. This may be acceptable in certain quarters but it is not acceptable for the west and north-west of Ireland.
We cannot accept the European policy of regarding Ireland as one region. The east coast and more developed regions of Ireland have developed at the expense of the west. The time has come to redresss this imbalance and the opportunity to do this will arise during the next round of Structural Funds between 2000 and 2006.
It is suggested by those who do not favour regionalisation that expenditure on infrastructure be based on population figures. There is no compulsion on Europe to invoke a per capita requirement although this is not generally accepted here. I spent three years on the Consultative Council of the European Commission and I never saw such a  ruling written in black and white but a gullible public believe it to be so. Europe must have flexibility in relation to this issue and I believe it has. The GDP of the Border counties and the west of Ireland is one of the lowest of the hundreds of regions in Europe. This situation can only be addressed by ringfencing the region, thereby ensuring that the Department of Finance has no real discretion as far as this region is concerned. These are harsh words but they must be spoken.
Negotiations are under way on the share out of the next EU Structural Fund round. The general yardsticks have been put in place by means of Agenda 2000, launched by the EU last year, but extensive fine tuning remains to be finalised with regard to specific allocations of Structural Fund payments to each member state. The Regional Affairs Commissioner, Monika Wulf-Mathies has already stated that the countries in receipt of Structural Funds will continue to receive such funding under the next EU round. I welcome that statement because it means that countries which have used Structural Funds well will not be penalised for doing so. I also welcome the fact that the Leader II and the INTERREG II programmes will continue after the year 2000. These programmes are important for rural development and renewal.
I qualify my remarks by saying that, while the Border counties and west of Ireland have not received their fair share of funding for infrastructural projects under the European Regional Development Fund, they have received their appropriate share of EU money from the European Social Fund and the Common Agricultural Policy. Our young people have been educated and trained in part by co-financing assistance under the ESF, all of which have helped the performance of our State agencies, such as CERT and FÁS. I acknowledge this fact and I am confident that after 2006 these funds will continue to be allocated to our State agencies.
We have a role to play in developing our region and ensuring we get our fair share of assistance. It is not sufficient to criticise the Government. The Government must pursue policies that complement those being proposed by the Western Commission, the Council for the West and other non-governmental agencies who are working to highlight our difficulties through various studies.
The Finance Bill gives us an opportunity to explore what has happened in the past few years. More importantly, it gives us an opportunity to outline what should happen over the next six years and in the future. There is no point looking back in hindsight at bad decisions made in the seventies, etc. We must look to the future and address issues relating to entire country, not just the wealthy eastern part of the country but also to the west and north-west regions. If our needs are not met, the representatives of these regions will seek justice in the next round of the Structural and Cohesion Funds.
Mr. Ross: I welcome this Finance Bill, as I did on budget day. It is one of the most refreshing  and courageous budgets since I have been in this House. It is gratifying for those of use who believe in unapologetic enterprise to see a Minister come into this House, and into the Lower House, and put forward a charter which says “Look, we are not ashamed of the word profit. We are not ashamed that people should make money and it is our intention to reward those who do so”. This budget and Finance Bill have changed, in an institutionalised and concrete form, the damage that had been done to the body politic and to attitudes towards profits in business in this country. I listened to Senator Doyle with great interest. It is the budget and Finance Bill which the Fine Gael Party would have loved to have delivered. They could not deliver it because they were in coalition with the Labour Party and the Democratic Left Party. Fine Gael Party championed the higher tax rate of 45 per cent and the lower one of 25 per cent. Their stated policy was to bring down the top rate of tax from 48 per cent to 45 per cent as soon as possible. Regrettably, they could not do it and were almost unable to make a minor move towards it because the Labour Party dominated politics, and our attitudes to finance and profit, for so long. That is why I think this budget is a milestone. I understand the difficulties which the main Opposition party now has in opposing this budget because their heart is not in it. The Labour Party can easily oppose it this afternoon.
I thank God that the Minister for Finance delivered this budget and that he had the political freedom to do so. He has changed the attitudes of people in this country. We no longer believe that the State necessarily owes a living to all our people. It was interesting to listen to the Opposition in both Houses making very legitimate points about areas that were neglected, but they never spelled out where the money was going to come from to finance those areas. We all believe that the elderly, the handicapped and others should get more money. It is very easy to say that here, but we should expect an alternative budget or charter from Opposition parties stating what they would do and how they would finance it. This has not happened and discredits well-meaning speeches from Opposition politicians on all sides. In reality, the Opposition parties lose their creditability because they can only oppose Finance Bills by saying more money should have gone somewhere but fail to suggest where it should come from.
I welcome this budget because it is not apologetic. The Minister has not apologised in the media for it. This budget was not popular in all areas of the community because the public has often been told that it is for the rich. This is untrue because it reduced the current tax rates. They are still punitively high. It also reduces capital gains tax from 40 per cent down to 20 per cent. Anybody who says this measure benefits the rich alone is wrong. These wealthy fat cats were probably not paying much CGT because they used legal measures to get out of paying it. The  main beneficiaries of a reduction in CGT will be anyone dealing on the Stock Exchange for small amounts of money. These people with savings of around £30,000 would be making a small profit every year and then they would have to pay 40 per cent tax on their gains.
Even though I welcome the reduction in taxes, I think the Minister has not gone far enough. Has the Minister any plans to introduce privatisation here? That proposal seems to have got mislaid along the line. I know the last Government, for political reasons, was unable to privatise a single State asset because the Labour Party prevented it from doing so. This Government suffers no such constraints. What are the Minister plans for ICC and ACC? It has already been announced that there are plans to privatise them. What plans does he have for the great State monopolies, some of which are making large sums of money? What are his plans for Aer Rianta? Why should that company have a monopoly in running the State airports? Aer Rianta makes substantial profits; it would be very difficult for any company in that position not to do so. If the Minister is serious about privatisation, this is an area in which he should raise money. There will be real difficulties for our economy in raising capital in coming years. We need only see what happened with EU funds last weekend to realise that we will have to raise capital somewhere. Those EU Structural and Cohesion Funds were used almost exclusively, supposedly, for capital expenditure, and we will have to find approximately £1 billion per annum in substitution for them. We can tax or borrow more, do nothing or sell valuable State assets such as Aer Rianta, Telecom Éireann, An Post and Aer Lingus. Plans should now be made to sell those bodies.
It is no good to start with Mickey Mouse banks like the ICC and ACC, which are worth very little money. There have been problems in the past finding purchasers for those banks because they are so small. While the ACC has been successful in its niche, it will not command an enormous price in the marketplace and will not fetch the amount of money we need to substitute for EU funds.
It is a pity the Minister did not state that he intended privatising many of the State utilities to substitute for EU funds. I suspect he will do so, but I hope that happens before the Labour Party gets back into power to reverse the process. However, I have been somewhat confused by hearing Deputy Stagg, who is on the left of the Labour Party, pleading for the sale of semi-State bodies, and by hearing Senator Doyle, who is in the centre of Fine Gael, pleading for the weaker in society. It makes me suspect that a new coalition is being cooked up by accident.
The Minister has reduced the amount of money that can be raised by an individual company under the business expansion scheme from £1 million to £250,000. It is a pity he did not go the whole hog. The BES is pretty much a scam. It is of very doubtful value to both the companies who  are taking the money and the investors, though it is of great value to the promoters. The companies that will receive money from the BES this year are vulnerable and need money badly. One must ask why they cannot get that money anywhere else. If asked, the companies maintain that it is because it is cheaper to go through the BES than to go to the banks, but it is likely that they have been to a bank which has refused them.
The problem with the BES is that the only people guaranteed to make money from it are those who promote it. The charge to the investor is 3 per cent. The charge to the investee company is approximately 10 per cent. Without exception the promoters, for reasons so obvious it is staggering that they have not been forced to reveal them, never reveal what they charge the investee company they maintain they are trying to help. They say the BES is to give employment and that they are performing a great public service in supporting industry. However, if one asks them how much they are making they will not tell. They make approximately 10 per cent off the top; if they raise £1 million they get £100,000. They get 3 per cent from the investor, £30,000, but that is not all. They invariably take their time investing the money, sometimes taking up to a year before investing. If they have raised up to £10 million, as has happened, it can be put on deposit to earn a lot of money, depending on the deposit rate and the rate of investment. That money never goes back to the investor or the investee company. The man in the middle, who is supposedly doing a great public service in helping these companies and creating employment, gets 3 per cent from one side, up to 10 per cent from the other and is taking no risk. If it all goes down he still gets his fee. He also gets the interest and is probably getting a management fee for every year the BES goes on. All he has to do is choose the company into which the money goes, and a lot of those go under in any case. The BES was seen as a potential source of seed capital, but it has been of dubious value to employment. It has benefited one group more than any other and that group were not meant to benefit from it at all.
I welcome the Minister's decision to reduce the BES level. It is one of those middle class perks we are keen on giving which do not achieve an end result. Clever banks and promoters see an opportunity in it to make money for themselves which goes halfway towards defeating the object of the original exercise. That is what has happened.
Senator Doyle touched on one of the problems of the prosperity we enjoy. I know a consultant is looking at the problem of housing, especially for first time buyers in Dublin, but this problem is now chronic and fundamental and may be a case for interfering in the free market. This is not just because of the tradition of home ownership in Ireland but because it seems absolutely wrong that people should be priced out of this basic human instinct by speculators.
 There is a huge number of second time buyers in the housing market who are not home occupiers. Figures issued by the First National Building Society, which are endorsed by other building societies, show that 30 per cent of houses in the Dublin area are being bought by what some people call investors but I would call speculators. They buy houses from architects' drawing boards hoping to sell them off and make a quick profit. By doing this they deprive young people of the right and hope of ever owning their own houses.
Recently I have been struck by the number of middle-aged people with young children in their first jobs who have told me it does not enter the heads of these young people in their early 20s that they will ever own a house. That is inconceivable to someone of my generation and the generation of any Member in this House. These young people, the majority of whom live in Dublin, have accepted they will never own a house because they cannot afford to. If there was ever a case for interfering in the free market, this is it.
I do not accept the tinkering about at the edges suggestions which have been made. Senator Avril Doyle's party suggested that stamp duty on second-hand houses should be reduced. I have puzzled over this proposal for months and I cannot understand how it will make any difference. The Government will get less money and the vendors will get more. I have yet to hear it explained.
Something can be done. People cannot be forbidden from buying a second house but they can be made pay 50, 60, 70 or 80 per cent tax on any profits. I have no problem with that as it will stop them in their tracks. It will also make 30 per cent of new housing estates, in Dublin at least, available to young people. There is nothing wrong with that. Those with money to spare will find other avenues and outlets in which to invest which will not have devastating social effects. Investors should not be allowed to do patently obvious social harm. I am a free marketeer but that should not be allowed. It will be easy for the Minister to step in and do this.
Ms Keogh: I am glad to participate in this debate. The Progressive Democrats are happy with our input to the budget. As the Minister for Finance said, the budget cut tax rates by 2 per cent for one million taxpayers and introduced a greater degree of tax equity by cutting back on tax shelters — a measure I particularly welcome. The budget is also of tremendous benefit to enterprise and employment. I will not dwell on the technical aspects of the Bill as I am not a tax expert. However, we must look at what people have gained from the budget and the Bill — something which was lost in the immediate hype and aftermath of the budget.
Families with children are the main beneficiaries of the budget because of the dramatic improvements in the family income supplement, coupled with the reductions in tax and PRSI. The figures speak for themselves. A family on £12,000 per year with two children will be better off by  £18.50p per week by the time the budget changes are fully implemented in the next number of months. A family on £14,000 per year with four children will be better off by £22.50p per week. These are massive increases by any standards. I understand why the Opposition does not go to the trouble of mentioning these facts. I am disappointed the media, in the interests of fairness and balance, did not pay more attention to them. However, I seldom accuse the media of being entirely fair and balanced. Some try but many fail.
The family income supplement is ideal in helping working families because it is a cost effective way of directing help to those who need it most. As a result of the budget changes, families on incomes of up to £17,000 per year will be able to claim the family income supplement. This, with the generous increases in payment rates should lead to thousands more families qualifying for benefit in the year ahead.
This is the best budget ever for ordinary working families on modest incomes. The Government must ensure the public are aware of their entitlements to the family income supplement. I would like to see a proper advertising campaign to instruct people how to make claims and to let them know the level of payment to which they are entitled. People should not miss out on their budget bonuses through lack of information, which often happens. Members across the political spectrum often have people coming to their clinics who are totally unaware of their benefits. The Government should redouble its efforts to ensure people are made aware so they do not lose out because of a lack of information.
Pensioners also did very well from the budget and received the biggest increase ever of £5 per week. The Government is on target to deliver the £100 per week pension promised during its term of office. This is an important measure. Of all those in society, pensioners are entitled to be looked after. People are living longer and this might be seen as a burden on the State. However, people who earn money and contribute to society are not thought of as a burden to the State. Social justice demands that those who did this in one way or another over the years, by raising families or contributing to the tax pool, are entitled to be looked after.
It is ironic, given the media coverage, that pensioners did not fare so well under the previous Rainbow Government. When it came to distributing the fruits of economic growth, Deputy Quinn and Deputy De Rossa did not exactly put pensioners at the top of the queue. In 1997 they were given £3 per week, in 1996, £2.20 and in 1995, £1.80. This mean-spirited, penny-pinching approach has been abandoned by the Government and pensioners can now share in the fruits of our economic growth. It is intolerable that the people who should be looked after were not looked after to the extent that my party and our partners in Government would wish to see. It is  terrific that the commitment given during the last election is being, and will continue to be, met.
For five years the Labour Party had a key influence on economic policy. It used that influence to ensure that the higher rate of income tax remained unchanged at 48 per cent and that the basic rate was cut by just 1 per cent to 26 per cent. The Labour mantra was that the increases in bands and allowances were better than reductions in rates. It is a pity it did not practise what it preached. After five years of the Labour Party in Government, a single person earning £261.50 per week hit the top rate of tax, well below the average industrial wage. Our Government is committed to ensure that 80 per cent of taxpayers pay the standard rate. I look forward to that target being achieved over the next four budgets and I am convinced that it will be.
Since the beginning of the decade personal income tax rates have come down by 18 per cent in cumulative terms; I am proud to say that 17 per cent of that reduction was delivered in the four budgets in which my party participated. The process of rate cutting must continue and I welcome the Government's commitments in this regard. We must increase the reward for working otherwise we will still have over 200,000 people on the dole, even though employers around the country cannot even find unskilled workers.
I welcome the anti-tax avoidance measures the Minister introduced. The survey of 500 high income earners initiated by the Minister and undertaken by the Revenue Commissioners showed that tax is being avoided wholesale by those who can best afford to pay. It is a terrible scandal and should not be allowed to happen. It is ironic that those people can avail of every tax shelter and the best legal and accountancy minds in order to pay as little tax as possible while those on much lower incomes must pay every single penny of tax due. It is not right that the Revenue Commissioners have not intervened in this matter and I hope the situation will end very quickly.
Section 12 is an anti-avoidance measure to remove the risk of “certain individuals moving assets offshore to avoid tax” and it is to be welcomed in view of recent history. Those kinds of measures should have been highlighted by the media. As good as the budget was, to a certain extent it received a bad press. Two factors were responsible for that. One was the £20 million grant for Croke Park and the other was the halving of capital gains tax.
I am not a Gaelic games fanatic but I enjoy watching GAA matches. It would be a bad day's work if Croke Park was to be the only sporting facility to benefit from this type of largesse. However, the decision to support the Croke Park development sets an important precedent for future Government funding of the sporting infrastructure, which is to be welcomed.
In the years ahead funding should be made available for flagship projects in other sporting disciplines. For instance, a proper national stadium is badly needed and everyone would welcome  some degree of funding for such a project. Funding should be channelled into individual communities and this is at the heart of what many people objected to concerning the amount that was spent on Croke Park. People juxtaposed the £20 million for Croke Park against sums provided for disadvantaged groups or people with disability; it was obvious that point would be made. All sporting organisations, including the GAA, soccer, athletics, hockey, basketball and rugby — even though the Irish rugby team is not doing so well now — could do with a helping hand from the Government to improve amenities at local level. This is particularly so in areas of social disadvantage where there are few facilities for young people.
Early intervention in the education system, as well as in sport and recreation, has a knock on effect for our youngsters' future. Such facilities take children off the streets and into doing something productive and worthwhile. By engaging in something they enjoy it will have a positive effect on the whole social fabric of society.
The cut in capital gains tax has been criticised mostly by those on the left of the political spectrum, although some of the critics were within Fine Gael so I do not know exactly where they stand. The cut in capital gains tax was seen by many as a give-away to the rich, but the opposite is the case. Receipts from capital taxes have been storming ahead in the first two months of this year. Cutting the rate has actually increased Government revenue as many in my own party have been forecasting for years. The rate cut has reduced tax evasion and avoidance as well as increasing the number and value of taxable transactions, which is to be welcomed.
Everyone says we need to spend more on worthy causes and I agree. The Government, however, has only one source of money — the taxpayers — and if we can bring in more money by cutting tax rates it seems to make good sense. It is the height of hypocrisy to call for more public spending on the one hand while, on the other, opposing a measure such as reducing capital gains tax which brings in more money to fund the spending that is being sought.
We have heard brief references to privatisation. It has taken the Progressive Democrats 13 years to convince some members of the Labour Party about the merits of privatisation, but I hope it will not take us a further 13 years to convince them about the merits of cutting tax rates. I am glad to see that the 40 per cent capital gains tax rate remains in force for those who make gains through speculative land deals.
Previous speakers mentioned the difficulties concerning rising house prices and these must be tackled. While I do not pretend to have the solutions, the matter is becoming more urgent. I do not wish to be parochial because the experience is the same everywhere. However, in my own constituency of Dún Laoghaire it is very difficult for first time buyers to get houses. The fact that  investors or speculators are taking up a good percentage of new houses is causing part of the strain on the market and we must examine this matter.
I believe in free enterprise, naturally, but we must look at the social fabric of our society and how we can support young families. The problem of young people having to pauperise themselves in order to buy quite small starter homes in the Dublin area requires urgent action.
I welcome the new urban renewal scheme. While people might say the Dún Laoghaire/ Rathdown area is relatively well off, it does have unemployment black spots. The town of Dún Laoghaire itself has been denuded of commercial activities which have only been reintroduced in recent times. Plans are under way to avail of the new urban renewal scheme and we are recommending the area to the Minister for the Environment and Local Government. We hope the scheme will be regarded favourably. A town which is regarded as the flagship for an area should receive the backing it deserves. In that way we can have the type of community development needed for young people there.
We are all aware of the difficulties with the drug problem in every area and one of the ways we combat this is, as I said before, to fund recreational outlets for young people to give them somewhere to go and something constructive to do. Part of the urban renewal process is the development of facilities, both economic and recreational, in particular for our young people.
In commending this Bill to the House, I know there are other aspects which we hope to develop over the next number of years in Government, and I look forward to hearing the Minister presenting Finance Bills on many occasions in this House.
Mr. Coghlan: Unfortunately, this Bill has missed many opportunities. The increase in the personal allowance of only £250 from £2,900 to £3,150 is a bare increase despite the roaring success of the Celtic tiger and full State coffers. Everybody agrees this bestows a very small benefit on working people and it is justifiably regarded as highly inadequate.
A tax system must first be equitable, and increasing this allowance by a greater amount would more fairly benefit every worker in the economy. More should be done to increase personal allowances, widen the tax bands and reduced the standard rate of tax. Where is the equity in having the standard rate of tax above the rate applicable for capital gains?
Under section 34, companies are now being limited to raising £250,000 under the business expansion scheme. There does not seem to be any logic in this. It reduces the amount of money a company can raise and, therefore, the jobs it will create. What medium sized project with job creation potential could one start in this economy for £250,000 at current prices? Few, if any, I would suggest.  Section 51 relates to the reduction of tax credits associated with company distributions. This gives less of an incentive to invest in companies. The idea seems to be to eliminate these in the future, but this will act as a disincentive for investment in quoted companies. Heretofore, companies used give dividends to people to avoid tax. Now this new section, coupled with the reduction in the corporation tax rate, makes it better for companies to repatriate their profits and not pay dividends to shareholders. It is not a good idea.
With regard to section 21, the capital gains tax rate of 20 per cent should not be lower than the lower rate of tax. I am not asking for it to be increased, but I am asking for the standard rate of tax to be brought down to 20 per cent. Since capital gains tax generally benefits the better off and it is they who will largely have to pay tax under this provision, its beneficial effects are rather limited. This increases the inequity in the tax system.
Under section 75 the capital gains tax exeption is altered from £2,000 for married couples to £1,000 per person. The original proposal in the budget was to reduce it to £500. Surely this is a pointless exercise? Nobody benefits or loses because of this except married couples. It is a discrimination against married couples with small amounts of investments where they are in one person's name. Surely a tax system should be convenient? This new section makes the system very awkward for married couples. It is a bad move. It should certainly have been left as it was.
The car scrappage scheme has ended but it has not been replaced with a sufficient measure because reductions in vehicle registration tax, welcome as they are, will not have as buoyant an effect on this industry as the scrappage scheme had. Some new initiative is needed to maintain the impetus in that sector.
The tax relief for investment in renewable energy projects, of which we would all be supportive and which are worthwhile for many reasons, is confined to companies. This is more discrimination. Individual investors cannot avail of this relief. I cannot see the reason for that. The exclusion of individuals is illogical. If the intention is to encourage investment by way of tax relief on such projects, then logically the relief should be available to all investors, whether companies or individuals. In view of the reduced rate of corporation tax to 32 per cent, it is unlikely that the relief will be attractive to the corporate sector. Is this, therefore, another example of a tax relief which is stillborn by reason of the restrictions introduced on the introduction of the relief. Renewable energy has significant advantages to the country both from the environmental and financial standpoints. Financially, it reduces a dependence on imported fossil fuels. To kickstart the investment in these types of projects, I would recommend that the relief be extended to include individuals. This could be done in much the same way as, for instance, individuals investing in BES projects.
 The Finance Bill severely restricts the ability of individuals to invest in property based tax projects. The terms of the Bill restrict the capital allowances which can be offset against the individual's taxable income to £25,000 per annum. Under the Finance Bill hotels do not even benefit from the £25,000 limit. In view of the dependence of the country on tourism generally and the need to continually upgrade the hotel infrastructure, I would recommend that the total ringfencing of hotel expenditure be removed and the £25,000 cap applied to hotels.
The Bill seeks to reduce the interest rate payable on underpaid taxes from 1.25 per cent per month, that is 15 per cent per annum, to 1 per cent per month, that is 12 per cent per annum. The reduction does not properly reflect the significant reduction which has occurred with interest rates generally over the past several years. Furthermore, as EMU approaches it is virtually certain that we are entering into an era of continuing low interest rates. The interest rate on underpaid tax should be struck at a just and equitable level and probably should not exceed 9 per cent per annum. In addition, any interest payable is not deductible for tax purposes thereby increasing its effective cost. This is a further reason that a rate of no more than 9 per cent should be levied.
This Finance Bill also seeks to reduce the interest rate payable on overpaid taxes from 0.6 per cent per month, that is 7.2 per cent annum, to 0.5 per cent per month, that is 6 per cent per annum. There does not seem to be any justification for having a disparity in the interest rates on underpaid as against overpaid taxes. I strongly recommend that the rates be the same.
This Bill reduces the rate of corporation tax, as I have said already, to 32 per cent. This is welcome. However, the Bill does not indicate the timing of further reductions to the 12 per cent. In order for businesses to properly plan their affairs, the Bill should set out the amount and timing of further corporation tax reductions.
There have been virtually no amendments to the tax legislation relating to pensions since 1972. Pensions legislation is outmoded and must be brought into line with modern practice. Our legislation is predicated on the assumption that a person's working life is 40 years and that the bulk of this is spent with one employer. These assumptions are unrealistic in the modern era. Pensions legislation should be updated to allow for personal transportable pensions which can be cashed in from age 50 onward as against the current minimum age of 60. I recommend that the Minister bring forward a comprehensive set of proposals to modernise pensions tax legislation as soon as possible. The more people save by way of pensions, the less the ultimate burden on the State. Consequently, the legislation should encourage a flexible pensions structure.
I referred to the capital gains tax rate earlier but it must be noted that this does not apply to  development land. This can be particularly onerous on farmers who sell land with a view to reinvesting in the purchase of other farm land. It is, therefore, desirable that where it is used for an existing business purpose and is then disposed of, development land should qualify for capital gains tax replacement relief. The tax rate of 40 per cent will apply to the extent that any of the cash from the sale of development land is not reinvested in other farm and business assets. This insures that any uninvested cash will attract the full 40 per cent rate.
There should not be a restriction on unitisation. I am concerned about the existing anti-unitisation rule which prohibits more than 13 people from participating in capital allowance schemes. This has the effect of restricting large investments to those with large incomes in the region of £250,000 to £300,000 and upward. Until the anti-unitisation rule is relaxed, permitting 50 to 100 individuals to invest in a project, people wishing to claim capital allowances of £50,000 in a particular year will not be able to participate in any of the capital allowance schemes currently available. For example, a figure of £25,000 was introduced in the budget as the maximum amount a person can claim. In effect, this is no great problem and would be reasonably fair from the point of view of tax. However, it is apparent that the anti-unitisation rules should have been relaxed at the same time. There is a contradiction here.
The Minister could have increased the limit to 100 investors thereby allowing projects up to a capital allowance value of £2.5 million to participate. He could have gone further and increased the limit to 400 investors which would allow projects with capital allowance values of £10 million to participate. This is the type of investment required, particularly in the Custom House docks centre to get things under way. There are substantial benefits to be derived from schemes of this sort because many large projects will not proceed if there is a limit of £25,000 per investor and a maximum of 13 participants. The scale of basic considerations alone will not allow many of these projects to proceed unless there is a substantial increase in the limit of investors that can participate.
There has been significant pressure to have the restriction on capital allowances contained in sections 409(a) and 409(b) of the Taxes Consolidation Act, 1997, relaxed in respect of the Dublin docklands. There is no reference to such a relaxation in the Finance Bill, despite a whopping 68 pages of legislation relating to urban renewal. The restrictions, which do not apply to corporate investors or persons occupying buildings for the purposes of their own trades, have the following effect: in the case of non-hotel investments, there is a cap of £25,000 on the offset of capital allowances against non-rental income and, in the case of hotel investments, excluding the counties of Cavan, Donegal, Leitrim, Mayo, Monaghan and Roscommon with the exception of those parts  covered by the seaside resorts legislation, capital allowances can only be offset against rental income.
There is no doubt that the availability of tax reliefs on property encourages private investment. The increase in the tax relief on hotels to 15 per cent per annum for six years with 10 per cent in year seven has been particularly successful. The incredible increase in the number of hotels, particularly in Dublin, is evidence of this. It can be argued that the incentives are no longer needed. In contrast, however, the Dublin docklands redevelopment has not yet got under way. The restrictions on capital allowances will effectively hamstring the redevelopment before it gets up and running. The reliefs provided under current legislation will still make the provision of housing attractive from the perspective of the investor and the owner/occupier as these reliefs are unaffected by the restrictions. However, people are concerned that private investment in respect of non-housing elements such as offices, public houses, restaurants, cinemas, cultural amenities, etc., may not be forthcoming. These elements are vital to the success of the overall scheme. Urgent consideration should be given to removing the Dublin docklands area from the restrictions imposed in the budget to ensure that success is guaranteed.
The Minister's intention of spreading this type of tax relief among more taxpayers makes a degree of sense. However, the main reason high net worth individuals are the only people to utilise these tax breaks relates to the property unitisation legislation. As already stated, these rules cap the number of investors on single projects to 13. If the Minister was to remove this provision, he would achieve his objective of spreading tax breaks to more people while maintaining the attraction of making such investments. As it stands, the only people who can benefit from the restrictions are individuals with significant amounts of rental income to shelter, which seems contrary to the Minister's intention.
The corporate sector is also set to gain. In recent years companies have effectively been bid out of tax based developments by high net worth individuals because of differing tax rates and higher value to the individuals. However, given the projected decreases in corporate tax rates, it is likely that corporate interests will not be keen on investments with no front loading of capital allowances in the future.
The provisions of the 1997 budget in respect of stamp duty did not have the desired effect, particularly in the Dublin market. I had intended to speak at length on this issue but, as my time is exhausted, I will deal with it at a later date.
Mr. Bonner: I welcome the Minister of State at the Department of Environment and Local Government, Deputy Dan Wallace, to the House. The Minister of State at the Department of Public Enterprise, Deputy Jacob, has just departed and  it is his Department which has responsibility for renewable energy.
Senator Coghlan referred to individuals being allowed tax relief as against the proposals set down in respect of corporation tax. The majority of such incentives or allowances have always only been allowed to limited companies. I do not agree with this because to receive manufacturing tax relief a business must be a corporate entity. There are many small businesses restricted from obtaining such reliefs which could do without the need to become incorporated or limited companies. This problem would evaporate if everyone paid a reasonable and acceptable level of tax. That is the main thrust of the budget and the Bill. The Minister is endeavouring to deliver on the promise to bring the lower rate of tax down to 20 per cent and the higher rate to 40 per cent. That objective will be achieved in the lifetime of the Government and people will be happy to pay the amounts of tax arising at those rates.
I am delighted to have the opportunity to speak on the Finance Bill and I hope the Cathaoirleach will afford me some latitude with regard to the time. I have noticed that other Senators have gone over their time. As an accountant I have spent the best part of 30 years dealing with tax matters. One did not often have the time to listen to the Budget Statement and accountants must constantly update themselves. I welcome the Finance Bill, although I do not agree with all its provisions and I will make some proposals for future budgets and Finance Bills.
The budget was innovative and imaginative. I have not seen as many measures to assist individuals and the economy as have been taken in the Bill. As the Minister said, the main thrust of the Bill is to cut tax rates by 2 per cent for up to one million taxpayers; to deliver £517 million in tax cuts; to provide for greater tax equity by cutting back on tax shelters and to boost enterprise and endeavour. The Bill favours taxpayers, job creation, tax equity and further economic development. The Bill provides for changes to the tax rates, bands, allowances and exemption levels. In particular, I am delighted to see increased allowances granted to widowed people.
The Opposition has made accusations that the budget was for the rich. However, when one considers that on earning slightly under £14,000 a single person must pay tax at the higher rate I cannot see how the Bill could be deemed to help the rich. It helps middle income earners, the group which struggles to pay mortgages and to raise and educate families and whose situation is rarely addressed. This and future Finance Bills will help to cut the level of tax this group pays and raise its take home pay. The Bill provides for increases of up to £7 per week and £15 per week for married people, increases which compare favourably with those granted in previous Bills.
The Bill cuts back substantially certain well used tax shelters to ensure fair distribution of the tax burden. This is not the action of a Minister or a Government cutting capital gains tax simply to  enrich the better off, as portrayed by the Opposition. During the debate on this Bill in the Dáil the leader of Fine Gael proposed the restructuring of pension reliefs, a proposal repeated by Deputy Coghlan. As a tax practitioner I know that it is the well off, higher rate taxpayers who gain from pension reliefs. Deputy McDowell, the Labour Party spokesperson, proposed excluding domestic dwelling houses from the windfall capital gains tax reductions. Private dwellings are not included. One is allowed relief on a private dwelling up to one acre. I presume the Deputy meant to refer to the investors buying up houses and tying up the market. I agree with him to a degree. There should be a third level of tax for people earning over £60,000 or £70,000.
The Minister has been accused of introducing a Thatcherite budget. However, the British budget delivered by the Chancellor of the Exchequer on St. Patrick's Day displayed many characteristics which follow from the Irish budget, including a reduction in certain capital gains tax transactions to a rate of 10 per cent. In the past our tax legislation has followed that in Britain. However, the reverse is now happening. For example, Britain introduced self-assessment for the first time last year, a system we have had in place since 1989-90. Given the changes taking place in Britain will the British Labour Party be accused of succumbing to the rich and powerful? It is a party which always looked after the poor, the unemployed and the working class. When the Minister, Deputy McCreevy, goes to Cheltenham next year will he hear people talking about the British budget as a “McCreevyite” budget? There has never been such growth and confidence in the economy as at present and this Bill will give cause for further hope.
A number of measures in the budget put paid to mistaken ideas about how the Minister performed as Minister for Social Welfare. Section 6 continues the exemption from income tax of unemployment benefit for systematic short time working. Section 7 ensures that tax relief on covenants for hardship cases will continue for a further two years. Section 9 legislates properly for compensation received from the hepatitis C tribunal and allows the interest from such investments to be exempt from tax. This is not a budget for the rich. The Minister was accused of pandering to the Law Library but I doubt if those who made that accusation read section 132 which intends to introduce a tax clearance certificate requirement for solicitors and counsel on the criminal legal aid panels.
I wish to refer specifically to the section 23 investment allowances granted to the fishing industry. The white fish fleet has gone into a state of disrepair. Senator Avril Doyle pointed out that the average age of the fleet is 27 years. Most of the fishing tragedies, of which we have had many in County Donegal, have been due to the poor state of the white fish boats. In recent years there has been a major development of the larger fishing boats which was funded and promoted  through accelerated capital allowances. Without those capital allowances the fishing industry would not be as strong as it is now.
I would have preferred a 100 per cent free depreciation allowance to have been granted to the owners of fishing trawlers who intend to invest. I appreciate that ending the ringfencing will help the industry and that those who provide finance will get tax relief up to the 50 per cent initial allowance. I would have preferred if a more generous allowance had been given to fishermen-owners or those who fish from the trawlers themselves.
Mr. Bonner: Thank you. Another point I wish to raise relates to section 14, which deals with the seafarers allowance, which I welcome. I note that it has been restricted mainly to merchant shipping. I discussed this matter with officials in the Department and they assured me that was all that could be done under EU law and the regulations of the European Commission.
There are various ways and means of granting reliefs and allowances. I suggested to the Department that it should look at the expense allowance given to fishermen. That expense allowance was introduced approximately 30 years ago at £150 and was increased to £250 in 1990. In recent years there has been much doubt about the status of share fishermen on boats as to whether they were self-employed or PAYE workers. Recent decisions have ensured that they are definitely PAYE workers. It is time to look at the expense allowance. I do not believe the European Commission would have any objection to that because an allowance of £150 granted nearly 30 years ago is now only £250.
I would like to make a proposal to the Minister and Department as regards the fishing industry in the hope that it could be introduced next year. Although we are now opposing the BES and urban renewal schemes, I would like a scheme for fishery harbours and ports to be introduced. Not only do they supply services to the fishing fleets, but they also have a major impact on tourism. I would like a scheme which would enable finance to be provided.
There is a proposal, which has the full backing of the Minister for the Marine and Natural Resources, to develop the harbour at Killybegs. The harbour badly needs to be extended and refurbished, but no finance has been forthcoming. If incentives were given for that project, many private investors would put up the money and, if necessary, arrange a type of lease back to the Department. We, in County Donegal, will lose many opportunities if this fishing harbour and pier are not developed. The harbour is in the running to be accepted as the primary harbour for offshore oil development off the north coast  where there is much offshore oil. If we do not develop the harbour, we will lose that position to Ayr in Scotland. Over the years all the backup services have been developed and we have a regional airport at Carrickfin. I would like some proposals to enable harbours to be redeveloped.
I compliment the Minister on section 13, which gives relief to cross-Border workers, an issue which has been raised for many years because the situation was inequitable. However, there is still an inequity because this relief is not being granted to business people who reside on this side of the Border and who travel daily to their businesses in Northern Ireland. Many of those who have decided to live and spend their hard earned money here are being discriminated against because they are not PAYE workers.
Mr. Bonner: I welcome the section dealing with relief for hotels in Counties Cavan, Donegal, Leitrim, Mayo, Roscommon, Monaghan and Sligo which will give those areas a better chance to reach their tourism potential. However, further relief should be given to smaller projects or other infrastructural needs in those areas. Unfortunately, they are not in a position to receive grant aid from Bord Fáilte. It refers the northern counties to Leader and the IFI, but the only money which they seem to have available is for marketing. I would like a tax break to be given in conjunction with the new pilot scheme announced under section 77 for the Upper Shannon area. I welcome that scheme, which Senator Finneran elaborated on, so I will not say too much other than that the entire western area should have been included and I hope it will be in the future.
I particularly welcome section 17, which deals with subscriptions by individuals and corporate bodies to disadvantaged schools which lack facilities despite the increased capitation grant they get. Social deprivation in these areas does not allow for all the needs of these schools. There are, however, many schools which are more disadvantaged than some of those deemed to be so due to the criteria used. I refer in particular to island schools. I know of two schools on Arranmore Island which are not treated as disadvantaged and I do not understand the reason they are not. The Minister of State at the Department of Art, Heritage, Gaeltacht and the Islands, Deputy Ó Cuív, suggested to the Minister for Education and Science that all island schools should be treated as disadvantaged.
I also welcome the capital allowances granted to terminal buildings at airports, which should always have been given. I welcome the fact that buildings built a number of years ago will be allowed claim this relief as and from now, disregarding a notional allowance for earlier years.  I refer to section 45 relating to the introduction of the filing system for tax returns. I am not against this change and welcome it providing other changes are made. The main problem I have is the time limit within which one must file returns. If one asks anyone working in the accountancy profession, they will tell one how difficult it is to make returns for all their clients within the 31 January deadline. Initially, the date was December but it was changed to January for social reasons. I have no objection to this change because I appreciate that by linking the payment date with the filing date it will enable us to ensure taxpayers pay the proper tax or 100 per cent of the previous year on time. I will accept this change providing the Minister moves the tax return year end to the end of the calendar year. Under no circumstances will we entertain moving the filing date back to August or September. As long as we have ten or 11 months to file returns, I have no doubt most of the accountancy profession will accept it.
Mr. Costello: I appreciate Senator Bonner's desire to keep the debate going so it does not collapse, which is the last thing the Government would want. That is probably the only thing on which we agree. I cannot imagine how he sees this as a good budget. This is a budget for the rich and it is directed and targeted towards them.
The Senator asked what the Opposition had to offer. Senator Coghlan referred to pension tax relief, an area it was agreed this morning that we would debate and examine. Other measures could easily be taken and would not cost the Exchequer as much as some of the tax reliefs in this Bill. Tax relief for carers could be extended from the spouse of the person in need of care to other close relatives. It is an obvious approach in terms of providing a service which would otherwise have to be provided in many cases using expensive private accommodation, much of which would be funded or subsidised by the health boards.
The Government should also restore home improvement grants. There are tax reliefs for hotels, car parks, seaside resorts and buildings but none directly geared towards benefiting the consumer and taxpayer. Many of the tax breaks in this Bill will make it more difficult for a person to buy a house because the tax breaks will go to property developers. The budget is skewed in the wrong direction towards property and capital, not the taxpayer, the home owner or couples seeking to buy a house.
Senator Bonner mentioned that tax clearance certificates are being introduced for lawyers. That is about time. They were introduced a number of years ago for street traders. Any street trader selling at a football match must produce a tax clearance certificate under the legislation introduced  some years ago. It is high time that was extended to others.
The function of a budget and the Finance Bill is as an instrument of social and economic policy. They are a means by which the Government decides the direction in which society is going and by which it adjusts and controls national finances to provide as much benefit for all individuals and not just for a number of people who are probably already sufficiently well heeled. That is where this Bill fails. It contains nothing in terms of distribution, fairness and equity. The Minister, Deputy McCreevy, stated that: “Many workers on low pay will get more from this year's budget than they got from the 1997 Budget.”. That is patently false. They will receive a few pennies here and there, but compared to how they were treated in last year's budget and the four previous budgets, the emphasis in this one is disproportionately against them in favour of highly paid workers. Middle income workers do not do well either. Those at the upper end of the scale do exceptionally well. It is another example of how the budget is skewed in the wrong direction.
This Bill is presented against a background of another investigation into National Irish Bank, the Irish subsidiary of National Australia Bank. This is the fourth investigation which has been set up in the past six weeks to two months. An authorised officer has been appointed to investigate under the Insurance Act, 1989. The Revenue Commissioners are already perusing the files, the Central Bank is conducting its own investigation and National Australia Bank is conducting an investigation into its Irish subsidiary. Significant allegations have been made concerning £30 million insurance bonds and the occurrence of tax evasion using offshore accounts in a scheme operated by the Clerical Medical Group. These must be investigated. These are serious developments concerning a major bank on the international market. They are the backdrop to this Bill.
The National Irish Bank is not the only institution over which a cloud of suspicion has hung and its scheme is not the only one using offshore accounts of which we have heard in the past few months since the Minister came to office. His reply to this did not come until the very end of his speech when he said: “I will act to counter such activity and take new powers where these can be shown to be desirable and likely to be effective.”. The Minister is already imposing two conditions. It is patently obvious there is insufficient monitoring and regulation to deal with what has been happening because it would not happen otherwise. The second condition of it being shown to be effective means that the Minister is just talking gobbledygook. Either he does something about schemes of this nature, be they Ansbacher accounts, offshore accounts or tax evasion devices of one form or another, or he does not. This Bill was a wonderful opportunity for him to do so. The investigations into the National Irish Bank concern an institution. There are also investigations into the financial activities  of a number of prominent political and business individuals. The planning tribunal and the Moriarty tribunal are investigating examples of individuals involved in unpleasant and unsavoury schemes.
It seems there is one law for the rich and another for the poor. If one is rich, one can avail of the normal legislation to enhance one's earnings. The Revenue Commissioners gave proof of that recently when they published the names of 400 individuals in the super rich bracket and showed that only 8 per cent of those earning £250,000 paid the higher rate of tax. There is oodles of work for the Minister to deal with in terms of the super rich, financial institutions and private individuals who are either in the pocket of some sector of business or are using schemes to enhance their large quantity of capital. This is an area with which I would like to see the Minister for Finance dealing. The purpose of the budget and the Finance Bill is as an instrument of social and economic policy to show the direction in which the country is headed, how the Government will deal with its citizens, how it will deal with the wealth being created, how it will distribute it and how it will show equity across a range of sectors in society. The Minister for Finance does not even attempt to deal with that fundamental tenet of financial, social and economic policy.
Let us look at the problem areas in society at which the Minister decides to tilt. Our hero, like Don Quixote, decides to have a tilt at the windmills he regards as the great inequities of society. What is his first target? That evil body spread throughout the country, the credit unions, these dangerous financial institutions scattered around the length and breadth of Ireland like octopuses. By God, he will sort them out. They will not avoid tax. In the course of a year they may have £2 million in tax salted away in the dividends of their investors. The small men and women who put a few bob away here and there, they are not going to get away without paying tax. The Minister will ensure it is obligatory for every credit union in the country to communicate to the Revenue Commissioners the exact income to each shareholder in dividends. It is a wonderful Minister for Finance who could catch out that nefarious criminal organisation salting away money for elderly citizens, couples who want to decorate a house or a farmer who wants to buy a new tractor.
The Minister should seriously examine this area in terms of the trade union movement, which has such a huge membership of mainly small savers. He should examine the £500 exemption threshold and consider generously increasing it. Then we can look at what is required under DIRT or other tax payable. It is a question of priorities. You start where the problem is greatest, not where it is least, otherwise you have no credibility.
 The other problem the Minister has dealt with, in terms of tax measures, is the home owner. He is doing his best to put home owners at a disadvantage in a number of ways in this Bill. He does it by slashing capital gains tax. No one knows why he does this. From where did the pressure come to change capital gains tax from 40 to 20 per cent? Saying that the Labour Party in Britain has cut capital gains tax——
Mr. Costello: ——is not an answer to the problem. The system in Britain is different. We are cutting capital gains tax by half. No one has any problem with that in theory, but what effect will it have? Those people who have accumulated large portfolios of property, as they are doing under our tax incentive system, are now in a position to sell it, make a profit and build further portfolios. We are putting the home market into the hands of property speculators. Now the ordinary person's home is the product of buying and selling cheaply. With a tax rate of 40 per cent it was more difficult to realise a profit in the same way. Anybody earning £15,000 will be in the 46 per cent tax bracket yet in the 20 per cent bracket for capital gains tax. Surely that is inequitable. Will the Minister explain why he decided to do this? Has he thought about its negative implications in an already overheated market?
The Minister should look at the urban renewal scheme included in sections 24 and 76 of the Bill, where tax incentives are given to sectors of industry: hotels, car parks and buildings. Has the Minister done anything for the consumer of these products? At present in Dublin city, the cost of construction of a unit of accommodation is £60. The selling price is £300. There is a 500 per cent mark up on the construction cost. There is no connection between the cost of production of a product and the exorbitant rake off the seller gets.
Has the Minister examined if there could be a penal level of stamp duty where a property is bought for more than a certificate of reasonable value indicates? Ten years ago a builder received a 10 per cent mark up on the cost of construction. Now the builder gets a 500 per cent mark up. To whom is the builder selling? He is selling to the market which is in property speculation and investment. The tax incentives are all directed towards the rental, commercial and industrial markets in areas of the city which are already developed. That is why at present 75 per cent of all accommodation units are being bought by the speculative or investment sector. That is the area the Minister should address. Perhaps he should pay stamp duty for all first time buyers. Perhaps he should give grants to home owners for home refurbishment. That would be an interesting way of giving something to that sector.
Look at the good plans proposed here, such as the integrated area development plans where there is a good mix of trying to build a social  dimension into a development project. It is still skewed in favour of tax incentives, because the tax incentives are given to the commercial, industrial, private rented and private owner sectors, all of whom come from outside disadvantaged areas. There is nothing given to the indigenous population to do up their homes in derelict areas. Native communities are being dislodged throughout the city. It has happened in Temple Bar, in Smithfield and is now about to happen in the north east inner city. The indigenous population and the consumer can ask the Minister for Finance, the Department of the Environment and Local Government, to vary the tax system to benefit them rather than the outsider with a great deal of capital for investment until they are blue in the face.
Much was expected of this Minister for Finance, a man who knows the area and familiar with his brief. The Minister has disappointed terribly, he shows no policy parameters or direction other than tax incentives or relief going to those who already have money or to the business sector. The Minister may have another budget to give us——
Ms Cox: When the budget was introduced I stated that the Minister had an opportunity to introduce many beneficial measures and he has done so. He has done a lot for employers, employees, those dependent on the State and those in business. He has also done much for investment, the economy and those with a stake in our economic welfare.
The Government identified a number of concerns in the Programme for Government. Two of the most important of these were tax reform and the need to create an inclusive society. The budget delivered over £500 million in personal tax reductions resulting in people having more money in their pockets to spend in shops, hotels, the leisure industry, food stores etc. This additional spending will not only benefit those receiving the allowances but the entire economy. It was necessary to reduce personal taxation in order to reward effort and to give people the incentive to take up work. This is one of the most important aspects of any economy — people must  feel that their efforts will be rewarded in their take home pay. Some Irish people worked in two or three jobs in the US to keep themselves in college or provide for themselves during the winter. That is now happening in Ireland because of the changes to the taxation system and the environment which is being created. People are able to receive just reward for their work. This gives them a sense of dignity and self respect and allows everyone to take part in the booming economy.
Everyone has a right to share in the wealth of the nation and the economic benefits of growth. I worry about those who say that those with money are not entitled to keep and spend that money. One is entitled to a just reward for hard work if one has the initiative to make more money than others. This society encourages initiative and entrepreneurs to make the best of their talents. The Bible contains the story of the talents. People are rewarded in this country if they put their efforts into business and investment.
The Minister outlined some of the tax gains such as the increase in net take home pay. The tax changes in the Bill effect tax rates, allowances and bands — the lower rate of taxation will be 24 per cent, the higher will be 46 per cent. I am not too old but I remember the 56 per cent rate and I welcome the planned progression of the changes being made. Given our economic growth it would have been easy for the Minister to give away money left, right and centre. However, he chose not to do so but to address economic growth in a very prudent, pro-active and wise manner. He addressed the areas which will continue to provide the economic stability we need to create jobs and wealth.
Some commentators have accused the Minister of making the rich richer and the poor poorer but this is untrue. The Bill has cut back significantly on the number of excessive tax shelters in a bid to introduce a fairer distribution of the tax burden. This is to be welcomed. Everyone is entitled to make money and expected to pay a fair tax on that money. We would all wish to pay little or no tax but this is not possible. Taxation allows us to run the country and provide services. The taxation paid has allowed us to increase pensions, social welfare and disability payments, family and child care allowances. The sharing of the tax burden allowed the Minister to introduce additional increases to those dependent on social welfare. The Bill also addresses the number of tax avoidance loopholes previously available. The Government has faced up to the challenge of tax avoidance and is continuing to create an environment conducive to job creation and economic prosperity.
Section 16 sets out the tax reliefs pertaining to the employment of the long term unemployed. I commend this initiative which identifies the need for a two-pronged approach to dealing with long term unemployment. Too often we have incorrectly believed that throwing money at this issue  would solve the problem. We must create the jobs and the incentives for businesses to employ the long term unemployed. Additionally, we must create the incentive for people to take up these jobs. Too often those who have never had a job or have been long term unemployed find it very difficult to get out of a rut. They often have no incentive to seek employment because they are better off staying at home and receiving social welfare payments. The Bill addresses this problem and people will be more inclined to seek employment and the self-respect and dignity which accompanies employment. I also welcome the Minister's comments that the Revenue Commissioners will be promoting this initiative.
The Minister has extended the 1995 urban renewal scheme deadline to December 1998 for certain cases where the promoters can show that they are unable to complete the project for reasons outside their control. Very often these delays are due to planning problems or in getting contractors to complete work due to the unprecedented boom in the construction industry. The 1994 scheme has been successful and the emphasis and focus of the new scheme is very welcome. The shift in emphasis also challenges local authorities. Local authorities throughout the country are involved in promoting particular developments in their own areas.
The Finance Bill provides for the elderly, the disabled and carers. It promotes employment, rewards effort and amends tax reliefs introduced last year to allow employees acquire substantial share holdings in companies. It is a proactive Bill which continues to build on the foundation already in place and leaves the economy in a position which allows us enter Europe as a proud nation.
Senator Costello made certain assertions regarding credit unions. It is completely unfair to blame a Minister for doing something he was asked to do. Interest received from credit union accounts is subject to tax and should be declared. The Minister, at the request of the credit union movement, was attempting to address this issue and introduce a fairer system whereby DIRT would be paid at the reduced rates.
My hope for the future concerns childcare tax relief and the recognition of the contribution of women in society and in the workforce, something I have raised with the Minister and at various meetings. If we want a fully inclusive society we must make provision for women and men to re-enter the workforce and receive tax relief or payments to help with childcare. We will be unable to proceed if we do not seriously address this issue. I believe the Minister intends to address it in future budgets, probably with the same initiative and creativity with which he has addressed the other issues.
Dr. Henry: I thank the Minister for the reduction in VAT on periodicals and journals from 21 per cent to 12.5 per cent. I take this as a  small personal triumph as I have been asking for such a reduction for years for those involved in scientific and professional organisations. Paying such an amount of VAT on research periodicals was an enormous problem for many institutions. While not zero rated, as in the UK, I am grateful to the Minister for introducing this improvement which will make a big difference to some of the institutions with which I am involved.
I regret that some of the promises made and which would have helped those in scientific and research institutions were not fulfilled. For example, the Fianna Fáil policy document on technology and science, published last June, said that the Minister would look again at the situation regarding post-graduate fees. The Minister is aware that while undergraduate fees were abolished by the last Government, post-graduate fees must still be paid. Worse still, educational covenants for post-graduate fees are no longer allowed. While some third parties can receive tax relief for the payment of post-graduate fees for others, I felt an examination of post-graduate fees would result in their abolition or at least a return to the situation whereby such fees could be covenanted by, for example, a student's parents. This is an important issue for a very large number of students as primary degrees in many disciplines are no longer sufficient and many students, particularly the best, have to embark upon post-graduate education.
Grants for post-graduate education are few and far between and the Forbairt grant of £2,000 does not even cover post-graduate fees which normally amount to £2,400. As the Minister is aware, students in receipt of these grants are not allowed take up demonstratorships in universities or technical colleges which are worth more than £4,000 per year. There are people trying to undertake post-graduate work, which is of great value to them, the country and hi-tech industries, on far less income than someone on the dole. I have no desire to encourage people to go on the dole and not pursue post-graduate research, but it seems iniquitous that their efforts, which constitute such a contribution to the State and industry, are not being rewarded.
One of the worst effects of this problem is that our best students are frequently taken into post-graduate schemes abroad which means we no longer have the value of their research work or their involvement in campus companies which have contributed enormously to the economy in recent years. We must put our money where our mouth is. If we constantly talk about the value of such people to the country we must make an effort to keep them here. Approximately 75 per cent of those who go abroad never return.
It is essential that research and development are retained in Ireland in the context of the computer, pharmaceutical and chemical industries where we have made such advances. Unless something is done I foresee a constant drain of post-graduate students from the country and we will rapidly lose the keen edge provided by the  supply of excellent people to work in such industries. I do not mean that such people are simply to be put on production lines: innovation is the key to hi-tech industry. Industry must have people to call upon and in general it looks to third level institutions. However, there will be no such people if post-graduates leave for another country.
Senator Cox briefly mentioned childcare, a very important issue in Fianna Fáil's manifesto for the last election. The section on the economy and taxation outlined the party's eight key priorities for reducing the tax burden over the next five years as resources become available. I wish to focus on two of these priorities, namely, tax relief at the standard rate on up to £2,000 initially and for vouchsafed spending on registered child minders, including cre ches and pre-schools, and on caring for the aged and handicapped, and tax relief at the standard rate on up to £2,000 initially as recognition for married people who stay at home to care for their children and who do not get any State benefit other than child benefit. The document says “this would be payable as a refund directly to the person at home”. I do not think the Minister for Finance, Deputy McCreevy, read this part of the document as such provision is not included in the Finance Bill. Obviously Gordon Brown read the document as it is almost exactly what he provided for in the UK budget. Why can the Minister not take his own advice and allow for such benefits when Gordon Brown is taking our good ideas?
Senator Cox referred to childcare as one of the most important issues for many men and women with small children. If both parents want to work outside the home they can do so but, in many cases, one parent may prefer to remain at home but cannot do so for economic reasons. Several Senators spoke of the problem created by the 90 per cent increase in the price of ordinary houses in the Dublin area over the past five years. This is an enormous increase when one considers the increases in wages. If people aspire to owning their homes, in many cases both partners must remain in the workforce because they will find it impossible to pay the mortgage. In this context they naturally wish to make the best provisions for their children and to ensure that they employ the best possible childcare, tax relief should have been given for this purpose, particularly as we appear to have so much money. This would not only benefit the parents who are availing of the service, it would also bring a considerable number of people out of the black economy and would increase the State's take of taxation and PRSI. It would also help to regularise standards of childcare. Cre ches and other forms of childcare are not regulated but if parents can claim tax relief, such facilities would have to come within an organised child minding system. Such a measure would lead to an increase in employment in the child minding services and would raise the status of such employment. There are many good training courses for child minders and  greater regulation of the sector would facilitate such training.
Tax relief at the standard rate for parents staying at home was also a wonderful idea. The policy document promised that this refund would be made directly to the person who was at home. This would have been a first step towards recognising the work of women in the home and paying something more than lip service to the commitment in our Constitution.
I was disappointed that the budget did not raise dramatically the level at which people would enter the tax net. One is expected to pay tax if one earns about £81 per week. This threshold should have been raised to, at least, £100. Many employers, particularly in the catering industry, have written to me of their great difficulty in recruiting staff. Many people come from other countries to take jobs in this industry. Such people can, at least, use the opportunity to learn English. Irish employees do not see this opportunity as an advantage. One hears of CERT advertising their courses unsuccessfully. One employer in this industry suggested a tax threshold of £150 per week. This lady could not be described as a great socialist. She is simply an employer who is having difficulty recruiting staff. I am sure the Minister has heard from employers with similar difficulties. It would be better to see young people earning £120 or £150 per week and taking it home than drawing £4,000 per year in unemployment benefit.
It is interesting to note that, in this matter too, Gordon Browne has managed to do what our Minister could not. I understand that some people feel it is better to lower tax rates. Although I benefited personally from the lowering of tax rates I believe it would have been preferable to raise the tax threshold and to widen the tax bands.
I welcome the opportunity to contribute to this debate. We have seen a remarkable transformation in our economy and in the quality of life of our people in the past ten years. The Celtic tiger is roaring ahead and new homes and hotels are being built throughout the country. Ireland appears to be the in place in Europe. Our economy is booming and we have low interest rates and low inflation. It is important, however, that the benefits of the Celtic tiger are spread to all sections of the population. Low income earners must get their share of the growing national cake.
I compliment the Minister on the effective way he introduced the Bill and on the measures in it which will benefit the various sections of our community. I am pleased that he reduced income tax rates and that more that one million taxpayers will benefit from the 2 per cent reduction. We  must recognise the burden which has been carried by taxpayers for many years when the economy was not booming and we were being told to tighten our belts. In the late 1980s the actions of the Fianna Fáil and Progressive Democrat Government brought this change about and allowed for the current economic boom.
In rural Ireland the Celtic Tiger is not always visible. Many in rural Ireland have never even seen his tail. I am sure this will be recognised by the Government. I am glad the Minister for Finance did not forget the agriculture sector. He declared that agriculture remains central to the well being of the economy and that Government policy will aim to maximise the contribution which the industry makes to economic growth, exports, balance of payments and employment. We must plan for this in a policy environment of improved competitiveness and a willingness to embrace structural change under the Common Agricultural Policy. The Minister undertook to work closely with agriculture in adapting in this changing environment and, against this background, made some additional allocations for agriculture in 1998, including £23 million for headage payments and £3.5 million to discharge outstanding applications for installation aid for young farmers. Installation aid for young farmers is most important and should be maintained. We hear from Brussels that there will be changes in the CAP and in other agricultural policies which could affect Irish agriculture. I am confident that the Minister and the Government will ensure that adequate measures will be taken so that agriculture will remain central to the well being of the economy.
The Minister, in his budget, recognised the importance of our culture and of our native games. Gaelic games are an integral part of our culture. I have been involved with the Gaelic Athletic Association for many years. The association has a unit in every parish and I am delighted the Minister recognised the work of the association. The GAA intends to press ahead with plans for completing the remaining phases of the Croke Park redevelopment project. This is a worthwhile and much needed project. The recently completed first phase of the project has been widely admired and there is little doubt that the overall project, when completed, will provide a state of the art sports stadium for the new millennium which will stand comparison with facilities anywhere in the world.
I am delighted the Minister for Finance allocated £20 million over a three year period from surplus revenue from the national lottery. It must be borne in mind that this money is not coming from the taxpayers. The national lottery was originally created for the development of sport and the allocation is in recognition of the great work done by the GAA for the youth of Ireland. The GAA provides our communities with excellent recreational facilities throughout the entire country. It also tries to entice young people to play  our national games and helps protect them from the damaging effects of drugs, drink, etc.
Section 77 of the Bill introduces a new pilot scheme for incentives to promote the renewal of certain rural areas. The scheme is targeted at part of the upper Shannon region and will cover Longford, Leitrim and parts of Cavan, Roscommon and Sligo based on a district electoral division, the details of which are set out in the Bill. In relation to this there are very active Leader groups in my area which promote rural development. I refer in particular to the Ballyhoura Development Association, the Blackwater Resource Development Association, IRD Duhallow and the West Limerick Resources Association. These groups are aware of tax incentives which have been very effective when directed at urban renewal schemes. Tax incentives can be equally effective in stimulating new economic activity in rural areas to halt the present decline. These groups have joined with their local authorities to develop an integrated strategy to combat rural decline in the worst affected rural areas of Cork and Limerick. The area they work in corresponds with the administrative areas covered by Limerick County Council together with an area approximating the northern division of Cork County Council. The population in these areas has declined by 2 per cent between 1991 and 1996 whereas in the remainder of the counties the population increased by over 3 per cent. The four groups have established an economic strategy planning group with their local authorities and are developing an overall strategic plan.
Provision of tax incentives is vital to stop the haemorrhage of funds from local rural areas to urban designated areas and schemes. Over £20 million has been invested annually by residents of this area in designated areas in large cities and other tax based investments. The over dependence on the declining agricultural sector in the region has meant that attempts to stimulate new investment locally, without tax incentives, is not attractive to the private sector. This proposal seeks to stimulate economic activity and is concentrated on the regeneration of existing neglected or derelict buildings and sites and new projects to meet social objectives of housing, industrial, commercial, tourism infrastructure and other identified local needs. The specific proposal envisages targeting of designation status to maximise economic activity in the area. All these proposals are being submitted to the Minister for Finance.
The pilot scheme would be innovative and a good model to demonstrate how local development groups and local authorities can work together to tackle the problems of rural decline. The census shows that people are leaving rural areas and moving to urban areas. Professor Jim Walsh, Maynooth University, recently drew the attention of Ballyhoura Development Association to the fact that the 1991-96 statistics show north east Cork and south east Limerick to be demographically worse than County Leitrim. The  problem is that this fact is usually masked in regional/county statistics by the area being overshadowed by the better areas. For example, if you exclude the larger towns of Mallow, Charleville, Newcastlewest and Rathkeale, the remaining rural areas are worse off than the areas designated by the Minister in his proposed pilot scheme of tax incentives. I ask the Minister to ensure all rural areas receive an equal amount of funding for rural development.
Mr. O'Dowd: I welcome the Minister to the House. I agree with Senator Kiely's comments that the GAA is a very worthy organisation. But there are many other sporting organisations in our communities which do a lot of work for people, particularly for young people, and I hope these organisations will be recognised in future budgets in the same way as the GAA have been recognised. My children play GAA, rugby and soccer and they, along with many others, are anxious that the Government would recognise other sporting organisations.
We have a two tier society and it is very clear that all the economic indicators are first class and that wealth and employment here are growing. In many ways we are the centre of attention for European and American economic commentators. But at the same time we are not addressing serious underlying issues for many of our citizens and, in particular, people who live in areas of high unemployment and low amenities. I welcome the urban renewal scheme. It is a positive step to move away from developing the centres of towns where the benefit of urban renewal goes to the investor or the person who sets up his business in that area. I accept the Minister, in his budget, makes a genuine attempt to involve disadvantaged communities in the urban renewal scheme. There is a rush to get schemes prepared because the closing date is 31 March. Some communities have been alerted to how they could benefit. County council officials are making every effort to contact disparate groups in Louth to involve them in the scheme, but applications that arrive after 31 March should be accepted or should be allowed to submit further details. Some communities are not closely linked to county councils and other organisations and these should be given more time.
I am informed that there is no clarity of thought in the urban renewal schemes as to how disadvantaged areas may benefit. If there is high unemployment and no economic infrastructure in an area of 1,000 houses designated for urban renewal, what organisation will go into that area and what will it build? If such communities set up a business it will benefit from urban renewal; but we should establish a system where, with the consent of the local authority, such a community could benefit in cash or in kind from developers in other parts of that region. Designating a local authority area, for example, under the urban renewal scheme will not always bring in new employment; new business usually goes to the  middle of a town where business life will be strong. Greater sympathy should be shown for communities which are trying to find their feet.
It is an absolute disgrace that young people seeking to live together or get married are finding it increasingly unlikely, if not impossible, to buy their own homes. Is anything more fundamental to a couple? This goal should be within their grasp, particularly when interest rates are falling and many young people are employed. The problem is that we are not tackling the speculation and profiteering in building land at the expense of young people. There should be a special windfall profit tax for those who speculate in land and who make fortunes overnight. There is no increase in inflation. The cost of building a house is perhaps 1 or 2 per cent more now than it was five years ago. Why then have prices risen so high? Some blame market forces, but it is also due to profiteering, which is not being tackled.
Some years ago the certificate of reasonable value system was introduced. Before one received a house grant one had to certify to the local authority that a house was of reasonable value. Perhaps this practice should be revived. This Bill has not looked after the young people who are about to start on the road of family life and is seriously at fault as a result.
The treatment of senior citizens is also a source of concern. What does the Celtic tiger offer our senior citizens? Their incomes are being reduced. Many have equity in their homes, which are increasing in value, but there is no way of releasing that equity. If senior citizens downsize and sell their family homes to move to a one bedroom apartment they should be given relief from capital gains tax and stamp duty. It is important to assist them in getting into a smaller home and in releasing the equity in their homes. The cost in giving each senior citizen over 65 a medical card has been put at £20 million but we should make medical cards available to them. It is as worthwhile to give that money to senior citizens as to groups such as the GAA. Not enough thought has been given to looking after our senior citizens. The £5 increase in the pension is welcome but it is not enough.
People are saying that an answer to the housing problem is to increase housing density, which I oppose. If we do so, people's quality of life will suffer. The land is there to be built on and I oppose certain organisations' desire to increase the number of houses per acre we can build.
The use of offshore accounts by criminals and fraudsters is a matter of concern to many people, particularly those who pay PAYE or who are unemployed. They look with a very jaundiced eye on the Government's inaction in battling this crime. The Ansbacher accounts must be opened to public scrutiny. There must be transparency and openness in all financial activities in the State, and there should be no hiding place in offshore accounts or other special accounts. These areas must be addressed.
Mr. Cassidy: I wish to deal with section 77 which introduces a new pilot scheme of incentives to promote the renewal of certain rural areas. One such area is the upper Shannon region, which covers all of Longford and Leitrim as well as parts of Cavan, Roscommon and Sligo, based on a district electoral division set out in the Bill.
I welcome this wholeheartedly. I live in the north Westmeath area and am disappointed that it has not been included, but Cavan, Longford, Leitrim, Roscommon and Sligo have been decimated over the years. They have received very little investment and we in the midlands felt that when Deputy Albert Reynolds resigned as Taoiseach we were the biggest losers. We were looking forward to a fair share of the cake for the first time in the form of decent allocations for roads, industry and everything else that goes with the power of the Taoiseach. This provision is welcomed by the people of the depressed part of the north midlands. The Minister of State, Deputy Ó Cuív, is very familiar with this area, which has been neglected for far too long.
I call on people from these counties who are doing well all over the world to rally to the place of their birth and to invest. If one invests now in industry in these areas, one's investment can be written off over a number of years, which means no real chance is taken if the business is viable. This will also give an opportunity to people to live in the place of their birth which was not always available. I am thinking of the Seán Quinn Corporation, which has been a tower of strength to the north midlands area in providing employment. That company's founder came from humble beginnings, as did most entrepreneurs from that region. He has done a great deal with very little incentive. Industries in Cavan, Roscommon, Longford, Leitrim and Sligo which have the ability to create employment should follow the example of the Seán Quinn group.
North Westmeath, where I come from, is the site of the Inny basin which flows directly into the Shannon. I do not understand why this area was not included in this section. Population in the area has decreased by 22 per cent and 27 per cent in the parishes of Finea and Coole, respectively. Only six people are now employed in the forestry industry which employed 80 people 15 or 20 years ago; Bord na Móna employed over 180 people and now employs 20. The hospital in Coole was closed but it is now an Irish college which keeps the fine building in good use.
The Minister of State, Deputy Ó Cuív, and the officials from the Department of Finance are welcome to visit north Westmeath where much of the land is under peat. If incentives were provided, we could invite people from Northern Ireland, Belgium and Holland to look at peat production. However, there will be no investment in north Westmeath because people can travel 20 miles to our neighbouring counties of Cavan and Longford, and invest there.
I wish to flag this area for the officials and the Minister of State for the future because much of  north Westmeath is poor bogland and is under water four or five months of the year. The people of the area should be given an opportunity by including it in this section.
The severely disadvantaged areas of north Westmeath have been recognised by the Department of Agriculture, Food and Forestry, the Department of Finance and the EU. The area comprises seven parishes, the population of which has fallen by over 20 per cent. We will now lose a county council seat in the redrawing of local electoral boundaries. There were five county council seats when I first stood in the area, and that was reduced to four in 1985. I was told yesterday at a meeting in Mullingar that it is now to be reduced to three, which means the integration of the two parishes of Ratharney and Killucan. This states the case without over-emphasising it. There is massive development all over the country and the poor people of the north midlands are entitled to their fair share. I congratulate the Minister, the Government and the Taoiseach on the introduction of section 77.
I welcome the allocation of £30 million to Croke Park. Last year, when your party was in power, a Leas-Chathaoirleach, I welcomed the allocation of £12 million to the Racing Board. I support allocations of funds to sport, which is a great way of getting young people to participate and getting them used to not winning all the time. For every one or two wins in sport, there are three or four losses. Sport teaches boys and girls to be good losers. Anyone can be a good winner. Sport taught me how to become a good loser. When one enters politics, it is important to have some training in that regard.
To those who criticised the allocation to the GAA I would remind them that, on a financial basis, the VAT returns alone from the investment will be £29 million, there will also be PRSI and income tax benefits and the Exchequer will probably receive about £50 million. It is a worthwhile business venture.
The GAA did a great deal for rural Ireland and brought families and parishes together after the Civil War. It gave communities a lift. It was great to be in Croke Park on St. Patrick's Day when the two small clubs of Corofin and Birr won the club finals. These are important events for communities in large towns or small villages. I commend the GAA for its foresight, planning and terrific organisational ability in proposing this magnificent plan. It is an uplifting experience to see the Cusack Stand in Croke Park. The canal end stand will be completed for the All-Ireland final in 1999. I am told that the advanced plan for the new Hogan Stand has to be seen to be believed.
Croke Park is a great showcase and provides a window of opportunity for Ireland across the world. When statements are issued from various Departments, the image of Government Buildings is flashed on the world's television screens. This provides a positive image of Ireland as we head into the 21st century. Croke Park will also  be a positive image for the modern new Ireland of the 21st century.
Mr. O'Toole: I support what Senator Cassidy said about north Westmeath, an area I know well. I wish to refer to the gap in the geographical map agus ba mhaith liom go dtugann an tAire Stáit an méid seo ar ais go dtí an Aire Airgeadais.
Athlone was a designated area which allowed welcome development that has added massively to the attractiveness of the town. Section 77 is welcome and includes all of Counties Longford and Leitrim and some of Counties Cavan, Roscommon and Sligo. There are small rural areas which the world has never heard of which are generally referred to in west Westmeath as the Goldsmith area. They have extraordinary potential and include small villages such as Portlick and those north of Glassan like Doonis and Tang. Senator Cassidy mentioned the Inny basin, which is a good example of the problem Senator Cassidy did not develop. The north part of the Inny basin, in County Longford, will be included in this section while the south bank of the river will not. This is haphazard planning.
In the furthest part of Senator Cassidy's constituency is a place called Maghera which is famous for its musical sessions in Murray's. These parts are not well known and are dying because of a lack of investment, although they have potential. The only claim to fame of the area is its association with Goldsmith and there is room for development. Senator Cassidy mentioned the canal end stand. When this is completed, it will add to the development of the Royal Canal which should connect the area of south Longford with Dublin, all the way to Killashee and into the Shannon basin.
A casual look at the map will help make the argument in favour of what Senator Cassidy said, particularly in the west Westmeath area, and I have no reason to doubt what he said about the north Westmeath area, generally, but a wedge of the Shannon basin has been neglected — it fell between two stools. One scheme, which included Athlone, allowed the development of tiny villages in Westmeath, like Glass, which are part of the Athlone hinterland.
The question of housing was raised earlier. Long before it was an attractive issue, the Minister of State was raising the difficulty of young people finding money to build houses. While I am often critical of both the Department of Finance and the Department of the Environment and Local Government, I wish to thank them for resisting the extraordinary pressure that was put on them to change the regulations and legislation dealing with the mutuality of building societies. I was sick to my stomach three weeks ago listening to the cries of woe from newspapers — about young people no longer being able to buy houses — which devoted a full page in the business section applauding the First National Building Society's decision to go public. I found it abhorrent.
The couple of hundred pounds that people who have a few shillings in those building societies will get, is short term thinking. Effectively, they are handing over their building society, which until now was a non-profit making mutual society, to shareholders. There is nothing wrong with that except that the price of houses which will be mortgaged by that building society will now increase by exactly the amount of the profit which, henceforth, would have to be given to the shareholders. It is unfair to single out the present Government since this could have happened in any Government's period of office, but there is something fundamentally wrong with a system which congratulates building societies that go public at a time when doing so will actually increase house prices. It is axiomatic and there is no way out of it.
The last thing we did in the Seanad between the 1992 general election and the election of the new Seanad was to take the Building Societies Bill. While we all made great speeches about the importance of mutuality, the Bill was pushed through without enough discussion. In Opposition the Minister of State raised questions about mutuality and he indicated a particular viewpoint on it. As a Minister of State he has held a strong line on the matter and that is welcome. The laws on mutuality need to be extended and more closely defined. We should allow the mutuality area to be more attractive. We need choices in the financial services area. We need banks, credit unions and building societies which are mutual as well as those which are publicly owned. Let them all operate in the market which will find its own level.
A casual look at the current cost of mortgages shows that the EBS, which is the largest surviving mutual building society, has far more attractive rates than those — such as the Irish Permanent - which have gone public. That is not a cheap advertisement for anybody but I am making the point that every time a building society goes public, house prices increase.
I ask the Minister to take note of what I said earlier, that is, that west and north Westmeath should be included in the upper Shannon basin. That area is a wedge which has lost out on two different investment opportunities.
In his speech the Minister made a long presentation — much of which I agreed with — about the kind of investments which are right for tax breaks. A number of issues arise from the infrastructural development of communications, including the question of rail transport. Senator O'Dowd made an impressive presentation about the cost of houses. If Drogheda, in his constituency, had a dependable hourly train service to Dublin it would reduce the cost of houses in North Dublin because more people would be happy to move to Drogheda and commute.
 It is only in this country that 50 miles is considered a long commuting distance. In France the TGV train, travelling at 120 mph, allows people to commute daily over distances similar to those from West Mayo to Dublin.
The problem of house prices in Dublin is that the city has gone into gridlock. People cannot travel by car, bus or train to get to work easily. They think they will solve the problem by living closer and consequently there is a huge blockage around the city. It is very important to make tax allowances available for investment in the travel communications infrastructure. We should examine that possibility.
It is interesting to see that the Labour Party is talking about further privatisation. A country which is having such difficulty with communications should not shut down its rail system at 9 or 10 o'clock every night. That is an extraordinary waste of resources. I cannot see why someone cannot go from Dublin to Cork for a night out, or vice versa, and be able to take a train home at 11.30 p.m.
I do not understand the thinking behind the BES reduction and the capital gains tax reduction. Perhaps the Minister can refer to this is his reply. I do not disagree with the arguments for both reductions but I see them as quite separate. The capital gains tax arises generally from pretty safe, risk free or low risk investments. Whatever people say about the BES scheme there is an element of risk in it. I checked on previous BES schemes last year and quite a number of them barely survived while others went to the wall. Tipperary Crystal got into difficulties as did Tintawn Carpets. I have a list of nine or ten companies that got into difficulties. Real risks were involved. However, despite what Senator Ross said, the BES scheme provided seed capital. There is a clear difference in the way the current BES schemes are being dealt with. The Minister should look closely at the BES schemes, some of which have been advertised recently in an amateurish way. One wonders if they have done their work properly in terms of the information they need to put together in a prospectus. There is an advantage in having a broker, investor or banker as a buffer to oversee the investment which will provide seed capital. I welcomed the changes made to the BES scheme three years ago.
The issue of a hotel scheme is a very good one. I spent a long time wondering — instead of counting sheep at night if I cannot get to sleep, which is rarely — why somebody needs a grant to build a hotel in County Donegal. I can see the case for all the other counties but I wonder about County Donegal, which is a tourist destination in its own right.
 However, people have found County Donegal to be a prosperous county in which to develop and build hotels. In fact, there are at least two County Donegal chains, as far as I know, who are building hotels outside County Donegal with the capital which they have rightly put together from their operations in County Donegal. I am not objecting to it, but I would like to hear why County Donegal was put in the same category as County Leitrim, for instance, for resources to build hotels. If I had to choose between investing in a hotel in one of those two counties, I would invest in County Donegal because it is a more attractive tourist destination. I presume the reason for this tax break is to make County Leitrim more attractive. By including County Donegal, the Minister makes the other places less attractive because they are the ones to which the money would normally go.
I want to compliment the Minister for Finance. I think the Department of Finance got it right in its long speeches about the exchange rate on the Euro where the Minister refused to be drawn on the exchange range or to give an indication of the lock-in rate with the Deutsche Mark. I said then, and I think now, that the Minister was right. It would have been a disaster for him to have opened his mouth on the matter. Anything he would have said would have been met with criticism. We are now looking at a lock-in rate of about 2.48 or 2.49 to the Deutsche Mark with interest rate adjustments and I always felt the high 2.40s was where it should have been. If the Minister had said that six months ago, it would have caused pandemonium in the markets and everywhere else. That has been handled very well and it should be noted in the House.
However, there is one aspect of currency exchange on which I have not heard the Minister speak and on which I would appreciate hearing his views. I have heard him talk about the lock-in rate and various aspects of control. I have read all that commentators have stated about how we will not be able to control our economy next year, most of which I disagree with. There is one issue, however, that is, the question of interest rates in the future. There is a clear understanding abroad that interest rates are going to drop. Today's headline in the Irish Independent states that people are annoyed that it did not happen today. It is clear that we must converge with the European interest rates, and the German interest rate in particular. But there is also a strong debate in Europe to the effect that, in order to make the Euro stronger and the Deutsche Mark stronger in the intervening period, Germany may in fact increase its interest rate. I make this point because there is a real possibility of that happening. The only logical reason for the strength of sterling at present is the interest rate. British balance of trade figures are getting worse and British industry is finding it more difficult to trade globally. There is no fundamental reason for sterling being so strong against the other European currencies except for the interest rate and, therefore,  people are buying into that interest rate at present. There is bound to be pressure on the Deutsche Mark and the Franc in particular as a result.
If that happens the housing chaos to which we referred will get worse because many of the people who are buying houses at present have already discounted the rate. I meet people in the pubs who say that the interest rate will drop and they can afford a house as a result. This is even before a drop in the rate. There will be chaos and it will lead to wage claims. I can see myself facing the Minister in the next 12 months saying that because of the increase in the price of houses we need to have increases in salaries and allowances for teachers and other workers. I would be very worried about that.
At some stage the Minister stated that he would look at the pensions areas. If a person wants to buy an annuity with £100,000 and he or she goes to the market, he or she is forced to buy an annuity from a company from which he or she will be lucky to get a return of £6,000. If the person dies, their dependent spouse will get half of that. If the spouse dies, the insurance company holds on to the money. That is a disgraceful thing to happen at a time when the most inadequate manager in town could get a return of up to 10 per cent. That whole area of the restraints and regulations of pensions is uncalled for and unnecessary. They are anti-market, they are against good practice and they are anti-competitive. People should be able to invest their money properly and to make provision for at least 75 per cent of their final average salary because people now live longer in retirement. I ask the Minister to respond to that also.
Mr. McCreevy: In particular, the Senator claimed that the Bill failed to deliver the Programme for Government, but if my memory serves me well, that programme promised the rates' cuts on which I delivered.
It is also claimed that this Bill lacked fairness. However, as I said in my opening remarks, many low paid received more this year than last year. In addition, I closed off a series of tax shelters under which someone on £300,000 could reduce their tax bill to the same level as someone on £24,000 per annum. I do not criticise people for using tax breaks, but I do not have to make them so generous that we only add to asset price inflation. We do not want to encourage a situation  where no activity will be undertaken without a tax break. If tax breaks are needed, I am prepared to consider those, but let us make them focused, balanced and equitable so far as possible.
Senator Doyle also referred to the increased numbers on the higher rate of income tax. The Government will ensure that the target of 80 per cent on the standard band will be met. That is my aim over a series of budgets, but, as the Senator will be aware, choices must be made on how to use tax resources. I chose to use them this year to cut tax rates, cut tax shelters and to encourage risk-taking in investment.
I welcome the Senator's comments on the various new reliefs on the Bill, such as those for cross-Border workers, seafarers, renewable energy and the white fish fleet. As for rural renewal, I will go along with much of what the Senator said on the goals which we should try to achieve. However, there will always be contention over the definitions of any areas chosen. The Senator will remember only too well how six or seven seaside resorts soon became 17 and how tax enterprise zones flourished all over the place. It is to her credit that Courtown and Rosslare were included.
Mr. McCreevy: ——but I wanted to achieve a targeted pilot relief in an area commonly accepted as in need of renewal. I can produce facts and figures to support this. Senator Finneran described in clear terms the problems of this particular area.
Senator Doyle also stated that I tried to tax the less well off in the credit unions. In fact, the proposals I made would have reduced a saver's tax liability, and where reporting was required this affected less than 1 per cent of savers.
Senator Doyle also claimed that the Bill does little to ease the transition from welfare to work. In reply, I can only draw her attention to the relief for the long-term unemployed in the Bill and to the other back to work allowances mentioned by Senator Finneran.
The Senator also made the plea for tax relief for caring for the aged and infirm. As I stated in my budget on 3 December, I have this item very much on the agenda for next December. I accept the Senator's genuine concern for changes in this area. I also accept what was said on the need for control on nursing homes and I am limiting relief to registered and supervised homes.
As regards self-assessment filing aids, I think the Senator has perceptively identified some of the weaknesses in the arguments of those opposing the move. We can tease this out further on Committee Stage when I will explain why I put forward the changes I proposed.
As for the infrastructural deficit in the Border areas, I have included special relief in the scheme to promote such investment. There was also the hotels' scheme to encourage investment in tourism facilities in the seven counties listed in the Bill.
The Senator also referred to the proposals for the reform of Structural Funds and the need to ensure that Ireland's interests are defended. Despite remarks in a number of newspapers about my throwing in the towel at York, I assure the House that this is not the case. However, we must guard against unrealistic expectations of what can be achieved. We will fight vigorously and I know I can rely on support from all sides of the House.
Senator Ross welcomed the Bill and the reduction in capital gains tax but he believes I should go further. He inquired about privatisation and my plans in that regard. My views on this can probably be gauged and I am glad to see a certain air of realism, as evidenced by the proposals the Labour Party is due to discuss, has entered the debate. It is always more constructive if you can move from a polemical discussion to a discussion of what is best for the State, the taxpayer and the consumer.
As regards changes to the BES scheme, I went as far as I could reasonably go. There is a role for this relief if properly targeted. The reduction in the limit has reduced the attractiveness of the BES scheme through the designated funds, partly because of a number of the reasons outlined by Senator Ross. It should be acknowledged that the BES scheme has encouraged investment in productive enterprise. We must ensure that tax relief is earned by virtue of risk taking and that it is properly focused. I defer to the Senator's knowledge of how the system works. Senator Ross also referred to house price inflation. The Government expects to receive a comprehensive report on this subject in the near future. We will not shrink from taking corrective action if it is recommended. I assure the House on that point.
Senator Costello disputed what I said about low paid workers receiving more this year than last year. It is a fact that the 1998 Budget has helped the lower paid. In addition, one cannot describe those on the 46 per cent rate as the higher paid. As Senator Avril Doyle pointed out, one of the unattractive features of our income tax code is that single workers on the average wage of £15,000 are taxed at the top rate of 48 per cent. My view on what is high pay obviously differs from that of Senator Costello.
The Senator also made much of what he claimed were the conditions placed on extending the Revenue's powers, namely, that new powers would have to be shown to be desirable and likely to be effective. I regard this parameter as unexceptionable.  Surely all law must be framed with those criteria in mind. The power to legislate is the responsibility of the sovereign power and we have a duty to legislate wisely.
Senator Costello also referred to credit unions. I wonder if he pondered on what he seemed to imply, namely, that some forms of tax evasion are acceptable? My proposals would have reduced the tax liability on depositors. The credit union movement asked me to legislate in this area and I found it difficult to understand its reaction. A reduction in capital gains tax was requested by several bodies in their pre-budget submissions. The Senator's remarks about my encouraging property speculation do not stand up to analysis. The rate of capital gains tax on development land remains at 40 per cent. The factors driving house prices are economic growth, low interest rates, the demographic situation, returning emigrants and buoyant economic conditions. It is disingenuous to place the blame entirely on reductions in capital gains tax. I have already made it clear that the Government is awaiting a comprehensive report from Bacon and Associates on what needs to be done on the housing front.
There appears to be a belief that capital gains tax is exploiting house inflation. This may be news to certain Senators but it will not be news to anyone with knowledge of the taxation code. If people believe that by purchasing one or more houses and letting them out they can avail of capital gains tax, they are in for a surprise from the Revenue Commissioners. Ten to 15 years ago people built houses, lived in them, sold them on and then built other houses and sold them on also. The Revenue Commissioners occasionally trawl through their records and inform such people that they are in the business of buying and selling houses which are not capital gains in respect of which they can obtain relief, under section 19 of the Capital Gains Tax Act, as their principle private residence. These people are essentially dealers in property.
If anyone believes that by buying two, three or four house they can obtain relief from capital gains tax, on being assessed they will receive a surprise when the Revenue Commissioners inform them that they are dealing in property which is essentially the same as selling sweets or newspapers. Perhaps there is anecdotal evidence abroad in respect of capital gains tax. However, anyone who believes they can obtain relief from capital gains tax is in for an unpleasant surprise from the Revenue Commissioners in the future. That is not a new tax law, it is existing tax law. There are many people in counties Wexford, Wicklow and Kildare who in the past ten to 15 years have received just such an unpleasant surprise from the Revenue Commissioners when they built houses and sold them on. I had many clients who believed this was a great way to avoid tax but they soon discovered it was not. Those who believe this is a handy way to avoid tax are in for a surprise.  Senator Coghlan made a wide ranging contribution on many items in the Bill which might usefully be followed up on Committee Stage. However, many of his proposals to extend reliefs, restore the BES scheme, reduce stamp duty, etc. would require another budget, which would be different to the one I introduced in December.
Senator Bonner made a plea for increased relief for the fishing fleet, extended rural renewal schemes and a revised seafarers' allowance. I accept his motivation in putting these forward but the proposals in the Bill are already extensive and generous. However, they can be reconsidered at some future time.
Senator Cox made a number of serious points in respect of the need to reward effort and initiative and on the desirability of further reducing tax rates. My aim is a standard rate of income tax of 20 per cent with 80 per cent of taxpayers at that rate. Many Senators on all sides would wholeheartedly support that aim. I am sure we will return to this subject on Committee Stage.
An extraordinary debate has taken place in respect of taxation since the budget was introduced. It is as if people were surprised by my actions with regard to tax rates. I must point out that the people of Ireland went to the polls in June 1997 and these proposals were placed on the table by Fianna Fáil at that time. In Opposition, I was Fianna Fáil spokesperson on Finance and I announced my party's plans on taxation before the election. I stated that we would reduce the bottom rate from 26 per cent to 20 per cent during the lifetime of the Government and the top rate would be reduced to 42 per cent during that period.
People are entitled to put forward the view that there are different ways to reduce taxation. That is a legitimate viewpoint. I have no difficulty with those who have argued for many years that reducing the rates of tax is not the proper road to take. I totally disagree with them but I recognise their arguments.
In the opinion polls carried out during the election campaign people were asked who was winning the debate between the Government and the Opposition in respect of four areas: crime, unemployment, Northern Ireland and taxation. In the final opinion poll the gap between the parties narrowed to almost nothing in respect of three of these areas. In one or two Fianna Fáil were ahead and in the other the Rainbow parties held the lead. On taxation, however, the opinion polls showed at all times that Fianna Fáil's proposals were more acceptable to the people. This was despite a negative reaction not only from politicians, which is to be expected during an election campaign, but also by all members of the media with one exception. The polls showed there was no difference between the parties with the exception of one issue. The people clearly knew what they were doing last June. That is the nature of democracy. No one should have been surprised by what I did in the budget in respect of taxation. I delivered on my promise to the people. Some  people on the left wish to rerun the election campaign and this brings me to an interesting point on this debate on taxation.
Four to five years ago there was no debate in the media about there being one way to arrange taxation. It has become a mantra enunciated by one element of the media that there is only one way to carry it out — allowances and bands. Many people have been taken in by it and it has been accepted by many politicians, the media, organisations such as CORI and a large part of the trade union movement. I do not agree with it, I never did and I make no bones about it.
The ultimate logic of those who support that view is that high nominal rates of tax have no effect on incentive and that it is a sign of virility to have an exceptionally high nominal rate. The logic of some who argue that view is that the best tax rate of all would be 99 per cent. Indeed, we almost reached such a rate when the Labour Party was in Government in the 1973-77 period. At that time I was attempting to get elected to the Dáil and I was a practising accountant. During that period the top rate of tax went up to 77 per cent. The tax rates were 35 per cent, 45 per cent, 55 per cent, 65 per cent and 70 per cent. In one year the then Minister for Finance felt compelled to introduce a surcharge on the rates of up to 10 per cent. The 35 per cent rate became 39.5 per cent and the top rate rose to 77 per cent. That may have been a sign of social compassion but it did nothing for the country but bring it to its knees.
Mr. McCreevy: That was in 1979. In the 1982-87 period the high tax rate was 62 per cent, although it dropped to 58 per cent before that Government left office. The Fianna Fáil and Progressive Democrat Government from 1989-91 brought it down to 48 per cent. All the foregoing figures are subject to the fallibility of my memory but in matters of taxation my memory is usually good. I do not have to consult books or civil servants.
The Left certainly likes high tax rates. Whoever asked what is sacrosanct about the 48 per cent rate? It loved the 77 per cent rate in its time and the 62 per cent rate and it had a brief flirtation with the 58 per cent rate. Who said 48 per cent was a wonderful tax rate?
I come from a viewpoint which has been described as ideological, but I do not care what it is called. Perhaps it is ideological. Until recently the Fine Gael Party subscribed to it. In previous manifestations Senator Avril Doyle subscribed to it, but perhaps the period in Government with Democratic Left and the Labour Party has converted the Fine Gael Party to a new view.
I do not accept the point of view which espouses high nominal tax rates as the only approach. High nominal rates of tax are a disincentive to initiative and to work, whether for the shopkeeper, the factory owner, the factory worker, the farmer or the farm labourer. The economy is kept going by people having the incentive to do a little more. Everybody wants more money, whether to have longer holidays or to buy another car. It is my view, ideological or otherwise, that high nominal tax rates are a disincentive, whether rates of capital gains tax or income tax. I do not subscribe to the mantra that there is only one way to arrange taxation which has become indoctrinated in the media, with one exception, a Senator who is not too far away.
Continental European countries have had high personal tax rates in accordance with the dogma I have mentioned. However, they are coming to the conclusion that it is wrong and they will move in the opposite direction. I predict that in five years time the big European economies which have high personal tax rates will be instituting cuts in those rates.
I do not believe that the only way to reduce the taxation burden is by increasing personal allowances and bands. It can be achieved through a combination of personal allowances, bands and the tax rates. I do not subscribe to the recent cant which I have described. With regard to capital gains tax and income tax, if one provides incentives there will be a better spin off in the long term which will create more money to distribute for other purposes.
Some of those who subscribe to the old leftist dogmatic view of recent years think there should be high rates of capital gains tax. However, in that case nobody will do anything. Following that logic the money will be locked away and the State will get nothing, although those people demand more social services. However, I do not agree. I take the pragmatic view that if the rate of capital gains tax is reduced, more capital gains tax will be collected which can then be spent on social services. Time will prove me right.
Senator Henry made an eloquent case for extra tax reliefs and resources for the education, I acknowledge her particular concern for the post-graduate sector. The budget and the Bill devote considerable resources to education, including the setting up of a £250 million fund. The Senator thanked me for cutting VAT on periodicals after many years of pleading. I can only encourage her to keep making a case for postgraduates.
Senators Henry and Coghlan raised the issue of tax relief for child care. This is a matter I will examine closely for next year's budget. The cost of relief in this area may be substantial and it will be important to target relief properly and fairly. The position of spouses in the home may also need to be addressed. However, I will take cognisance of the Senator's views.
 Senator O'Dowd and others referred to the problems for first time buyers of houses and the need for a windfall tax on property speculation. The Senator will be aware that I specifically excluded development land from the cut in capital gains tax. Others have suggested a cut in the capital gains tax rate on such land which, they argue, would increase the supply of land for house building. Whatever action is taken in this area will be criticised by one side or the other. Given the complex issues involved it is important to have information to hand to get an overall view of the action to take.
Senator Cassidy welcomed the new rural renewal scheme while expressing his disappointment about the non-inclusion of certain areas in the midlands. While there are many areas which would have liked to have been included, I am sure it will be appreciated that if the relief were to be extended to all areas it would have no effect. This is a pilot scheme and we will want to see how it works. For many years people have made the case for such an initiative in rural areas but no Minister was able to come up with a scheme. I have taken my life as much as my courage in my hands in trying to come up with a scheme. I kept it to a particular area and we will see how it will work. Senators should realise that extending the scheme as widely as possible would take away the benefits and negative the purpose of the relief. We will see how the scheme works and I will then consider other areas.
I listened to Senator O'Toole's support for this area of County Westmeath. I have no problem supporting the principle of mutuality. I received a crash course in mutuality during my recent brush with the credit unions. However, we should not confuse mutuality with equity of treatment. In particular, tax treatment should not be based on this principle alone. Senator O'Toole asked if there was a conflict in cutting capital gains tax and BES. I do not see a conflict because the revised BES limit focuses resources on smaller projects. The capital gains tax cut will encourage investors to provide equity and will improve the risk reward ratio.
Senator O'Toole also mentioned interest rates and paid me complimentary remarks about my handling of ERM and the revaluation of the Irish pound. The Central Bank is independent of the Minister for Finance and makes its own decisions. The Minister for Finance sets the exchange rate and the Central Bank implements monetary policy. The Central Bank, for whatever reason, is keeping interest rates at their current level and it would be inappropriate for me to comment further on the matter. I will take on board what the Senator said as regards the United Kingdom and what is happening there.
Senator O'Toole also made a point about pensions and he will remember that one paragraph of my budget speech on 3 December 1997 referred to them. I would have moved somewhat on pensions in this year's Finance Bill but, having considered the matter, I concluded it was better  to await the McAleese pensions report and the overall report on the pensions area which will be given to my colleague, the Minister for Social, Community and Family Affairs, Deputy Ahern. When we have this information, I intend to move substantially in the pensions area in the future. During the debate on Report Stage of the Bill in the Dáil, there was a good discourse between myself and Deputy Barrett, in particular, in this regard and I have fairly firm views on the pensions area.
I am sure many other points will be raised on  Committee Stage. After the budget, two days on Committee Stage and two days on Report Stage of the Finance Bill in the Dáil, I felt I was repeating myself to the same people. I have not spoken to Senators before but I hope on Committee Stage I will be able to deal more specifically with some of the points raised and we may have further discourse on matters raised by Senators on all sides of the House. I thank Senators for their deliberations.
Ó Murchú, Labhrás.
Cregan, Denis (Dino).
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