Dáil Éireann - Volume 430 - 11 May, 1993
Finance Bill, 1993: Second Stage.
Minister for Finance (Mr. B. Ahern) Bertie Ahern
Minister for Finance (Mr. B. Ahern): I move: “That the Bill be now read a Second Time.”
This Finance Bill underpins the Government's priority objective — to maximise, on a sustainable basis, the job-potential of our economy — in two respects: in confirming the revenue dimension of the strategy of fiscal responsibility that was at the heart of the budget I introduced on 24 February last; and in providing for a number of important new initiatives aimed at encouraging, on a focused and target basis, investment in Irish business and industry.
My primary and overriding purpose in the budget was to secure financial stability in difficult circumstances, thereby to clearly signal the Government's commitment to sound economic and budgetary management. This was of particular importance in the aftermath of the period of unprecedented turbulence in financial markets set in train by sterling's steep decline last September.
Overall financial stability is an essential condition for business development, for sound economic growth, and for job-creation. When all is said and done, the responsible fiscal stance adopted in the budget is of far more value to employment prospects than any specific measure that might have been in the budget or in this Bill.
This was a budget that confirmed and consolidated the progress made in the  public finances of this country in recent years, and by so doing, contributed in no small way to the major improvement in interest rates and the financial markets in recent weeks; provided for a major boost in investment in the economic infrastructure of this country, preparing the ground for accelerating growth in the future while generating economic activity directly in the short term, and can combine with moderation in incomes to enable this country to continue to surpass the employment performance of our EC partners.
The budgetary strategy went far beyond simply preserving the economic fundamentals necessary for growth in output and employment, vital though these are. Apart from the major investment boost to which I have referred, it had at the top of the agenda the fostering of private enterprise and initiative, and the improvement of the availability of equity finance to Irish business, in order that job-creation would not be inhibited by lack of funds.
Certain increases in taxation were proposed in my budget, both in the interest of responsible overall balance and to make possible other desirable reliefs. It is understandable that the increases should evoke protest from those affected. However, I must challenge those critics who argue that I should now reverse those measures en bloc to spell out unequivocally what they would have me do instead. The simple fact is that this means one of three things:
Throw budgetary discipline to the winds, and thus put at risk the welcome downward trend of interest rates; cut out, or curtail public expenditure programmes to match, or raise the revenues lost in other ways, that is, to increase taxation under different heads or on different activities.
So far I have seen many who are happy to jump on others' bandwagons of protest against the temporary income levy or the increase in certain VAT rates. At the same time, I detect little willingness on their part to hitch their wagons to real alternatives to such measures, whether  on the taxation or expenditure sides of the budget. Is there not an onus on those who criticise to set out clearly where and how they would have things done differently and to recognise that these too would have implications which might not be well received?
It is all too easy to pick selectively on limited elements of any budget, and to fault them. It is a different matter entirely to put together and develop a balanced overall budget, and that is what, I remain satisfied, I put before this House on 24 February.
I must reject emphatically the suggestion that this year's budget and Finance Bill represented a set-back for tax reform, and the view that the measures adopted are in conflict with the recommendations of the Culliton report. Those who would have us believe that tax reform means lower taxation all round are not being honest; lower taxation has, at the end of the day, to be earned by controlling public expenditure and, most of all, by relieving the pressure from debt service costs. Real reform involves reshaping the system so that the necessary revenues are obtained in a way that is more in tune with our economic and employment needs. This is the course that has been followed over the past five or six years, in particular in the 1992 budget and Finance Bill, and which has brought about a much better tax structure all round. Despite the difficult circumstances of the 1993 budget, for reasons that largely lay outside this economy, I was able to consolidate that progress. Indeed, it was only through broadening the tax base, in such respects as the introduction of probate tax, taxation of certain welfare benefits and extending the coverage of the VAT standard rate, that it was possible to afford the general income tax improvements in the budget.
I find it hard to take seriously those who claim to favour more radical tax reform, but never face up to the responsibility that implies: to spell out where the revenues to fund it should come from. Were I to proceed with the “soft option” version of tax reform I would rightly be  accused of acting irresponsibly; indeed, I would be following a course that was ultimately unsustainable, as shown by previous efforts at relieving specific areas of taxation without making good the losses otherwise. I will entertain criticism of our taxation strategy only from those who are willing to be specific as to how they would finance the type of general income tax improvements they profess to seek — to tell us all what reliefs they would abolish or curtail and what concessionary tax rates they would be willing to see raised. I will not stand for the kind of “double-think” to which my efforts at broadening the income and corporation tax bases in 1992 were subjected — whereby the would-be tax reformers were quite content to criticise my plans for not being ambitious enough and, at the same time, to argue that those reliefs that were curtailed should not have been interfered with. The failure of many erstwhile advocates of tax reform to support what was being done by the Government on that occasion was a chastening experience but one which will not deter me from pressing ahead with reform as circumstances allow.
I must also reject emphatically that the new incentive measures in this year's Bill represent a “u-turn” vis-á-vis last year's approach. Those critics need to appreciate that there is a basic difference between providing the type of limited and well-focused incentives that I have introduced on this occasion and the withdrawal of measures which, whatever good intentions lay behind them on their introduction, had been taken for a ride by the “tax-planners” to such an extent that they served little purpose other than to allow the well-advised few to have taxefficient remuneration at the expense of the many. I would like to issue a warning to those who might be inclined to see these new incentives principally as such an opportunity. I will keep the operation of these new measures under very close scrutiny and if it emerges that they are being subverted from their central purpose, I will not hesitate to take such steps as may be necessary to ensure that the focus on the key objective — to stimulate  bona fide enterprise and promote job creation — is preserved.
One of the Government's concerns is to increase the flow of Irish households' savings into the provision of equity capital for job-creating investment. While the volume of available savings is ample, a number of factors, largely beyond the scope of policy to affect, have combined to reinforce the natural disposition of savers, and the institutions to which they entrust their savings, to favour safer media over those which assist more directly the creation of sustainable jobs. At the same time, there has been a major improvement in the climate for equity investment over recent months, given the dramatic fall in interest rates since the budget, the sharp recovery in Irish share prices since last autumn, and the general improvement in confidence in the economy. Notwithstanding these welcome trends, which taken together mean that the competitive position of equity investment in the savings market is now greatly enhanced, the Government has introduced a number of specific measures in the taxation area this year to assist the capitalisation of businesses and the funding of new business start-ups. The availability to Irish industry of adequate equity finance, especially for start-up and development situations, has become of increasing concern over the last few years and this is a particular focus in this Bill.
Taxation is, of course, only one aspect of Government policy in this area. Other initiatives to aid and encourage the start-up and growth of indigenous industry are being developed by other Ministers. Indeed, taxation in general is a very blunt instrument, and the Culliton report came down very strongly against large scale tax reliefs and exemptions. It is with this in mind that I have adopted a targeted and focused approach to each part of the package. Each proposal is targeted on particular classes of investor and a particular type of investment, such that the overall package is designed to meet the various different needs of the economy.
The main features of this package are: the BES extension already announced in  the budget, with abolition of the lifetime cap and an increased company limit; the legislation for special investment accounts giving 10 per cent tax treatment to a range of investment media having a strong orientation to Irish equities; an entirely new seed capital scheme; relief for additional own-capital investment by original enterpreneurs; the encompassing within the BES of research and development activities; extensions to CGT roll-over relief for entrepreneurs; enhanced incentives for employee investments and a new initiative aimed at increasing pension fund investment in small and medium-sized companies needing venture and development funds.
The Bill provides for a number of other measures which will assist various sectors in contributing to the Government's overriding objective of improving employment, for instance: a rationalisation of the tax treatment of “script dividends” issued by quoted companies, making them more attractive to certain investors, and so assisting businesses wishing to retain profits to increase their capital base; new arrangements allowing businesses which supply inputs to exporting companies to avail of VAT zerorating, thus putting them in a position equivalent to that of suppliers from other EC member states under the Single Market regime; in the interests of tourism, further measures to help improve the availability of hire-cars; in the construction area, an extension of the foundation-laying deadline for the urban renewal scheme — as was announced in the budget — and now a new provision for a reduction in the claw-back period for capital allowances for commercial buildings; in respect of the film industry, a new scheme for individuals investing in film productions, an increase in the amount of tax-relieved investment permitted for corporate investors and changes to facilitate the making of films under co-production agreements with other countries and a new scheme of stock relief for farmers to assist herd expansion or diversification of farm enterprises, together with the abolition of  the clawback provisions of the previous scheme.
In my explanation of the detailed provisions in the Bill, instead of proceeding seriatim, I intend to start with the sections relating to the employment package. This Bill contains other measures which I consider will be of value to businesses and thus indirectly assist in the preservation and creation of jobs; these are dealt with under the relevant headings.
The Bill contains the legislative provisions for two initiatives already announced and which I have mentioned above. Section 18 provides for the renewal of the BES for a further three years, together with removal of the previous lifetime cap for investors, thereby giving access to a wider pool of savings. Chapter III introduces, from 1 February, 1993, special investment accounts, the returns on which are liable to tax at 10 per cent. These accounts can be offered by life assurance companies, unit trusts and stockbrokers. There is a requirement that a minimum percentage of the funds in these accounts be invested in Irish equities, 40 per cent in 1993 rising to 55 per cent in 1996, and a further requirement that a minimum percentage is invested in companies whose capitalisation is less than £100 million — 6 per cent in 1993, rising to 15 per cent in 1996.
I am satisfied that the BES and special investment accounts, which cater to specific segments of the market, have the potential to make a significant contribution to improving the availability of equity funds to Irish business over the next few years, given normal conditions on investment markets. Notwithstanding these provisions, and the improvement in the general climate for equity investment in recent months, the Finance Bill also contains a number of further specific measures to help encourage investment in those areas of the economy which are of vital importance to self-sustaining jobs growth.
Section 18 also introduces a new seed capital scheme which is designed to encourage employees to move from “safe” employment to start their own  business. The scheme will work by allowing the enterpreneur to claim a refund of tax paid on previous income in respect of his or her investment in a new company. The relief on investments will be allowed on a retrospective basis against the income of the preceding three years, up to a maximum of £25,000 income relief per year. This will in practice allow immediate relief on investments of up to £75,000. The scheme will be of advantage not only to those currently in employment, but also to the unemployed, including persons made redundant. It will be of particular relevance to those with taxable redundancy lump sums. The main conditions of the scheme can be summarised as follows:
(a) Relief will be given in respect of investments in new companies engaged in manufacturing and certain service trades. To ensure that the relief is directed at areas where there is real potential to create additional employment, project approval from either the IDA or Bord Fáilte will have to be obtained to benefit from the relief.
(b) The investor must take up employment with the company in which he or she is investing and remain employed by it for a period of 12 months.
(c) The investor must hold at least 15 per cent of the issued ordinary share capital in the company for a minimum period of two years.
(d) The investor must not own either directly or indirectly more than 15 per cent of the shares in another company for a period of 12 months prior to the new employment.
To provide a further boost to investment and employment, Section 18 also provides for an increase in the BES company limit from £500,000 to £1 million with respect to shares issued on or after 6 May, 1993.
The BES currently excludes from relief anyone who owns more than 30 per cent of the company in which they are making an investment. To encourage additional investment by entrepreneurs in their own  smaller or start-up early stage companies, the section further provides for this restriction to be lifted where the total capital of the company does not exceed £150,000.
That section also provides that expenditure on research and development related to certain BES activities can qualify for BES relief in its own right. I am aware that some commentators consider that these incentives should extend to a wider range of economic sectors, notably to the general area of services. While I would concur with the view that the services sector has the potential to make a major contribution to meeting our employment needs, I have also to take into account the reality that the demand for domestically-oriented services is, at the end of the day, constrained by the general level of domestic demand. It would make little sense, therefore, to offer the same range of incentives to new businesses in this area when the main effect would be the displacement of jobs in existing firms, or indeed the firms themselves. Not only would this be an ineffective and wasteful use of public resources but it would be quite unfair to businesses which have been built-up without such assistance, to have them contribute through their tax contributions to the subvention of their competitors. It is the substantially lower risk of displacement in the ‘exposed’ sectors that, in the final analysis, justifies the provision of special incentives.
Section 20 introduces a radical extension of the rollover relief for capital gains tax (CGT) in the interest of facilitating successful entrepreneurs wishing to embark on new ventures with the potential for self-sustaining job-creation.
At present, such rollover relief is available to a trader who sells physical assets and then reinvests the proceeds in other assets of that trade or another. Section 20 extends the rollover relief to situations where an entrepreneur disposes of shares in a company and reinvests them, on a similar basis, in an unquoted company in manufacturing or certain ‘exposed’ parts of the services sector i.e. sectors falling  within the scope of the BES. For the purposes of this provision, the entrepreneur must be a person holding at least 15 per cent of the shareholding in an unquoted trading company who has been engaged full time in that company. The effect of the provision will be to defer the CGT charge that would otherwise arise until such time as the entrepreneur leaves the new company. The purpose of the provision is to facilitate entrepreneurs who wish to reinvest the proceeds of the sale of their stake in an existing company in starting up a new company in these sectors.
Income tax relief is currently allowed for an employee who invests up to £750 in new ordinary shares in his or her employing company. The limit for this investment is being increased four-fold, to £3,000.
Members of the House will recall that in my budget speech, I indicated that I would be entering into discussions with representatives of the Irish Pension Funds with a view to their making, through their investment activities a greater contribution to the development of the economy and to job creation.
Discussion with the Irish Association of Pension Funds have taken place over the last two months on this matter and are continuing. I have indicated to the association during these discussions that what the Government has in mind in this initiative is greater involvement in the provision of development and venture capital, an area which is not well-served by institutional investors. I have also emphasised that the Government is not interested in seeing investments in the venture capital area just for the sake of it and regardless of the returns that such investments might give.
I have been assured by the Irish Association of Pension Funds that they fully support the principle underlying my initiative. In regard to venture and development capital, they have pointed to pension funds' current portfolio of equity investments in unquoted Irish companies totalling some £200 million, some of it in the small/medium companies to which the Government is  anxious to improve the availability of capital. However, the discussions have also brought out not only the limited expertise and experience among pension fund trustees and their investment managers in this area but also the mixed performance of such investments. Accordingly, it has been agreed, in the interests of redressing this difficulty and other issues, that a detailed study will be carried out and completed within three months under the auspices of the Irish Association of Pension Funds supported by the Irish Association of Investment Managers, the Irish Insurance Federation and my Department. This study will, inter alia, assess the opportunities for investment in this area and its suitability having regard to the prudential requirements of pension funds, examine the criteria to be applied to such investments and determine whether existing structures for channelling and managing such investments are adequate and, if not, recommend how this inadequacy can be addressed as quickly as possible. The IAPF will also use the opportunity afforded by the study to examine the potential for increasing pension funds investment in other suitable areas.
Given their lack of experience in this specialised area of investment and the varying asessments of need in the venture capital field currently available, the pension funds trustees, while agreeing with the principle involved, are understandably cautious about committing themselves to any specific target for investment in advance of completion of the study. However, based on my discussions with the industry the Government propose that the pension funds will work towards a target investment of £100 million in venture or development capital, subject to the outcome of the study and to sufficient suitable projects being brought forward. This increased investment will be additional to the existing level of pension fund investment in unquoted comanies and will be pursued on a phased basis over a period of five years. Such a sum, while very significant in terms of overall venture/development capital requirements, would represent not more  than 1 per cent of pension fund assets assuming normal growth trends. It is my intention that pension funds will achieve an investment level of £15 million by mid-1994, also subject to the same provisos.
I recognise that this initiative assumes that the study will confirm that pension funds trustees, who are required by law to invest in a prudent manner, can increase exposure to the targeted area.
I am confident, however, that the initiative will redress some of the structural problems which are an impediment to investment in this area so that it will provide a worthwhile avenue of investment for pension funds and help address the funding problems of developing indigenous business and thereby promote employment prospects in the Irish economy.
I now turn to the area of Corporation Tax. Section 26 redresses a position in relation to the 100 per cent capital allowances for the IFSC and Shannon which was never intended and indeed is contrary to the corporation tax policy pursued since 1988. Capital allowances of 100 per cent are still available in the IFSC and Shannon as an incentive to promote the development of these two areas. The wording of the existing legislation could, however, permit an Irish lessor located outside these areas to obtain accelerated capital allowances on assets leased to companies within these areas. The section ensures that an Irish lessor located outside the IFSC or Shannon who leases assets to IFSC or Shannon companies will be entitled to the same capital allowances that would apply if the lessor leased the assets to a lessee outside these areas.
Section 27 deals with the treatment of grants for the purposes of capital allowances. Since 1986 the general position has been that any State grants in respect of capital assets are deducted from the expenditure on those assets for the purposes of determining the associated capital allowances. This covers both grants paid directly from State funds or from the funds of any board established by statute or any public or local authority  and grants paid from an outside agency such as the EC but routed through a Government Department, statutory body, or public or local authority.
The section clarifies and extends the existing legislation to ensure that the capital allowance entitlement is restricted to the net-of-grant expenditure no matter how or by whom the grant aid is made. The need to tighten up the legislation in this regard is reinforced by the fact that Ireland is likely to receive very substantial EC Structural Fund aid over the medium term, much of which will be capital in nature and which will be routed through various State agencies. I would point out that it is not proposed to alter section 25 of the Finance Act, 1987 which specifically exempts companies in the food processing sector who purchase their own plant and machinery from the “net-of-grant” approach to the calculation of capital allowances.
Section 29 deals with the taxation of scrip dividends in the case of quoted companies. A “scrip dividend” is the issue by the company to the shareholder of additional shares instead of the normal cash dividend. Scrip share issues enable a company to increase its equity while avoiding transaction costs normally associated with share issues. Under existing tax legislation, for historical antiavoidance reasons, scrip dividends are taxed more severely than cash dividends. The section changes the existing taxation treatment and taxes scrip dividends by reference to the reality of the situation. Thus, instead of the existing income tax charge on the shareholder on the receipt of scrip dividends, the shareholder will now be regarded as having received an asset for tax purposes. This means he will be taxed under the capital gains tax code if he later sells these shares. The abolition of the income tax charge will act as an incentive for individual and corporate shareholders to take up the scrip dividends instead of cash dividends. This will benefit the company issuing the dividends since it will mean an increase in its share capital and allow it to retain a greater amount of profits.
 Section 30 of the Bill gives tax exempt status to employment grants made by Údarás na Gaeltachta to international service industries. The tax exempt status is analogous to that applying to similar grants made by the IDA and will benefit the Gaeltacht areas.
Section 31 of the Bill gives a tax exemption in regard to payments from the market development fund and the employment subsidy scheme in the hands of the recipients. The exemption will have retrospective effect to the commencement date of both schemes. As Deputies know, the market development fund was designed to assist manufacturing companies to put in place an action plan to improve their international competitiveness and employment levels following the European currency crisis and devaluations last autumn. The scheme terminated at end-March 1993. The employment subsidy scheme which was agreed with the EC for a one-year period and which terminated for applications on 26 February, 1993 offered employers a wage subsidy in respect of extra workers recruited from the live register and retained for at least 18 months.
Sections 32 to 34 of the Bill implement my budget announcement that the payment date for corporation tax would be aligned with that for advance corporation tax, the change to take effect in respect of all accounting periods ending on or after 1 May 1993. In practice, a substantial amount of corporation tax is paid after banking hours on the latest day for payment of the tax and at the end of the year this can mean that payments may not actually be lodged to the benefit of the Exchequer until the following year. In order to safeguard the £37 million yield in 1993 from this budget measure, it is now being provided that where the payment date for corporation tax and advance corporation tax for an accounting period fall after the 28th day of the month concerned, the tax should be paid not later than the 28th day of that month.
Sections 35 and 36 of the Bill provide for the bringing of the Trustee Savings Bank into the corporation tax net for  the first time. The taxation of Trustee Savings Bank has been under consideration by the Government for some time on the basis that it is unsatisfactory that a bank with assets of £1.1 billion and a good annual surplus of £8 million in 1991 and £9.6 million last year should be effectively free of tax. The Trustee Savings Bank will be taxed at the standard rate of 40 per cent on an increasing level of its trading income over four years. A total of 25 per cent of trading income will be taxed in respect of the year ended 31 March 1994, 50 per cent in respect of the year ended 31 March 1995, 75 per cent for the year ended 31 March 1996 with taxation on 100 per cent of trading income each year thereafter. As the Trustee Savings Bank is in competition with all the other licensed banks in the State, the imposition of corporation tax puts them on the same footing as their competitors.
Section 37 of the Bill makes a number of changes to section 39 of the Finance Act, 1980 which defines goods for manufacturing relief purposes. Paragraph (a) ensures that the general exclusion from the scope of the 10 per cent rate of corporation tax of goods sold to the Intervention Agency does not apply in the case of subcontracted deboning services carried out by a meat processing company for the agency. To allow the present legislative position to remain would put at risk the commercial viability of these beef deboning services which are a bona fide manufacturing process and are of considerable importance in generating added value and employment in the meat processing industry.
Paragraph (b) of section 37 amends the legislation introduced last year allowing certain co-operatives to qualify for the 10 per cent rate in order to deal with certain problems that have arisen.
Section 38 and 39 make a number of amendments to section 84A of the 1976 Corporation Tax Act. Paragraph (a) of section 38 provides that where, on or after 6 May 1993, the repayment period of a section 84 loan is extended, the lender is to be regarded as having received repayment of the loan and as  having advanced a new loan which will now qualify as a section 84 loan. This ensures against such loans being extended beyond the original termination date.
Paragraph (b) of section 38 changes the section 84 rules to allow a company connected with the IFSC company to obtain a section 84 loan when such a loan is included on an approved IDA list. This will ensure that a project which was intended to have access to such loan facilities is not deprived of that simply on account of being associated with a company in the IFSC.
Section 39 provides that the currency exchange gains on high coupon section 84 loans are to be treated as income from the sale of manufactured goods, thus making them taxable at the special low 10 per cent rate. The provision will have retrospective effect to when the gains on such loans first arose. These particular loans are section 84 loans in a highinterest rate foreign currency, where the borrower obtains a capital gain through foreign exchange transactions and offsets this gain against his interest cost, thereby achieving a very low net interest rate on the loan. The Government approved in 1991 the issuing of such loans in the case of two lists of loans for specified IDA projects and this change in the law is necessary to ensure that these borrowers obtain the desired low interest rate. If the gains were taxed at 40 per cent or higher as non-trading income, or under the capital gains tax code, this would considerably increase the cost to the borrower. Since other high coupon loans, which are not on these IDA lists, could also have been used for projects involving increased employment, it is proposed to apply the 10 per cent trading income treatment to all high coupon loans.
I intend to bring proposals to Government, for inclusion on the Committee Stage of the Bill, about extending the 10 per cent rate of corporation tax to the advertising income of newspapers.
Let me now turn to personal income tax, which is dealt with mainly in Chapter I. Income tax reform has made significant progress during the currency of the Programme  for National Recovery and the Programme for Economic and Social Progress; the standard rate was cut from 35 per cent to 27 per cent and the higher rates consolidated in a single 48 per cent top rate. In addition, the tax base was broadened to make the system more equitable and consistent with the economy's needs and, of course, to provide funding for the tax improvements. Significant improvement was also made in the exemption limits and the standard band was widened. Further such improvement is contained in this Bill.
Sections 1 to 3 provide for the implementation of the income tax reliefs announced in the budget, which will cost an estimated £37.6 million in 1993. The main personal allowances are raised and the standard band is widened. There are also increases in the general and age exemption limits, and in the child addition to those limits, which will benefit many low-paid persons, especially those with families. Overall, the changes will remove an estimated 13,500 taxpayers from the tax net, and bring a further 18,000 taxpayers from the higher marginal rate to the standard rate.
Section 5 provides for an increase in the interest ceiling for mortgage interest relief from £2,000 single and £4,000 married to £2,500 and £5,000 married. In recognition of the higher mortgage rates that prevailed over the period since last autumn, it also provides, as an exceptional temporary measure for 1993-94 only, for an increase from 80 per cent to 90 per cent in the percentage of interest qualifying for relief. In addition, to assist first time purchasers, the percentage of interest allowable is increased to 100 per cent for the first three years in which they claim mortgage interest relief, subject to the general interest ceilings. To help offset to some degree the cost of this overall package of improvements, a de minimis exclusion for mortgage interest relief is introduced. This will disallow for the purpose of relief the first £100 single-£200 married of interest currently allowable. The estimated net cost of the package is about £17.5 million in 1993.
 As I indicated in a press release on 26 November last, section 6 of the Bill provides for the taxation of severance payments to outgoing Members of the Oireachtas and former holders of ministerial parliamentary offices from the commencement of the new payments. In addition, the legislation makes severance payments to certain public servants subject to the same tax treatment as applies to similar payments in the private sector.
I will be bringing forward a provision on Committee Stage to amend the tax treatment of redundancy payments. Employees receiving non-statutory redundancy payments qualify for certain tax exemptions; the exempt amount is determined either by reference to length of service and rate of pay or to flat rate cash figures, essentially the £6,000 allowance for ex gratia payments. The former provides a substantial exemption for employees with long service. The latter is of more relevance to employees with shorter service but currently does not take account of the length of service. Accordingly, I propose to introduce an addition of £250 per year of service with the employer to the current cash figure; I intend that the change will be effective from 6 May, the date of publication of the Bill.
Section 22 extends tax relief for heritage gardens. Tax relief has up to now been available in respect of the cost of the maintenance, restorations, etc., of significant buildings and of gardens attached to such buildings. The Bill provides for the extension of this relief to gardens which are not attached to significant buildings where the gardens are determined to be of significant horticultural, scientific, historical or aesthetic interest.
Section 7 provides for the new temporary income levy announced in the budget. The new levy will apply for the year 1993-94 at a rate of 1 per cent on all income on a similar basis to the existing health and employment and training levies.
The levy is payable by all individuals over 16 years of age but with a specific income exemption in order to protect  the lower paid. In the case of the self-employed, exemption will apply where income for the year is not greater than £9,000. In the case of employees, the levy is payable in any week where income is greater than £173. In addition, all medical card holders, including those whose income is above £9,000 per annum, are exempt from the levy. All social welfare payments are also exempt and such payments will not be taken into account in determining whether an individual qualifies for an income exemption from the levy. Unlike the existing levies and the income levy which applied in the early eighties, employers are not liable to pay the new levy in respect of their employees who are medical card holders. To ensure that the levy is in fact paid this year by all liable taxpayers, the Bill further provides for an appropriate amendment to the rules governing the payment of preliminary tax by the self-employed.
As regards the particular criticisms made of the levy of course the Government would have preferred not to have had to introduce the temporary 1 per cent income levy, if the quite exceptional budgetary pressures allowed of any realistic alternative. However, to describe this levy as a tax on employment, as a number of critics and commentators have done, is nothing short of misrepresentation. In fact, the same superficial reasoning can be advanced in respect of almost all taxes, including income tax. PRSI, indirect taxes and corporation tax, which between them account for more than 90 per cent of revenue in every country in the OECD. However, as we all know, without these taxes no country could aspire to providing civilised levels of social and public services and facilities which are essential to economic infrastructure. The levy will only impact on employment if taxpayers seek to compensate themselves through higher charges and wages — rather than accepting that they should make a limited contribution towards the exceptional unemployment and other costs imposed by the protracted slowdown in the international economy. We should not lose sight of the fact that taxpayers are being  asked to accept this limited sacrifice against the background of the Programme for National Recovery and earlier years of the Programme for Economic and Social Progress which have seen progressive and substantial increases in real take-home incomes.
Chapter III provides for the new scheme of taxation of life assurance companies which has already been announced by the Government and come into force on 1 January 1993. The provisions include a single 27 per cent annual charge on the returns from life assurance products, whether income or capital gains, which is payable by the life companies. The capital gains tax will be charged without indexation. Realised gilt gains and both realised and unrealised non-gilt gains will be subject to taxation, the latter on seven-year spreading basis.
In addition, the Bill introduces a tax on the net proceeds of foreign life assurance products which are sold here. This change is necessitated by the gradual liberalisation of the life assurance market under the various EC life assurance directives which has already commenced and which will be completed by July 1994. Since an annual charge on the return from the funds of the life company is not feasible where the company is not operating in the State, the charge on foreign life assurance products will apply when the net proceeds are paid to the policy holder. The net proceeds will be subject to a 40 per cent tax charge; the higher rate, vis-á-vis the annual charge on Irish policies, is necessary to compensate for the deferment of the tax until the policy is redeemed. As is the case for Irish life assurance products, there will be no indexation relief, the annual small gains relief will not apply and the product will be ring-fenced from any other gains or losses which the individual might have.
I will be introducing changes in the taxation arrangements for unit trusts on Committee Stage of the Bill. These changes will be broadly in line with the changes in the taxation of life assurance products which I have outlined above.
Section 21 provides for changes in the stock relief arrangements for farmers. As  a result of the changes in the Common Agricultural Policy and other factors, it was considered that the old stock relief regime was no longer appropriate. Accordingly, the old stock relief scheme which lapsed on 5 April 1993 is not being renewed and is being replaced by a new scheme of relief from 6 April 1993 to 5 April 1995. Having regard to the changes in the Common Agricultural Policy and to avoid the related difficulties that could arise for farmers with declining stock values, clawback arrangements under the old scheme are being abolished, which should benefit a considerable number of farmers. The new relief give an incentive for developing farmers and for farmers diversifying into new areas of agricultural activity and there are no clawback provisions.
In regard to urban renewal there are five changes to the tax reliefs for the designated areas; three of the changes are designed to assist in the development of these areas while the remainder deal with tax avoidance loopholes.
Section 16 provides that where a life assurance company locates its new business activities in a new or refurbished rented building in a designated area, the seven-year spreading of expenses rule for such business will not affect the full immediate availability to the company of the double rent allowance.
Sections 23, 24 and 25 provide for an extension of the time limits associated with the urban renewal scheme in the general designated areas. The reliefs available are capital allowances for commercial buildings, owner-occupier allowance, double rent allowance and relief for rented residential accommodation. The deadline for the expiration of the reliefs is being extended by six months to the end November 1993 in the case of “new-build” projects, and by two months to 31 July in the case of the overall deadline for the reliefs. Section 23 also introduces a thirteen-year clawback period for capital allowances on all commercial buildings in the designated areas. This measure will bring the tax life of the buildings, which was previously 25 years,  into line with the 13-year period over which the accelerated allowances would normally be fully claimed.
Section 23, in addition, closes off two tax loopholes. Firstly, the double rent allowance, in the case of a refurbished building, will from now on be conditional on the capital expenditure on refurbishment amounting to at least 10 per cent of the market value of the building before the refurbishment took place. The section provides for the closure of a loophole in relation to the cross-leasing, of property by means of controlled companies; under such cross-leasing, both firms can obtain both the accelerated capital allowances for lessors and double rent allowance for leasees. This effect was never intended and is now being rectified.
Three important changes are being made to section 35 of the Finance Act, 1987 which is the section which provides relief from corporation tax in respect of investment in Irish film making companies. At present, in order to be a qualifying film for the purposes of the relief, at least 75 per cent of the production work of the film must be carried out in the State and not more than 60 per cent of the cost of producing the film may be met by section 35 investments. In order to facilitate the making of films under co-production agreements with other countries, section 40 provides for the waiving of the 75 per cent Irish production test for a film to qualify for the relief subject to certain conditions. These conditions are (a) at least 10 per cent of the production work must be carried on in the State; (b) the approval of the Minister for Arts, Culture and the Gaeltacht must be obtained for this 75 per cent criterion to be waived; and (c) the percentage of the cost of the production of the film allowable to be met by section 35 investment cannot exceed the percentage of production work carried out in the State, subject to the overall 60 per cent cost of production ceiling referred to above. For example, if 50 per cent of the work on the production of the film is carried out  in the State, then not more than 50 per cent of the cost of producing the film may be met by section 35 investments.
The other changes in the relief will be made on Committee Stage of the Bill. The present ceiling for investment under section 35 is £600,000 per corporate investor. This will be increased to £1.05 million which can be invested either as a £1.05 million investment in a single film production in any one year in a three-year period, or as £350,000 each year for three years in one or more film projects. In addition, individuals will in future be able to avail of the section 35 relief up to an annual limit of £25,000; in the context of this new relief, films are being removed from the scope of the business expansion scheme, but an individual will be able to avail of both the section 35 relief and the BES generally.
These three changes are designed to boost investment in the Irish film and audiovisual industry, an industry which has realised exciting advances in recent years and which, I am confident, has the potential for further imaginative and dynamic growth.
The maximum acceptable degree of freedom from tax for foreign trusts is provided for in section 41 in order to facilitate the generation of employment in Ireland from the management of such trusts. “Foreign trusts” are those where the settlors and beneficiaries are not domiciled or resident in the State, the assets are located outside the State, and the income is from sources outside the State; only the professional trustees, who must be licensed banks, authorised trustees for collective investment undertakings or similar persons, and approved by the Central Bank as suitable trust managers, may be located in the State.
Legislation allowing the Central Bank to give such approval does not exist at present. New legislation is required and will be prepared as quickly as possible this year. In view of this, the Finance Bill provisions enable the Minister for Finance, by order, to bring these provisions in relation to the taxation of foreign trusts into effect when the necessary regulatory legislation is in place.
 I now wish to deal with customs and excise. The Bill confirms the changes announced in the budget with regard to the increase in duty on cigarettes and certain other tobacco products and on cider and perry. It sets out a single rate of duty for heavy fuel oil which is necessary to comply with EC rules. It provides for the duty reductions on certain low alcohol products (e.g. spritzers and coolers) and on auto-LPG.
The Bill confirms the combined high season/week-end category of licence for amusement machines introduced in the budget. Also in this general area and reflecting representations from the trade, the Bill provides for an amendment of the gaming licence regime so as to treat certain gaming machines as a single machine, irrespective of the number of playing positions. Moreover, in order to facilitate operators of these machines, this change was effective from the date of publication of the Bill. Other technical amendments to the gaming duty system are also included in the Bill to align its licensing and operational aspects with the amusement machine licensing arrangements.
The House will be aware of the importance of the short term car hire sector within the tourism industry and of the shortage problems that can arise at peak demand periods. This Government has decided to tackle these problems in a fundamental way through reshaping the fiscal environment for such cars. The Bill contains a number of significant initiatives to increase the availability of cars for short term hire. In addition to confirming the scheme of partial repayment of vehicle registration tax (VRT) for cars in the short term hire fleet announced in the budget, a further relieving provision is proposed in regard to the arrangements for paying VRT on such cars. The duty liable on new cars purchased by car hire operators in the period from 1 December to 31 August will be deferred until 15 September and the duty on purchases in the period 1 September to 30 November will be payable on 15 December. In proposing these measures, I believe I have fully addressed the representations made  by car hire interests and have created a framework and climate which should allow for a substantial increase in the hire fleet during the summer season and which should underpin the financial viability of the sector generally. In response to the very many requests made to me, I have decided to defer the proposed introduction of standard VAT rating for short term car hire originally proposed for 1 September next.
The Bill also provides for other minor adjustments to vehicle registration tax by providing for (i) the alignment of the taxation treatment of minibuses with the Carriage Office's licensing arrangements in this area by reducing the passenger seating requirements to 12, thus maintaining the present flat-rate vehicle registration tax charge on such vehicles and (ii) an adjustment of the vehicle registration tax arrangements in relation to demonstration vehicles to restore the pre-1993 position as regards the amount of input tax that can be deducted.
The Bill provides for the enactment of certain residual matters in the vehicle licensing (road tax) area set out in the “Government Proposals for Legislation to be included in a Second Finance Bill” published last November which were not subsequently enacted. These deal with underpinning the legislative basis for the national vehicle file; the provision of a framework for the renewal of road tax and driving licences at any motor tax office in the State; updating road tax penalty provisions and enabling local authorities to pass information to the gardaí about cars that have been registered for vehicle registration tax but in respect of which an application for a road tax licence has not been received within seven days.
Internal Market obligations require that we cease using the intermediate prefermentation works system as the basis for levying excise duty on beer; instead, a system based on taxation of the end-product must be adopted. In connection with this changeover, which I intend to introduce on 1 October next by means of  ministerial order, the Bill provides for a new rate of duty on beer, based on the end product. A revenue neutral rate of £14.62 per hectolitre per cent alcohol in the finished product is proposed. As part of the new regime, revised deferment arrangements are also proposed for payment of excise duty on beer. It is proposed that duty on deliveries made in one month may be deferred to not later than the end of the following month, and duty on deliveries made up to and including 20 December will be paid by the end of that month. These revised deferment arrangements will also apply to the payment of excise duty on wine.
Before I leave this area of taxation, I would like to thank sincerely the Irish brewers for the way in which they cooperated with the Office of the Revenue Commissioners in dealing with the many complex issues involved in formulating the above changes.
The Bill clarifies the position of certain minor categories of spirits retailers on licences to ensure that they will be subject to the appropriate licence duty and the associated tax clearance requirements.
Finally, as far as excises are concerned, the Bill provides for certain other technical amendments to Customs and Excise law in order to align domestic law with EC requirements.
Part III of the Bill gives effect to the legislative changes relating to VAT. As regards the rate changes announced on budget day, the Bill confirms all of these apart from one, the proposed application of the standard rate to short term car hire which was to take effect from 1 September next. In response to the many representations received from tourism interests, I have decided that this change should be deferred. When taken in conjunction with the proposed reliefs for the short term car hire sector in relation to vehicle registration tax, this concession should further underpin the financial viability of the sector, thereby facilitating an increase in the size of hire fleets. Thus, short term car hire remains at the parking rate of 12.5 per cent for the moment. Ultimately, however, it will have to be  taxed at the standard rate, in accordance with EC law.
As regards the VAT rate increases on clothing and footwear, I want to state clearly that I have no intention of reversing my decision to place these items at the standard rate. Every other member state of the European Community applies the standard rate to clothing and footwear. Our standard rate, at 21 per cent, is not significantly different from those of most other member states. Indeed, taking account of the application of a zero rate to children's apparel which is unique to ourselves and the UK, this category of expenditure is still treated favourably.
There is no question of my hiding behind EC provisions in this matter. I have made it quite clear from the outset that, while the 16 per cent rate had to be abolished because of the provision in EC law, which permits the existence of only one rate in excess of the agreed standard rate minimum level of 15 per cent, the primary purpose of placing adult clothing and footwear at the standard rate this year was for the purpose of raising revenue. It was part and parcel of overall budgetary strategy, which was framed with the need to give Irish industry conditions in which jobs could be protected firmly in mind, and which has now paid off in terms of creating an environment of currency stability and substantially lower interest rates. In all of the debates on this matter I have not heard one good suggested alternative as to how the additional revenue could have been raised in order to keep the budget on target.
I do not accept that the difficulties being encountered in the clothing industry are wholly or even largely due to the VAT rate increase. Without labouring the matter, I want to repeat that the two-thirds of the output of the Irish clothing sector which is exported will not be affected by the change; moreover given that the higher rate applies equally to the 80 per cent of consumption here that is imported and the 20 per cent which is domestically sourced, the relative position of these supplies has not been disturbed.  It should be evident from these figures that not only would preferential VAT treatment do little for the producing sectors, but also that, were I to respond to these demands and shift the burden elsewhere in the VAT area, the net effect on employment would most probably be unfavourable. I am satisfied that the balance struck in the budget, whereby the increased revenue arising from the standard-rating of adult clothing and footwear helped finance an alleviation of VAT on labour-intensive services, was the right one from an overall employment standpoint. Let me also repeat, however, that I am concerned as to how to improve the cost competitiveness of the manufacturing side of the industry here and I have already announced the following measures aimed at addressing that question: (1) temporary assistance will be directed to manufacturing firms in the sector who can demonstrate that their viability and employment levels are threatened by the effect of the application of the standard rate of VAT to their domestic sales. The details of the assistance and the criteria for granting it will be announced shortly by the Minister for Enterprise and Employment; (2) an urgent review is to be carried out in consultation with the Department of Social Welfare of the impact on low paid manufacturing firms of the operation of the employers' PRSI system, and (3) the criteria under which the IDA assist technological development in the clothing and footwear sector will be reviewed. In the meantime the advice and assistance of the relevant State agencies will be focused on the firms which are identified as being particularly at risk.
I will continue to monitor the situation and keep in touch with the sectors representing footwear, fashion manufacturing and retailing, led by IBEC.
There are two measures provided for in the Bill which are designed to offset, to a considerable extent, the major cash-flow loss to the Exchequer arising from the abolition of VAT at point of entry on intra-Community trade.
The first involves a special advance  payment in December by the larger tax remitters, equivalent to one-twelfth of their annual liability, to be set against actual liabilities in the following January's normal VAT return. This initiative, on the basis proposed — that is, restricting the measure to those taxable persons whose VAT liability exceeds £120,000 per annum — is estimated to yield £145 million in cash-flow terms. Provision is made to impose a surcharge where a taxpayer fails to make the advance payment by the due date. I believe that, overall, this initiative is a balanced one, as it gives the business community the benefit of the cash-flow gain arising from abolition of VAT at point of entry for most of the year.
Another cash-flow proposal contained in the Bill involves a change in the method of charging VAT on the removal of alcoholic goods from bonded warehouses. The Bill provides that, in the case of all taxable transactions involving such duty suspended goods, that is, sales made within warehouses, acquisitions from other member states and imports from outside the Community, VAT will be charged on the last sale, if any, within bond and on the duty inclusive price as the goods leave bond. It is estimated that this measure, which is designed specifically to counter certain tax evasion practices which have been found in the drinks trade, will yield £15 million in cash-flow terms to the Exchequer.
The Bill proposes granting zero rating for supplies made to companies the bulk of whose output is supplied to other member states or exported outside the Community. This initiative will represent a significant improvement in the trading environment for companies authorised to participate in the scheme, who, up to now, would be in a repayment position in relation to VAT. Many Irish exporting manufacturing companies, for example, will be able to participate in the scheme and should benefit from a cash-flow gain and savings in administrative costs arising from simplification of the system. While the cash-flow effect on traders supplying authorised companies will vary, depending  on credit terms, they will, however, gain the very significant commercial advantage of being able to zero rate their supplies to the companies concerned, and thus, from the VAT point of view, will be on a level playing field, so to speak, with out-of-State suppliers of the same type of goods and services. Irish hauliers, who transport goods of authorised companies to other member states, will gain a similar advantage. And, finally, the Exchequer will improve its cash-flow position by an estimated £20 million as a result of the measure.
Provision is made in the Bill to enable a flat-rate farmer, who purchases goods in other member states above the threshold of £32,000, to register in respect of those acquisitions but remain a flat-rate farmer in all other respects. The farmer will, of course, be required to pay Irish VAT — without deductibility — on such acquisitions. It will, as always, remain open to individual farmers to opt for full taxable status, should they wish to do so. This measure will represent an important facility for all flat-rate farmers, but particularly those in the horse-breeding industry.
The Bill provides for the abolition of the threshold relating to certain services, including accountancy and advertising, supplied from abroad. Under existing rules, it is only if a trader's expenditure on such services is in excess of £15,000 that he is obliged to account for the VAT on them. In contrast, all similar services being supplied by a domestic practitioner would be taxable. Abolition of the threshold will eliminate this anomaly and remove any potential distortions of trade for Irish providers of such services.
Electronic storage of records is permitted, subject to Revenue approval, for a wide range of business records in relation to most taxes. The Bill extends the relevant provisions to the VAT area, responding to requests from traders for the facility.
I indicated last year when I introduced the arrangements regarding the VAT monthly control statement, which traders with a turnover of more than £2 million must issue to their commercial customers,  that I would keep the threshold under review in the light of the anti-evasion objective sought by the measure and experience with its operation. I am satisfied that it is too early at this stage of the scheme, which has only applied from 1 November last, to decide whether any changes may be necessary. Accordingly, I have not made any provision in this year's Finance Bill to amend the threshold; the position will, of course, continue to be kept under review.
With a view to alleviating the compliance costs for traders, in particular in relation to administration, postage and stationery, the Revenue Commissioners will, however, be amending the operational arrangements concerning the monthly control statement. In future, the supplier will continue to be obliged to hold all information relating to each individual customer in a single record, to complete the record on a monthly basis in a “monthly control register” and make it available on request to the Revenue Commissioners at short notice. However, the control statement will need to be issued to customers only on a quarterly basis. Of course, if they wish, traders may continue to issue the statement on a monthly basis. Some may prefer to do so, for example, where the information has now been incorporated into the monthly commercial statement of account to customers.
Part VI, Chapter I, of the Bill contains the detailed provisions of the new probate tax, the broad outline of which was announced in the budget. The tax will apply in respect of deaths occurring after the date of enactment of the Bill and is estimated to yield approximately £11 million in a full year and approximately £3 million in 1993.
The main features of the tax are as follows: the tax will be charged at a rate of 2 per cent on the net value of all estates over £10,000 passing under will or intestacy; there will be full exemption for the family residence where there is a surviving spouse; where there is no surviving spouse but there are surviving dependant children and — or dependant relatives of the deceased, the share of the  family residence passing to such dependants will be exempt; the £10,000 exemption threshold will be indexed and marginal relief will also apply; liabilities of the estate at the time of death and funeral expenses will in general be allowed for the purposes of calculating the net value of the estates; there will be exemptions for pension benefits, charitable bequests, heritage property and the proceeds of assurance policies used to pay inheritance tax and-or probate tax; there will be a special relief to exempt property in certain circumstances from a second charge to probate tax where spouses die in quick succession; property not passing under a will or intestacy — for example, joint property which passes by survivorship — will be excluded from the scope of the tax; the tax will be allowed as an expense for inheritance tax purposes; the executor or the administrator of the estate will be the person primarily accountable for payment of the tax; however, the incidence of the tax will be apportioned among the beneficiaries of the deceased's estate to the extent that they acquire property which is not exempt; as a general rule, payment of the tax will have to be made at the time of lodging the Inland Revenue affidavit prior to the granting of the probate or administration of the estate; however, there are special provisions for postponing the payment of tax in cases of illiquidity — that is, where there are insufficient liquid assets in the estate to pay the tax — and hardship — where payment would cause excessive hardship; a discount will be allowed where the tax is paid earlier than nine months after the date of death; the discount rate will be 1¼ per cent per month of the amount of tax due; and interest, also at the rate of 1¼ per cent per month, will accrue on unpaid tax commencing nine months after the date of death.
The Government has given careful consideration to the detailed provisions of the probate tax. Having regard to the reliefs and exemptions proposed, the relatively low rate of tax and the special arrangements which cater for problems with payment, the Government is satisfied  that the provisions contained in the Bill are reasonable and equitable and that the probate tax will not place an unreasonable burden on any taxpayer. On the basis of data compiled by the Revenue Commissioners, it is estimated that the probate tax charge should be less than £1,000 for over three quarters of all estates and less than £500 for over half of all estates. Moreover, about a quarter of all estates should qualify for full exemption from the tax.
To grant additional concessions over and above those provided for in the Bill would erode the base on which the tax is to be levied and would reduce the Exchequer yield. As such it would undermine the intended purpose of the tax which is to broaden the base for taxing inheritance and thereby increase the yield from capital taxes in line with the commitment in this regard under the Programme for Economic and Social Progress.
In line with my announcement in the budget, the Bill provides, at section 118, for an increase in agricultural relief in respect of capital acquisitions tax on gifts from 55 per cent of eligible assets with a ceiling of £200,000 to 75 per cent with a ceiling of £250,000. In so far as the farming sector is concerned, this will considerably reduce the tax on gifts as compared to inheritances and should provide a positive incentive to the early transfer of farms.
Section 123 provides an exemption from capital acquisitions tax in respect of benefits accruing under life assurance policies issued by companies based at the International Financial Services Centre where such benefits are the subject of gifts or inheritances and where both the disponer and the beneficiary are foreigners. This measure will enhance the potential of the IFSC as a location for international life assurance business.
The Bill also provides for a number of amendments to existing capital acquisitions tax legislation which are designed to safeguard against the avoidance of tax on the transfer of assets. These anti-avoidance provisions are contained in  Chapter II of Part VI of the Bill and, as announced in the budget, are effective from 24 February 1993.
The Bill contains a number of changes to stamp duty, some of which were announced in the budget. In particular, section 91 provides that the stamp duty on new houses over 125 square metres shall be levied on the site value only, subject to the site being a minimum of 25 per cent of the total house value. This measure, which is effective from 25 February last, will benefit families needing more spacious accommodation and the building industry.
Section 95 will close off an avoidance loophole in the case of the exchange of immovable property. At present, if two people exchange rather than sell houses to each other, the stamp duty charge is based only on the difference in value between the two houses. The potential revenue loss arising from this loophole could be as high as £4 million per annum. Accordingly, to prevent further ongoing loss to the Exchequer, stamp duty will be charged on the total value of the immovable property passing on conveyance in such situations.
Section 96 provides that, in determining the value for stamp duty purposes of property transferred by gift, no allowance will be made for certain rights with which the property is charged, except where such rights are reserved in favour of the transferer or the spouse of the transferer. The type of rights involved are rights of residence, support, maintenance or other rights of a similar nature and, where such rights are reserved in favour of the transferer or the spouse of the transferer, allowance will be made for those rights up to a maximum of 10 per cent of the value of the property being transferred. There is no change in the position regarding bona fide life interests attaching to a property. These will continue to be allowed in full for stamp duty purposes.
The Bill makes legislative provision for two extensions of the tax clearance system announced in the budget, to cover the issuing of various excise licences, to which sections 70 and 130 relate, and to  ensure that the residential property tax liabilities have been discharged when houses are being sold, which is in section 97.
Finally, Part VII of the Bill includes a number of provisions in relation to debt management. Section 128, which extends the ways in which assets of the Post Office Savings Bank fund may be invested, will allow the secondary trader of the National Treasury Management Agency to trade in gilt futures on the Irish Futures and Options Exchange. This should improve liquidity in the gilts futures market. Section 129 provides the statutory basis for opening foreign currency clearing accounts and will streamline and improve the administration of the foreign currency debt portfolio by the National Treasury Management Agency. The text of the section ensures that the Comptroller and Auditor General will have full control over disbursements of moneys from the new accounts.
As is traditional, I have endeavoured to cover those areas of interest to many groups. Professional, legal, accountancy and tax experts have submitted long submissions and detailed views to me. As my colleagues in the House will be aware, the Second and Committee Stage debates are examined mostly by practitioners in their offices. I thank all the bodies — some of whom I met a number of times to tease out certain points — for their time, effort and commitment. I hope that the Bill and the explanatory memorandum will be of assistance to them.
I also want to thank Members of the House, of all parties, for their co-operation over the past three months since I introduced my budget, and various groups of professionals, experts and people with an interest in particular sections of the Finance Bill. We have endeavoured, in so far as we can, to deal with all the relevant issues and questions. Some have been left in abeyance for debate on Committee Stage, the relevant data not having been ready for publication of the Bill and with which we will deal in due course.
Mr. Yates Mr. Yates
Mr. Yates: This is the first occasion  on which I have had the opportunity of contributing to the debate on the Finance Bill as my party spokesman on finance. Obviously it is a magnus opus. My only relief, when I looked at the thickness of last year's Finance Bill, was to note that this year's has 133 sections only.
We will be opposing the Second Reading of this Bill on Thursday next because of a number of its detailed provisions. While there are some provisions we would welcome, its overall thrust falls far short of what we contend is required at this time.
My first and most serious criticism of this Bill is that it fails to address the need for radical tax reform. For example, the Culliton report was published in January 1991. In addition, there has been a detailed report on strategy into the nineties drawn up by the National Economic and Social Council. The authors of those reports come from a very broad spectrum of our society, for example, the social partners, the trade union movement, some of the finest economists, experts, industrialists, outstanding people, picked by the present and previous Government because of their high repute. Those reports spell out a central focus, which is that the tax treatment of work reduces our competitiveness, stifles enterprise and creates poverty traps; that is the fairest summary I can give of it.
I must admit to being shocked at the Taoiseach's comments — I have a copy of his script here — speaking at the sixth Fianna Fáil women's conference in Jury's Hotel on Saturday last, 8 May, at 3 p.m. I might quote what he had to say about tax reform, which should be seen in the context of both the Culliton and NESC reports:
Another quack cure for unemployment is to put all our eggs in the basket of 'radical tax reform', though the Culliton report itself is careful not to make exaggerated claims about the effect of this on jobs. Fianna Fáil have carried through in the last few years, more real tax reform and tax reductions than any of our predecessors. But the effect on unemployment  has at best been limited. In fact, as the experience in Britain in the late eighties and indeed in Ireland in the late seventies shows, a sudden, dramatic easing of the tax burden, primarily for the benefit of the better off, is economically disastrous. I suggest it is not enough for Fine Gael, the Progressive Democrats and Democratic Left to call for radical tax reform. Let them advocate clearly what it involves...
The Taoiseach went on to say, in another startling remark, “The campaign of opposition against such reform would know no bounds.” That is quite extraordinary. What the Taoiseach is saying is that he is a Taoiseach of least political resistance; a Taoiseach with the largest majority in the history of the State, with the potential of a five-year term ahead of him, with a free rein of power to do what he likes to meet the challenges presented by the 300,000 people unemployed, the highest rate of unemployment in Europe. What does he do? He says he will not countenance reform because it is a quack cure and because there would be a campaign of opposition to it. It is clear that the Taoiseach has no economic policy, is happy simply to implement, when in Government with the Progressive Democrats, their political philosophy and, when in Government with the Labour Party, their political philosophy, which, in this case, is increased public spending, particularly current spending, resulting in higher taxes.
We should never lose sight, in the important minutiae of all of this, of the principal features of the budget. What this budget and Finance Bill give effect to is an increase in taxation of £575 million. Given the Exchequer returns for the first quarter of the year, I would predict we are talking about a greater tax take from all taxpayers of approximately 7 per cent, at a time when inflation is likely to be under 3 per cent. That is a real doubling of tax. Is that what this country needs?
It is quite clear that this Government sought office for power's sake rather than  to implement any real agenda. This Government wants to increase the dependency culture. When I come to some of the detailed, much vaunted and heralded bonuses for entrepreneurs we will see the dependency culture; not only does one have to have all ones “i's” dotted and “t's” crossed, one must resort to the State agency to get one's tax break.
To avoid accepting the thrust of Culliton's proposals the Government established a task force, comprised primarily of civil servants, the Moriarty task force. This neutered the tax reform proposals. Instead what we have are ad hoc, piecemeal, miniscule changes, many of which seek to not even reverse last year's decisions.
Fine Gael will be opposing this Bill also because of the insistence on the iniquitous 1 per cent income levy, despite its negative effect on jobs. We are totally opposed to the general thrust of increased taxation by 7 per cent provided for in this Bill. Specifically, and I shall go on to detail my objections, we reject the probate tax and the failure to reverse the VAT rate on clothing and footwear.
My central thesis in examining this Bill is tax reform. I should like to make my case for tax reform in some detail. It has been argued by the Government and Civil Service that cutting taxes will not increase employment, that cutting taxes, as did Nigel Lawson in Britain, did not do so, that tax cuts will simply increase profits and not be reflected in more jobs. This line of thinking entirely misses the point. Ireland's tax consumption is of the order of 35.5 per cent of GNP, heading for 36 per cent of GNP. The scope for reducing taxes must be seen in the context that, if public expenditure was cut by an enormous figure say £600 million, this would reduce the tax take by two per cent of GNP only. Even I, who am a keen advocate of cuts in public expenditure am not aware of the potential for expenditure cuts on that scale. The issue is how tax policies within 35 per cent or 34 per cent of GNP impact on employment. It is not the case that we are talking about wholesale cuts in taxation. We are talking  about how our present tax regime impacts on employment.
We have the highest unemployment rate in Europe. There is irrefutable evidence that our present taxation system places an intolerable tax burden on payroll costs and creates a disincentive to work. Let us examine the relevant facts. On average — and this is the average only; if one takes £1 of overtime it is much worse — every £1 of net pay costs an employer, in gross wage costs, £2.55. For gross pay in excess of £25 per week, there is a PRSI charge of 19.95 per cent which is not graduated. Our gross labour costs relative to those in Britain are 4 per cent higher, yet the net pay of the average Irish worker is lower than that of his or her counterpart in Britain. Because of the difference between the social welfare treatment of child dependants and the lack of tax-free allowances for children, as well as other fringe benefits, a married man with three children requires a gross pay level in excess of £173 per week to justify going to work. If one throws in a medical card, differential rent and all the other fringe benefits, that is the figure; if he has more children the figure would be higher.
After the provisions of this Finance Bill will have been enacted we shall have five taxes on work — PAYE, PRSI, the health, youth and, now, the 1 per cent income levy. A single person with wages in excess of £70 per week will start paying tax at 36 per cent, when one takes PAYE, the levies and PRSI together.
I have here the relevant section of the Fianna Fáil and Labour Programme for a Partnership Government 1993-1997, comprised of six very bland points which read as follows:
We will continue the process of tax reform. Our priorities will be:
To remove the low-paid, especially families, out of the tax net altogether;
To broaden the standard tax band, so that, as in other countries, only relatively high earners pay the higher rate of tax, and to further reduce tax rates, especially the standard  rate, when economic conditions permit;
To maintain the basic tax reliefs, such as mortgage interest and VHI, and to consider measures in the 1993 budget to relieve the position faced by mortgage holders, while the present situation of high interest rates lasts;
To improve collection and enforcement, and to ensure equity as between those on PAYE, the self-employed, and those with substantial investment income;
To study in consultation with the social partners the integration of tax and social welfare codes;
To structure the whole tax system so as to support employment and to minimise financial imbalance and outflows.
There are no targets set and no timetable is specified. Therefore the Minister should not go through the ritual of saying that he is committed to tax reform when there is no tax reform programme in existence. The Finance Bill worsens the situation through the imposition of the 1 per cent income levy while higher VAT rates on indigenous industries, such as clothing, footwear, construction and tourism, directly depress demand and output of those sectors and will jeopardise over 4,000 jobs.
There is a range of options which the Government can pursue to implement a phased reduction in the taxation of work, particularly for the lower and middle income sectors. The Taoiseach's paranoia about mortgage interest and VHI relief is only marginally relevant. To abolish reliefs on income tax is as ineffective as focusing exclusively on the rates of tax, which is what the last Government did when we heard the mantra about the need to reduce rates to 25 per cent and 44 per cent. But all that people are interested in is gross and net pay and the tax take and wedge; it does not matter how the rates and allowances are calculated. One will make no progress  if one freezes the allowances and bands and reduces the rates. Similarly, if one abolishes mortgage interest and VHI relief the burden of income tax will increase, or if one decides to reduce personal allowances by the amount one reduces special reliefs one will not solve the problem. All that matters to the employee is gross and net pay and gross wage costs to the employer. If one changes allowances and rates on their own one may increase the tax take on work and direct personal income.
PRSI reform cannot be deferred. The most significant international comparison one can make in terms of competitiveness is with the United Kingdom. The Revenue Commissioners have very kindly given me some detailed figures. The Minister has informed us time and again that our rate of PRSI is the second lowest but I have to say, having looked at the figures, that this seems to be erroneous. As I said, our most important trader, in geographical terms and in terms of indigenous industry and trade with any other state, is the United Kingdom where the employer rate goes from 2 per cent to 9 per cent and the employee rate from 4.6 per cent to 10.4 per cent, giving a total range of 6.6 per cent to 19.4 per cent. I am told that for the majority of labour intensive sectors the rate is about half. Therefore what they are doing in Luxembourg is not that important in comparison with what is happening in Northern Ireland and in the rest of the United Kingdom.
To be honest, I do not understand some of these figures. Some of the income tax rates go as high as 50 per cent; but on the other hand in Belgium the employer rate is 40.1 per cent while the employee rate is 12.07 per cent, giving a total of 52 per cent. If the PRSI rate goes as high as 52 per cent I fail to see what is left for the employee. It seems that the figures are being juggled. In Denmark PRSI is incorporated with income tax.
I do not accept the argument that our rate is the second lowest. It seems that the interpretation of the rules, in terms of the amalgamation of income tax and  PRSI, may lead to a different situation; but I have no doubt that the tax rates have a more severe impact on low incomes than the European average.
The rates of PRSI are not graduated. One pays the same rate of PRSI on £19,000 as on £2,000. This is destroying low paid jobs. I am aware that the Irish Congress of Trade Unions do not like to talk about low paid jobs, but the fact is that there is a limited demand for brain surgeons in this country and many people cannot get their first job because low paid jobs do not exist. We are not going to succeed if we are exclusively a high wage and high-tech economy. We need every job that we can get and if this means in some cases that someone's first job is low paid, under £150 per week, I say it is better that he has a job than draw £45 to £50 per week on the dole.
In relation to the PRSI fund, one pays a contribution to ensure that workers have certain rights. Workers in receipt of long term unemployment assistance visit me at my clinics to say that when they took up a job in New Ross, for example, for 13 weeks, with a farmer or at the docks, they lost their child dependant allowance for a child over 18 years of age who is still in full-time education. They also lost their butter vouchers and fuel vouchers and were paid less money. In effect, they were worse off. In other words, they were better off on long term unemployment assistance. In an effort to improve the lot of persons in receipt of long term unemployment assistance they have overshot those in receipt of disability and unemployment benefit. Therefore, it amounts to a penalty to pay PRSI at class A1 or class A7. What we should do is amalgamate PAYE and PRSI, which is what happens in Denmark. This would lead to the removal of many inequities in the social welfare code. These issues must be addressed.
The Minister has derided the Opposition parties, invited us into his spider's web and asked how we would pay for this tax reform, by which I mean that the first £100 of income would be exempt and that various allowances would be targeted exclusively at the low paid and not at  those with incomes of up to £400,000 to which the Taoiseach referred over the weekend.
Let us say that the bill for tax reform is £700 million. There is scope for cuts in public spending in a number of Departments. For instance, there is substantial scope for cuts in spending in the Department of Defence; I do not think we obtain value for money in relation to the figure of £335 million. I also think that the amount of money spent by the Department of the Marine is greater than the entire fish catch.
When people examine public spending they say than that pay accounts for 50 per cent, social welfare X per cent and so on and that we cannot do anything about it; but there is ample room for cuts on the pay side which has to do with numbers. There is no employer in this country who has not reduced numbers, mainly on a voluntary basis, through computerisation and the introduction of technology. There is scope to look for greater value for money. The steps taken by former Deputy Ray MacSharry during the period 1987 to 1989 in relation to numbers can lead to substantial savings and a better focus on redeployment. I would be happy to go into detail in this regard. There is a menu of public expenditure cuts of the order of £200 million.
The next issue I would like to deal with is the need to widen the tax base. If we are to tax low income earners less unearned income will have to be taxed more heavily. I do not believe that a 10 per cent rate on savings can be justified. The Minister was sold a pup by the banks about the mobility of capital. It could bear a 15 per cent rate.
In relation to local government financing, I have grave difficulty in explaining to someone the reason a person living in the Minister's constituency pays no household charges while someone living in Dún Laoghaire has to pay £125. I cannot justify this. Because of the variations in relation to local government financing there is a need for greater autonomy for local councillors. This need could be addressed with a view to reviewing the domestic rate support grant so  as to reduce the dependence on central Government.
At European level a strong argument has been made in favour of a carbon tax. This could be considered. There is also a possibility of a major reorganisation of the VAT code. It is our principle consumption tax and there is scope for a radical reorganisation. I have mentioned several items from which the £700 million could be raised. I do not accept that this is off limits and nothing can be done; it is a political issue. The way we burden work with tax and the way pay attracts tax makes employers ask how they can minimise the number of jobs as well as minimising the monthly returns of PAYE and PRSI. I know that is the way employers think, from the largest to the smallest. I know employers see this as a surcharge for giving someone a job.
The Minister and his army of public relations consultants have created the impression that this Bill provides attractive incentives by way of tax rebates for people to become entrepreneurs. However, now that we see the fine print the message should go out loud and clear that potential entrepreneurs have as much chance of getting the six numbers in the lotto on a Wednesday or a Saturday as of qualifying for £38,250 tax relief.
There are the most extraordinary bureaucratic limitations on the seed capital scheme. First, it applies only to companies on the 10 per cent corporation tax regime, despite all the arguments that the growth in job creation will come from the services sector — and from international experience, particularly in America, that is where the jobs have been created. However, we have restricted it mainly to manufacturing industries, a small element of tourism and a small element of research and development. That basically wipes out 90 per cent of all employment opportunities. In addition the entrepreneur has to obtain State agency approval, but this is subject to its decision on surplus capacity in the marketplace and there are a series of areas where it is deciding not to grant-aid the sector further because of surplus capacity. That makes the system even more rigid.
 Second, the individual must subscribe at least 15 per cent of the share capital of the company, hold the shares for five years and not dilute the shares in the first two years. The entrepreneur cannot always foresee what will happen and this means he cannot take in an extra partner. When I was chairman of the Oireachtas Joint Committee on Small Businesses we conducted a detailed study of the reasons only three out of every ten businesses succeeded. We found that this was not because they did not have a full order book or were not making money, but that they ran out of cash and did not have sufficient cash flow because they had incorrectly estimated the cost of setting up in business.
Third, he or she must become a full time director or employee of the company. Very often one has to spend time researching and doing other work in setting up a business which does not provide an income. Indeed, sometimes a person is employed to run it, but that disqualifies one from the scheme. Fourth, the vast majority of potential entrepreneurs will be disqualified by the rule that not more than 10 per cent of their income over the past three years can come from a trade, business or rental income. We had all kinds of leaks. One cannot read the Irish Independent without seeing a strip lead on how people with expertise in engineering or accountancy can now set up in business. They should forget about it. They have been disqualified because if more than 10 per cent of one's aggregate income in the past three years came from a trade, profession or rent, that means good night and rules them out. Effectively, this excludes all professionals. The Bill goes even further because existing entrepreneurs who are involved in another company are excluded also. Indeed, anyone in contract employment is also excluded.
Despite the lavish PR and the eulogising of the Minister's imaginative seed capital scheme in The Sunday Business Post, I venture to suggest that not even 200 people will be able to avail of it as it presently stands. In fact, I do not know  if 20 people will, but I predict safely that fewer than 200 will avail of it. The Minister has not given guestimates or ranges of the number of jobs it will create or even the loss of revenue to the Exchequer. We are told that it may cost somewhere in the region of £25 million down the road.
If the Minister really wanted to make an impact on employment by helping entrepreneurs he would have reversed two of the decisions made last year which were particularly unhelpful to entrepreneurs. The first was the allowance in tax terms of interest on borrowings to companies or an individual and the halving of the tax free allowances made on capital gains on start up businesses. This is reduced for a married couple from £4,000 to £2,000 and for an individual from £2,000 to £1,000 — in other words, capital gains applied to the increase in the capital value of the shares when one sought to sell them. We could have done without this PR and the raised expectations it generated. People thinking of setting up a business may think this will work, but it will not. The Culliton report was right. The question to ask if one wants to find out if one is suited to being an entrepreneur is: “Will I kick myself for the rest of my life if I do not do this particular thing because I really want to do it?” That is what motivates most people who set up in business. Everything that can go wrong will go wrong, so one really must want to set up in business as well as make a profit at the end of the day. People will not be interested in this bureaucratic nonsense.
The Fine Gael Party will be opposing totally section 7, which imposes the 1 per cent income levy. As I said already, this represents a fifth tax on work. It impacts on people earning only two-thirds of the average industrial wage and thereby creates another disincentive to work. Past experience has shown that it is not so temporary. A levy was retained from 1983 to 1986, inclusive. Of all budgetary measures this has created the most hostility. It is seen not only to fly in the face of tax reform but treats the PAYE sector as a soft touch — in effect “a smash and  grab raid” on pay packets. A further national pay agreement, the Programme for Economic and Social Progress seems to hinge on its abolition. The most unjust aspect of this tax is that it is non-refundable in all circumstances — for example, seasonal work where one pays the levy if one earns £180 per week for three months of the year. If one is unemployed for the remainder of the year one can claim a refund of income tax, but there is no refund of the levy contribution. There is the inequity that people who are supposed to have an income of over £9,000 per annum can have a lower income and pay the levy because the weekly pay was over £173 per week. That is wholly unjust. In addition there are no reliefs for people with high mortgages or large families. The Minister should state in his concluding speech when he will abandon this levy because it is totally unfair. Indeed, the social partners may oblige him to do so, and the sooner the better.
As well as dealing with the aspects of tax on work it is important we look at the role of the spouse working in the home on a fulltime basis. I understand there are 600,000 women working fulltime in the home as parents. Some people call them housewives, but I tend to think they are financial wizards. Not only is there no special allowance for them but the carer's allowance and the dependant relative's tax free allowance schemes are simply paltry. The thrust of income tax policy should be to convert the exemption allowances, including those for children, into tax free allowances and to encourage and foster care for the elderly relatives in the family environment rather than in institutions. I believe the dependant relative's allowances should be greatly increased. Health expenditure is now in excess of £2 billion. This worries me greatly because I do not believe the quality of management in the health services is as good as that in industry. I believe the drug companies are ripping us off. We are paying far too much for drugs. Contrast the £110 a year tax free dependant relative allowance with the minimum cost of the lowest level of institutional  care of £230 a week. It makes no sense.
In relation to VAT, the Minister has failed to reverse the budgetary measures despite clear evidence of clothing and footwear factory closures on a daily basis. I understand that IBEC has produced a detailed analysis of employment in this sector. It is quite clear that after the abolition of protection in this area following our EC membership and multifibre agreements there were huge job losses. It is clear that those who remain in the industry are in it for the long haul. They have come through the pain barrier and they deserve our support. This is a labour intensive industry. We have had an extensive debate on this matter. I fear that what has happened in the grocery trade will happen in the retail trade. We have the most concentrated multiple retail market in Europe. Britain has a Big Six chain of multiple retail outlets whereas we have two. In Germany such outlets were never allowed become so concentrated.
I envisage that the average draper and retailer in provincial towns will not exist in five year's time. This VAT measure will hasten their departure. IBEC has reported that 1,000 jobs have been lost in this industry and another 2,000 may be lost before the end of the year. In this case make-believe schemes will not be announced through seed capital or entrepreneurial vision of what might happen. Real jobs will be lost and people will receive their P45 forms between now and Christmas.
I noted the way the Minister handled this matter, very cutely and skilfully. He met the manufacturers separately from the retailers and the fashion and design industry and promised them some concession. However, when their expectations were raised and they thought there would be some relief in terms of PRSI, we find that more deliberation and consultation is needed. That is a Social Welfare Bill measure rather than a Finance Bill measure. At the end of the day when all the PR exercises have been exhausted the EC will probably debar any permanent benefit scheme. The  market development scheme was allowed, only on the basis that it was temporary, for the short period of the currency crisis. The people in this industry have a serious grievance. A tortuous mirage has been put before them and they will never see results.
I am concerned about the increase in VAT on concrete products and blocks from 10 to 21 per cent. It has been estimated by the Construction Industry Federation that 800 jobs will be lost as a result. There is surplus capacity in the commercial sector, although there probably will be some buoyancy in housing with the reduction in mortgage rates. The VAT increase in this area was unwise.
The VAT increase in newspapers to 12.5 per cent, together with the changes in the Broadcasting Act, will make it more difficult for them to generate advertising revenue. Many provincial newspapers are hanging on by their fingernails. Changes in technology have enabled local radio to receive news instantly and that is to be welcomed. During the time Mr. MacSharry was Minister there was special recognition of the need for a low rate of VAT for newspapers.
In regard to the new VAT payments method for companies whose liability exceeds £120,000, it is proposed that by 1 December one-twelfth of the VAT liability must be paid. Initially this was to be a once off measure but, as it is termed in the Bill, it is now a permanent feature.
Mr. Cox Mr. Cox
Mr. Cox: It applies to each year.
Mr. Yates Mr. Yates
Mr. Yates: Yes, on 1 December each year.
Mr. B. Ahern Mr. B. Ahern
Mr. B. Ahern: We are talking about large companies. This is a negotiated measure with the companies. It applies to only a portion——
Mr. Yates Mr. Yates
Mr. Yates: Yes, where liability exceeds £120,000. I have no doubt that endless consultations have taken place. I would imagine that the threshold of £120,000 would impact substantially on  the retail sector in so far as it would not be unusual for retailers to have a return of that amount of money every two months. It is intriguing that £150 million will accrue from this measure, which is a good Christmas bonus.
Mr. B. Ahern Mr. B. Ahern
Mr. B. Ahern: In fairness, this is purely cash flow.
Mr. Yates Mr. Yates
Mr. Yates: It is purely cash flow that will have to be financed.
Mr. B. Ahern Mr. B. Ahern
Mr. B. Ahern: No, VAT at the point of entry has been abolished.
Mr. Yates Mr. Yates
Mr. Yates: I understand that.
Mr. B. Ahern Mr. B. Ahern
Mr. B. Ahern: It is purely a cash flow measure for big companies and is not money that will go to the Exchequer.
Mr. Yates Mr. Yates
Mr. Yates: Does that mean that if a company makes payment of £100,000 on 1 December it will not have to pay anything in January?
Mr. B. Ahern Mr. B. Ahern
Mr. B. Ahern: Yes.
Mr. Yates Mr. Yates
Mr. Yates: Therefore what will happen to the next year?
Mr. B. Ahern Mr. B. Ahern
Mr. B. Ahern: It just rolls on.
Mr. Yates Mr. Yates
Mr. Yates: The impact of that measure will be that people with very high stocks at that time of year will experience huge cash flow difficulties. I have received representations from accountancy bodies who may not be involved in this area but who are concerned about the measure.
I would like to refer to two small matters in relation to VAT which have minimal revenue implications. In the Cork area four or five sales businesses have been developed and under this measure their VAT rate will be increased to 21 per cent. This is entirely a labour intensive industry for which different VAT rates apply throughout Europe — for example, in Germany the rate is 15 per cent;— in Italy, 12 per cent; in Luxembourg, 15 per cent; in the UK and the Netherlands, 17.5 per cent and in  Spain, 15 per cent. These companies fear a loss of market position and have a genuine case.
I have been inundated with correspondence, as I am sure have my colleagues, from health and fitness clubs. I do not frequent these clubs or massage parlours——
Mr. Rabbitte Mr. Rabbitte
Mr. Rabbitte: I have been promised free membership.
Mr. Yates Mr. Yates
Mr. Yates: I have no doubt the Deputy will make full use of it.
Mr. Rabbitte Mr. Rabbitte
Mr. Rabbitte: I ought to.
Mr. B. Ahern Mr. B. Ahern
Mr. B. Ahern: I will join the Deputy.
Mr. Yates Mr. Yates
Mr. Yates: To classify these clubs as private enterprises is unacceptable to them. Perhaps the Minister would consider putting them on a level footing.
I regard probate tax as wholly unjust. At present a deceased parent may will assets to a child free of capital taxation to the value of £171,750. In considering probate tax no account was taken of hardship or inability to pay. The exemption limit of £10,000 represents nothing but cruel begrudgery against home ownership and thrift. It is significant to note that fewer than one-third of family businesses go to the third generation and this measure will reduce that number. It fails to recognise that many inheritances relate to paper money where assets which are transferred are worth only as much as the income they can generate. I understand that in Germany in the case of paper money assets only a fraction of their value applies for capital tax purposes.
There is a condition in relation to a dependant child: where a widow or widower dies, the dependant child will have to pay the full 2 per cent tax — for example, on a £70,000 house, £1,400 will have to be paid — if the person's income is more than £3,890 or if they are not resident in the house. The Minister should clarify — I presume life assurance benefits are not included — whether  there will be an exemption for all bona fide family transfers of the house.
Dáil Éireann 430 Finance Bill, 1993: Second Stage.