Dáil Éireann - Volume 487 - 17 February, 1998
Finance Bill, 1998: Second Stage.
Minister for Finance (Mr. McCreevy) Charlie McCreevy
Minister for Finance (Mr. McCreevy): I move: “That the Bill be now read a Second Time.”
I am very glad to introduce my first Finance Bill as Minister for Finance and I look forward to performing this function on many more occasions. The Bill gives effect to the budget tax cuts, a budget which cut tax rates for one million taxpayers by two percentage points, introduced a greater degree of effective tax equity by cutting back on tax shelters and gave a fillip to productive enterprise and endeavour. The Finance Bill also contains many technical and other changes to our tax law.
The budget delivered more than £500 million in personal tax reductions for all income levels, for the elderly, the widowed and those on lower pay generally. Taxpayers will see the benefit of this shortly when the new tax year starts on 6 April. They would have been experiencing these benefits already if our income tax year was coterminous with the calendar year. I have particular ideas and plans in that regard which I will deal with later.
There is another first this year for the Finance Bill. The income tax, corporation tax and capital gains tax provisions refer to the newly consolidated sections of the Taxes Consolidation Act, 1997. I recently had the pleasure of meeting all the staff, the outside referees and private sector contributors who made the consolidation happen. The Taxes Consolidation Act is great testimony to the efforts of all concerned. It is also a lasting tribute to my predecessor, Deputy Ruairí Quinn, without whose lead the project would have remained an aspiration and not a reality. I take some credit for picking up the ball last summer and completing the task of putting the Bill through the Houses.
It is usual in a Second Stage speech to give a run-through of many of the individual sections of the Bill. There is, however, this year a very detailed and extensive explanatory memorandum and a summary of the main features of the Bill was published last week. I propose, therefore, to mention only the main areas or features of the Bill rather than give a detailed description of individual legislation. I look forward to an interesting and good debate on this important measure. I will be introducing further measures into the Bill on Committee Stage and I will refer to these later.
The first few sections of the Bill give effect to the changes in tax rates, bands and allowances, income tax exemption limits and the increased widowed bereavement allowance announced in the budget. It is important to point out a number of important effects of the budget package on ordinary PAYE workers: in the case of single people the gains in net take home pay range from more than 2.5 per cent to 4 per cent and for married couples with two children, the gains range from 2.5 per cent to 5.5 per cent in some cases. These gains are before pay increases under Programme 2000.
 Many workers on low pay will get more from this year's budget than they got from the 1997 budget. For a married couple on £14,000 per annum, just under the average industrial wage, the average tax rate has dropped from more than 21 per cent in 1996-97 to under 17 per cent in the forthcoming 1998-99 tax year. For a single person also on £14,000, the corresponding drop in average tax rates is six percentage points, from 28.2 per cent in 1996-97 to 22.4 per cent in 1998-99. At the same time, I have cut back substantially on certain well used tax shelters to ensure a fairer distribution of the tax burden. This is hardly the action of a Government portrayed by some Members opposite as cutting capital gains tax simply to enrich the better off.
The income tax provisions in Chapter 2 of Part I of the Bill contain a number of anti-avoidance measures. Section 8 is intended to counter tax avoidance arrangements relating to the commencement rules for taxing the profits or gains of trades or professions. Under current rules, some firms can engineer a situation where profits in the second year of assessment can fall out of charge. Action is being taken to prevent this. Section 11 is a further anti-avoidance measure to remove the risk of certain individuals moving assets offshore to avoid tax. This arises from a recent UK court case which cast doubt on the effectiveness of its tax law on which our 1974 legislation in this area was modelled. Section 10 improves the tax reliefs available for the purchase by employees of new shares in their company by reducing the minimum holding period for relief from five to three years.
It also clears up an anomaly whereby, if shares were sold by an individual, this single disposal could, in certain cases, lead to a withdrawal of BES tax relief, approved profit sharing scheme tax relief and relief on the purchase of new shares by employees. Section 10 will ensure that such a double or triple hit will not occur where tax relief under one of the schemes falls to be withdrawn.
Chapter 3 of Part I deals with various aspects of income tax, corporation tax and capital gains tax. Section 12 sets out in detail how the tax relief for the employment of the long-term unemployed will apply. This is a two-pronged initiative aimed at giving the employer an incentive to hire a person out of work for 12 months or more and affording that person an incentive to take the job offer. I have every hope of this scheme succeeding and I will make arrangements to have it actively promoted.
Section 13 sets out the conditions to be fulfilled to obtain tax relief on personal and corporate donations to disadvantaged schools. I am glad to be able to include this imaginative suggestion for reliefs which the Minister for Education and Science put forward at budget time. A number of new schemes of tax relief for investment are set out variously in section 15 in respect of capital allowances for airport buildings and structures, in section 17 in regard to capital allowances for the construction, extension or refurbishment of  approved nursing homes and in section 18 with regard to investment in renewal, improvement or reinstatement of vessels in the whitefish fishing fleet.
Sections 24, 27 and 28 also provide for the implementation of the budget changes on capital allowances generally and on the BES. Given their importance both in tax equity terms and in refocusing tax reliefs more narrowly on clearly defined sectors, I propose to go into some detail on these changes.
As the House is aware, the budget day Financial Resolution limited the amount that an individual passive investor can set off by way of capital allowances against non-rental income to £25,000 in any tax year. This restriction applies to all types of commercial and industrial premises, with the exception of hotels which I will come to later. This initiative was taken after it became clear that the availability of unrestricted capital allowances on these properties was being used by high income earners to reduce their tax liability on earned income by very significant amounts. The closing off of this tax shelter will have lasting effects in ensuring a fairer sharing of the tax burden.
As with all measures restricting reliefs, it was necessary to provide for transitional provisions to let through certain projects well in hand or committed to by firms and investors prior to budget day. This we did on budget night but, on further examination, a number of modifications proved to be necessary to the transitional provisions to allow borderline cases to proceed. I announced the changes to both the main capital allowance and BES budget day provisions on 29 January.
In the case of capital allowances, the amendments to the qualifying conditions for transitional reliefs are as follows: the extension of the deadline for investors to sign a binding contract for investment in the project from 1 February 1998 to 1 May 1998; the removal of the condition to have individual investors in place for the project prior to the budget for any project where the IDA had in the two year period prior to 3 December 1997 given approval for grant aid; and, the addition of a condition to allow promoters to satisfy Revenue that detailed discussions had taken place before budget day with the planning authority as an alternative to having to show receipt of a planning application by a planning authority. These changes will allow a number of pipeline projects to proceed to completion especially a number of key projects in the Custom House Docks area.
In addition, where one investor pulls out of a project after signing a contract to invest, the remaining investors will be allowed to increase their contributions to cover the funding deficit. This can be given effect to administratively by Revenue. However, where an original investor dies, it is necessary to provide that a substitute investor will be allowed. There is also a technical change to deal with refurbishments which were  not dealt with in the budget day transitional provisions.
In the case of hotels, I announced in the budget that there would be a ring fencing of capital allowances whereby the allowances can be set off only against rental income in the case of individual passive investors. However, this ring fence does not apply to hotels above a certain standard located in counties Cavan, Donegal, Leitrim, Mayo, Monaghan, Roscommon or Sligo except for those hotels in designated seaside resorts in any of those counties. Capital allowances may be set off against all the income of a passive investor's total income, without restriction, in the case of those hotels. I see this as an important incentive to investors to fund good quality accommodation in areas which, to some extent, are off the beaten track and which have not so far shared to their full potential in the increased tourism activity in the State. The restrictions in capital allowances apply only to outside, namely, passive, individual investors. Owner-operators and corporate investors are not affected.
The aggregate amount that a company can raise under the BES was reduced from £1 million to £250,000 with effect from budget day. This will refocus the relief on those more risky projects which require tax relief to obtain investment in them and which would not be prime candidates for investment from other sources such as the banks. However, to cater for projects that were well advanced prior to budget day, the budget night Financial Resolution included transitional arrangements for such BES projects. In the case of individual companies raising their own funds the following conditions had to be met: the shares in the company had to be issued before 30 June 1998; the company had to prove to the Revenue Commissioners that before budget day it had the intention to raise money under the BES; and, in addition, certain companies also needed to have had binding contracts in place committing them to spend at least 25 per cent of the money they intended raising. These transitional arrangements caused unintended difficulties for a small number of companies who fell foul of the requirements, particularly the 25 per cent expenditure commitment.
Under the BES applicable up to budget day, any company wishing to raise in excess of £250,000 required a certificate from a certifying agency, for example, Forbairt, to the effect that the project would create or save jobs. This required the submission of a detailed business plan. On this basis and in order to ease the transitional problems I decided to extend the transitional arrangements as follows: projects that had been certified prior to 3 December 1997 by a development agency will be able to raise the amount for which they were certified up to the maximum limit of £1 million. The need for binding contracts will not apply in these cases.
The deadline for the issue of shares to investors will be extended in all cases from 30 June 1998 to 30 September 1998. These changes will cater for  many current projects affected by the budget change.
The BES reduction to £250,000 also affected the seed capital scheme. The seed capital scheme is aimed at assisting individuals who give up employment to start their own business. The scheme provides a refund of PAYE paid in the five years prior to setting up one's own business. Seed capital projects can also seek BES moneys. To ensure that the budget day change does not impact unduly on these new start-up projects, I decided to provide for the Bill to allow seed capital projects to raise £500,000 with no more than £250,000 of the £500,000 being raised under the BES. This hybrid approach fuses the good elements of both schemes into one focused approach.
Section 29 extends the relevant contracts tax — RCT — system to the poultry processing trade and certain haulage operations in the meat industry generally. The RCT system at present relates to payments to subcontractors in the construction, red meat processing and forestry sectors and is commonly referred to as the C2 or C45 system. Under this system, where a principal contractor makes a payment to an uncertified contractor who does not hold a C2 certificate, he or she is required to deduct relevant contracts tax from those payments at the rate of 35 per cent. The system is essentially an anti-evasion measure designed to ensure the deduction of tax which might otherwise not be collected. There is an essential issue of what is subcontracting and what is actual employment liable to PAYE. The Revenue Commissioners have issued guidelines to the industry setting out the criteria established by the courts under which a person may be regarded as an employee as distinct from a self-employed subcontractor.
Principal contractors and subcontractors creating self-employment contractual arrangements must sign a declaration to the effect that these guidelines have been considered by them and that they are both satisfied that the contract created is a genuine contract of self-employment. However, if it emerges as a result of an investigation that an employment, rather than a subcontract exists and PAYE-PRSI and levies are not being deducted, the principal becomes liable for the PAYE-PRSI and levies.
The operation of this system has given rise to some recent comment about its effectiveness. Revenue are currently engaged in a nationwide campaign to ensure that declarations made by principal contractors and subcontractors represent the true situation. The campaign commenced in November 1997 and the results at this stage indicate that, in the Dublin area, 74 per cent of the cases examined were correctly designated as subcontractors, leaving 26 per cent to be reclassified as employees. Resistance to reclassification has been met from some principal contractors. The Revenue Commissioners intend to visit every principal contractor not only to ensure compliance  with the PAYE-PRSI and levies system, but also to ensure an even-handed approach in its campaign. In addition to this campaign, the Revenue Commissioners and the Department of Social, Community and Family Affairs regularly conduct joint investigations into the construction industry through the joint investigation programme to ensure employers fully comply with the tax system and to protect the employment rights of employees. I have dealt in detail with this matter to indicate that there is an active and integrated approach to tackling abuse in this area.
Section 37 of the Bill proposes certain changes to the self-assessment system. The present arrangements for the payment of tax and the filing of returns are complicated even for tax professionals. At present, if one has an accounting year end in the current tax year — 1997-98 — preliminary tax must have been paid on 1 November 1997, the accounts and return for that year filed by 31 January 1999 and the balance of tax paid by 30 April 1999. Thus, if one's accounting year in the 1997/98 tax year ended on 30 April 1997, the accounts for that year would not have to be filed with the Revenue Commissioners for 21 months until 31 January 1999. If the accounting year end were 31 March 1998, the filing gap would be ten months.
I propose to bring forward the filing date by two months beginning in the tax year after next, from 31 January 2000 to 30 November 1999, and to delay the payment of preliminary tax by one month from 1 November 1999 by moving that payment date forward also to 30 November so as to bring the two dates together. There are a number of good reasons for doing so. First, it is a simplification measure. Second, it should assist practitioners by requiring them to examine a client's file only once in order to pay preliminary tax and file accounts in a particular year. Third, it will help clients avoid interest charges on underpayment of preliminary taxes.
At present, the amount of preliminary tax to be paid can be calculated as either 90 per cent of the estimated tax liability projected for the current tax year or 100 per cent of the previous year's tax liability. Most taxpayers use the 100 per cent rule because of uncertainty at the time about the current year's liability. However, given that under the current system final accounts for the previous tax year do not have to be filed until three months after the preliminary payment date, there is often no reliable figure on which to base the 100 per cent. This leaves the taxpayer open to interest charges which can be substantial.
If the account filing date for the previous year and the preliminary tax payment date for the current year were harmonised, this would greatly assist in the payment of correct preliminary tax and the avoidance of interest charges. This is in both taxpayers' and tax advisers' interest. To help support the change, the Revenue Commissioners are also prepared to reduce significantly the documentation that must be filed with the return.
 A case has been made by accountants and advisers representing smaller practices that bringing forward the filing date by two months will cause problems. These fears have been echoed by the associations representing the small firms sector. The fears and difficulties envisaged, while genuinely put forward, are, I believe, overstated. I am prepared, nonetheless, to make the section subject to a commencement order so as to give time for a fuller impact assessment to be made before going ahead.
Ultimately, there is a clearer and simpler solution towards which we should work. All income tax should be put on a calendar year basis. It has been explained to me that the 6 April date arises from a time when the financial year ended on 25 March and debts fell due for payment on that quarter day. When the calendar changed in Great Britain and Ireland from the Julian to the Gregorian calendar in the mid-18th century, 11 days were dropped from the calendar. To compensate for this, the year end payment date was deferred by 11 days from 25 March to 5 April.
It is reasonable to offer the view that now, over two centuries later, some change might be needed. If the income tax year ended on 31 December, accounts could be required to be filed by, for example, 30 June following and tax paid by 30 September.
Mr. Rabbitte Mr. Rabbitte
Mr. Rabbitte: Were there credit unions in that century?
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: The next time I am due to deal with credit unions, I will go to Deputy Rabbitte for an authoritative and fundamental discussion. My only regret is I did not consult with the Deputy before I met the credit unions. I have an idea of what his advice would have been.
Mr. M. Ahern Mr. M. Ahern
Mr. M. Ahern: Not for tax advice, however, because the Deputy does not appear to know the tax law.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: When Deputy Rabbitte contributes to this debate, he might refer to what his advice would have been if I had told him I was due to meet the Irish League of Credit Unions. I look forward to hearing that.
Mr. Rabbitte Mr. Rabbitte
Mr. Rabbitte: I never met a finer body of upstanding men and women.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: I am aware the Deputy found it extremely easy to deal with them. I look forward to the Deputy's deliberations, which can be conveyed privately or publicly to me.
That change is a more rational approach and would be my ultimate aim, the year 2000 and other problems permitting. The full practical and budgetary implications would have to be examined but I put it forward for discussion in a sensible manner.
Section 37 also proposes that capital gains tax, which is collected in the tax year following the  year of assessment, should be paid in full on the preliminary tax date and not at the rate of 90 per cent of the liability as at present. The section also proposes to put the instalment system for the payment of preliminary tax on a tax year basis in order to encourage take-up. Only 1 per cent of self-assessed taxpayers use this facility each year. The changes to self-assessment are accompanied by reductions in the rate of interest charged by the Revenue Commissioners on overdue tax and by provision for publication of appeal commissioners' decisions to which I will refer later.
As part of the package, the Revenue Commissioners are prepared to reduce the number and volume of documents, certificates, returns and other paperwork required to be filed with the annual accounts. This package of proposals is balanced and progressive and I am confident we can convince practitioners that this is the case.
Another important feature in the Bill are the technical measures in section 39 and Schedule II to deal with the proposed introduction of the euro from 1 January 1999. We can discuss these provisions in detail on Committee Stage but the thrust of the proposals is to make the change to the euro as tax neutral as possible without departing from current taxation principles.
Among other measures dealt with in the Chapter are the extension of the tax relief schemes for multi-storey car parks and seaside resorts for one year to 30 June 1999 on certain conditions; improved capital allowances for farm pollution control measures; changes to the scheme of capital allowances for certain third level educational projects; revised and extended reliefs for mining operations; alterations to the tax treatment of scrip dividends and tax credits announced in the budget; technical changes to tax law to reflect the new US/Ireland double tax treaty; and some minor changes to assist particular investment vehicles in the IFSC and Shannon.
It is worth mentioning, in relation to the US-Ireland double tax treaty, that section 14 of the Bill confirms that US social security pensions paid to Irish residents are now exempt from the US withholding tax of 25.5 per cent, to which they were subject up to 1 January 1998. This exemption, which was a cause of annoyance to recipients of US pensions in Ireland, was conceded by the US authorities on the understanding that the pensions in question would be fully taxable here.
Chapter 4 of Part I, sections 43 to 48, deals with corporation tax measures exclusively. Sections 43 and 44 give effect to the reduction in corporation tax from 36 per cent to 32 per cent and from 28 per cent to 25 per cent in respect of the first £50,000 of the company profits which was announced in the budget with effect from 1 January 1998. Sections 47 and 48 set out the proposed new reliefs for company donations to charities and investment by companies in certain renewable energy projects respectively. The latter relief must be cleared with the EU prior to its coming into effect. There are a number of other reliefs  proposed in the Bill that require notification to or approval by the Commission.
My officials have been in regular and recent contact with Commission officials and I am hopeful of a positive outcome all round. In regard to the single rate of corporation tax, discussions are continuing with the Commission to secure their final sign off on the planned timetable for achieving that single low rate.
Sections 49 to 59 in Chapter 5 deal with capital gains tax. Some Opposition speakers have sought to make much of the cut in CGT from 40 per cent to 20 per cent, portraying it as a bonus to the rich. This is an unwarranted portrayal. My reasons for this decision were clearly spelt out in my Budget Statement. I have been strongly of the view for some time that a reduction in CGT will encourage investment and growth in the economy, promote capital formation and, over time, expand the revenue from CGT.
In my experience, many taxpayers simply would not realise investments at a 40 per cent CGT rate and invest in new wealth generation. I decided that, except for development land where windfall gains were involved, a cut across the board was the best way to proceed. If I had wanted simply to give the better off a perk, I would not at the same time have radically cut the major tax shelters which I outlined earlier.
On specific capital gains tax issues, section 50 maintains the 40 per cent rate for investments in foreign life assurance policies and certain offshore roll-up funds to ensure broad equity of treatment as compared to the tax treatment of similar domestic investments. Sections 51 and 52 address a tax problem in relation to a waiver of property under the State Property Act, 1954.
The provisions ensure that any subsequent disposal of the property by the person acquiring it in this way will be fairly taxed. Section 53 provides for relief, in certain circumstances, from the CGT liability which arises on a trustee of settled property where a life interest is disposed of. Section 55 affords capital gains tax roll-over relief in respect of the disposal of financial assets by certain sporting bodies and section 57 extends to greyhound racing tracks roll-over relief on the disposal of development land where the proceeds are reinvested in race track facilities. A similar relief was given to racecourses in last year's Finance Act. Section 59 provides that a capital gains tax exemption limit of £1,000 will apply per individual. This is an increase in the limit of £500 per annum proposed in the budget and is aimed at relieving the capital gains tax liability on smaller investors.
Parts 2 and 3 relate to indirect taxation. Sections 60 to 64 deal with VRT and give effect to the reduction in rates of VRT on cars announced in the budget. There are also provisions to tighten up the law on the registration of vehicles in a crashed condition, the refund of VRT on demonstration or replacement vehicles in the motor and car hire trade, and the forfeiture of vehicles which have been converted privately,  for example, from a car van, liable at 13.3 per cent, to a car as such, liable at 22.5 per cent, without payment of the additional VRT.
Sections 65 to 84 deal with miscellaneous matters concerning excise duties. The provisions here may be categorised as follows: confirmation of the increases in excise rates on tobacco and certain road fuels announced in the budget; changes in the licensing arrangements for betting shops and gaming and amusement premises to allow extended opening times; improvements in the enforcement arrangements for breaches of customs and excise law through new rules governing the commencement of customs proceedings, the production of samples of products in court prosecutions, and the confirmation of the powers of members of the Garda to arrest suspects in relation to certain excise offences; miscellaneous provisions to tidy up excise law to remove an archaic restriction on the granting of wine on-licences; to do away with certain oil duty rebates; to redefine cider and perry for purposes of excise duty; and to allow duty deferment on spirits in December in the same way as beer and wine; and, finally, a number of technical applications of EU directives on the control and movement of excisable products involving mutual assistance between member states, certain documentary procedures, territorial scope and treatment of losses.
The changes I am making to the opening hours of betting shops is to acknowledge the reality of betting practice nowadays and the staging of sporting events in the evening and on Sundays. It recognises reality.
The Bill contains a number of important changes in the area of VAT. Much of what is in Part 3 on value-added tax is of a technical or sectoral nature dealing with VAT self supply rules, the charging of VAT on telephone cards and certain financial services, VAT on AI products and services, live poultry, and on air traffic control services. The Bill also gives effect to the increase in the farmers' flat rate of VAT from 3.3 per cent to 3.6 per cent together with a corresponding change in the related VAT rate on the supply of livestock, live greyhounds and the hire of horses. There is also the proposed reduction in the VAT rate on magazines from 21 per cent to 12.5 per cent with effect from 1 May 1998. I have asked my Department to liaise with the Director of Consumer Affairs to help to ensure that the reduction is passed on to the consumer.
Sections 92 and 93 contain important new provisions on the assessment and refund of VAT. In recent years there has been increased focus by tax planners both here and in other member states on exploiting the opportunities in EU VAT law for new interpretations of VAT provisions. Given that the yield from VAT is considerable and that successful VAT planning schemes can be costly, it is important from the Exchequer's point of view to seek to limit the potential damage.
In this context, it is also important to reduce the exposure of the Exchequer to claims for VAT  refunds. Section 92 reduces the time limit within which a VAT refund may be claimed from ten to six years. Accordingly, VAT refund claims in respect of VAT taxable periods arising from 1 May 1998 will be subject to the new six year time limit. There will be transitional arrangements in relation to VAT taxable periods before 1 May 1998. In such cases, the new six year time limits will apply as and from 1 May 1999. For reasons of equity, section 93 also applies the reduced time limit to VAT assessments by the Revenue Commissioners. Furthermore, the new period will correspond with the existing requirement for traders to keep records for six years. The advance notice of one year for possible pipeline claims is consistent with the approach taken in other areas when the use of a tax relief, such as BES tax relief, is being restricted.
In addition, section 92 clarifies the rules designed to avoid windfall gains which may occur with VAT repayments, taking into account the outcome of cases in the European Court of Justice, in the courts in other member states and in domestic appeal commissioners' cases.
I will explain in more detail how this can arise. Overpayments of VAT may occur where a mistaken assumption has been made as regards the operation of VAT by either a trader or by the Revenue Commissioners. In these cases, a refund to a trader could result in a windfall gain. This is because the VAT concerned would already have been paid by customers in the prices charged by the trader. A refund to the trader in these circumstances is not warranted as the customers will not be compensated. However, where a trader undertakes to repay overpaid VAT to the customers concerned, the Revenue Commissioners will make a refund provided they are satisfied the trader has arrangements in place to do so.
In addition, there may be some cases where the VAT has been passed on but where a trader may still have lost business due to the mistake. The section provides for a degree of compensation in such cases. To avail of compensation, the claimant must establish that there was a loss of profits on reduced turnover as a result of the incorrect VAT treatment.
Sections 96 to 102 contain a number of technical amendments to the stamp duty code and repeal a series of superfluous or redundant stamp duty provisions in various finance and other Acts dating back to 1830. The impact overall is to extend stamp duty exemptions and to lighten the burden of administration on the taxpayer.
The sections dealing with Capital Acquisitions Tax rectify certain shortcomings in the existing provisions dealing with business reliefs and appeals against CAT assessments. More importantly, section 103 gives effect to the budget proposal to increase the relief for capital acquisitions tax purposes in respect of part or all of the family home inherited by an elderly person from a deceased brother or sister.
 The section also introduces a new relief in similar cases where the home is inherited by a close relative of the deceased owner, for example, a niece, where both parties have been living in the house for at least ten years prior to the inheritance. The relief means that the value of the home for CAT purposes will be reduced by 80 per cent, or £150,000, whichever is the lesser. The existing relief for brothers and sisters is 60 per cent, or £80,000, whichever was the lesser. The new and revised reliefs will reduce considerably the amount of CAT to be paid by the inheritors in the situations I have described.
The final part of the Bill contains what has proved its most contentious and misconstrued provision. Section 107 provides for the increase in the rate of DIRT on special savings accounts from 15 to 20 per cent announced in the budget and proposed to apply a 20 per cent rate of DIRT to deposits in credit unions. The section also proposed to apply a requirement that credit unions report to Revenue all dividend income paid on shareholdings where this income exceeds £500 per annum.
In the heat and excitement of recent days one simple and important point has been ignored or downplayed by those unhappy with this move. Under existing law all dividend and interest income on credit union shares and deposits has, for many years, been liable to tax at the recipient's marginal rate of tax and must, irrespective of the amount, be returned by the individual to Revenue whether or not reported by the credit union. DIRT on deposit interest would have replaced this liability to tax at up to 46 per cent by a final liability of 20 per cent.
Mr. M. Ahern Mr. M. Ahern
Mr. M. Ahern: We are giving money.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: Not only were no new taxes being proposed but the Bill also continued the exemption of credit unions from corporation tax. The DIRT tax and reporting requirements on dividend income would have applied to a very small number of account holders in a credit union.
Let there be no doubt that I have great regard for the role played by credit unions in every town, parish and place of employment in the State. I have great admiration for the dedication, effort and integrity of the army of credit union workers both full time and voluntary. I have no difficulty recognising all that is good with the credit union philosophy of mutuality, thrift, self-help and putting the interest of members above narrow commercial considerations. Many other financial institutions have only in the past decade learned the value of putting the customer first and the importance of quality service.
However, I have to consider the credit union situation in the context of the overall tax treatment of citizens. I made this clear to the movement when I met it yesterday. The aim and tone of the meeting yesterday evening was to seek to work towards a common solution. After a lengthy  discussion with the league, proposals were formulated which it has accepted. As a result, it has been agreed to continue the corporation tax exemption for the surplus income of credit unions, to drop the proposal in the Finance Bill to apply DIRT to deposits, to drop the proposed requirement for the reporting of dividends of credit unions where these exceed £500 per annum, to remove the existing reporting requirement in relation to deposit interest over £500 per annum and to set up a working group with the Irish League of Credit Unions under an independent chairperson to examine the taxation of the return on credit union savings bearing in mind the special and particular nature of the credit union movement, its contribution to Irish society and the wider taxation issues involved. The working group will report to me by 30 September 1998.
I am satisfied these proposals offer a reasonable basis for addressing the issue of credit union taxation.
It was always clear that the introduction of the expanded powers for credit unions under the Credit Union Act, 1997 would bring the taxation issues to the fore and that the new position of credit unions would have to be dealt with. This is what the Government is seeking to do in the interest of fairness and equity for all taxpayers, including those with savings in credit unions.
The remaining sections of the Bill may be less exciting, but nonetheless they are important. Section 108 contains enabling provisions for the extension of tax clearance to solicitors and counsel who are on the criminal legal aid scheme panels. Section 109, and section 101 in relation to stamp duty, reduces the rate of interest charged by Revenue on unpaid taxes or paid by Revenue on refunds of certain taxes.
Section 110 permits the publication by appeal commissioners of their decisions in appeal cases decided by them. This will assist taxpayers and practitioners in being clear about how tax law affects them. The identity of taxpayers, however, may not be divulged in such publication.
That concludes the substantive provisions of the Bill. On Committee Stage I propose to introduce, in particular, a scheme of tax relief for cross-Border workers to deal with this issue which has been a source of contention for some time, a tax allowance for seafarers to assist the maritime transport sector, a new pilot scheme of relief for a defined rural area to encourage its renewal and development as well as a new urban renewal scheme. There will be a number of other amendments, as is usual with every Finance Bill, to deal with tax items currently under consideration.
The question of extra Revenue powers was debated very recently in the House. I want to state clearly once again that I have no time for those who engage in tax evasion or those who assist or abet tax evaders. I have also made it clear that Revenue have a wide range of powers to combat evasion. They have powers to access bank accounts, although only in certain specified  circumstances where they have the names of the account holders. The House will be aware that following the publication of the report of the McCracken tribunal, I asked the Revenue Commissioners and my Department to review the existing powers and to come back to me if they believed these should be augmented. If additional powers are shown to be desirable and likely to be effective, legislative proposals will be brought forward.
If we want further powers for Revenue, the sensible and best approach would be for such decisions to be taken in the light of all relevant available information. This would include information and recommendations which the Moriarty tribunal may provide. It would also mean taking account of what the authorised officers appointed by the Tánaiste under section 19 of the Companies Act, 1990 may discover in their examination of the companies concerned. It would also include material or facts thrown up by more recent events.
There are many views and contributions on what should be done in this area. It is important that we listen to all relevant contributions and evidence before deciding. The Irish Congress of Trade Unions has written to me expressing its position and making a number of suggestions and I will arrange for a meeting with Congress in the near future to explore its proposals.
There are many important and positive features in this Bill and I look forward to a constructive debate. I am pleased therefore to commend the Bill to the House.
Mr. Noonan Mr. Noonan
Mr. Noonan: I thank the Minister and his officials for putting a script before the House which explains the measures of the Finance Bill in fuller detail than the explanatory memorandum. I am sure the Minister will be disappointed to hear Fine Gael is opposed to the Bill and will vote against it on Second Stage. It is opposed to it for the same reasons it opposed the budget. The Minister's new proposals regarding the credit unions and the opening hours of betting offices will also be opposed by Fine Gael, although I understand he has backed down on his proposals in relation to credit unions.
Our position is well founded. No Minister for Finance had the opportunity of this Minister on budget day. The Exchequer was never in a more favourable position, there was never such growth in the economy or confidence in our people and there was a universal wish that the Government would successfully carry forward the excellent work done by the rainbow Government. The feeling of goodwill to the Minister on the eve of the budget crossed party political lines.
The budget was a let-down and that let-down is now being enshrined in law. If the House enacts the tax provisions that underline the budget, economic welfare and social progress in this society will be set back. The Finance Bill is unfair because it proposes to enact an unfair budget. The Minister should think again. Fine Gael  believes the Bill is unfair and unjust. Its primary benefits are conferred on those on higher incomes and the very wealthy. The poor and those on moderate and middle incomes benefit very little from the Minister's largesse. Fine Gael believes that at this stage of economic and social development, the Minister should have targeted the poor and those on middle and low income in his income tax reliefs. By adopting the PD policy of cutting rates rather than widening the standard bands and increasing personal allowances, disproportionate benefit has been conferred on high income earners at the expense of the less well off.
In its programme for Government the Government is committed to reducing the percentage of taxpayers who pay tax at the higher rate. The programme commits the Government to ensuring that not more than 20 per cent of taxpayers pay tax at the higher rate. Despite this commitment the Minister was forced off this ground by the Progressive Democrats and confirmed in a reply to a parliamentary question tabled by Deputy McGrath that the percentage of taxpayers paying tax at the higher rate will be increased under the Finance Bill. According to the Minister's reply of Tuesday, 9 December 1997, in the tax year 1997-98, 37 per cent of taxpayers pay tax at the higher rate.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: At the lower high rate.
Mr. Belton Mr. Belton
Mr. Belton: They are not in the credit union.
Mr. Noonan Mr. Noonan
Mr. Noonan: There is only one higher rate. There are two rates, the standard rate and the higher rate.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: They are on 46 per cent.
Mr. Noonan Mr. Noonan
Mr. Noonan: In 1997-98, 37 per cent of taxpayers pay tax at the higher rate, 48 per cent.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: I was not responsible for the tax legislation in 1997-98.
Mr. Noonan Mr. Noonan
Mr. Noonan: The Minister is extremely touchy. I am using the base for comparative purposes. I will come to the Minister's budget now.
Mr. Belton Mr. Belton
Mr. Belton: The Minister has had a busy day.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: I did not introduce that budget.
Mr. Noonan Mr. Noonan
Mr. Noonan: The Minister supplied Deputy McGrath with figures for every year since 1988-99. I am simply taking 1997-98 when 37 per cent of taxpayers paid tax at the higher rate of 48 per cent. In reply to the parliamentary question, the Minister stated that in 1998-99, 38.2 per cent of taxpayers will pay tax at the higher rate, which is 46 per cent.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: It will be 2 per cent lower, that is the point.
Mr. Noonan Mr. Noonan
 Mr. Noonan: That is not the point. The Minister gave a commitment in the programme for Government to reduce to 20 per cent the number of taxpayers paying tax at the higher rate during his period in Government. In the Minister's first budget he moved in the opposite direction and approximately 15,000 additional taxpayers will pay tax at the higher rate this year.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: At a lower standard rate also.
Mr. Noonan Mr. Noonan
Mr. Noonan: The main Jesuit college is in the Deputy's constituency. I do not know whether he is a past pupil but Jesuitical quibbling will not get him out of this problem.
Mr. McCreevy Mr. McCreevy
Mr. McCreevy: Tax was reduced by four percentage points in our first budget.
Mr. Noonan Mr. Noonan
Mr. Noonan: Do we have a Chairman?
An Ceann Comhairle Séamus Pattison
An Ceann Comhairle: The Deputy is provoking some of the interruptions.
Mr. Noonan Mr. Noonan
Mr. Noonan: I did not interrupt the Minister.
An Ceann Comhairle Séamus Pattison
An Ceann Comhairle: Deputy Noonan is in possession and should address his remarks through the Chair and the Minister should desist from any further interruption.
Mr. Noonan Mr. Noonan
Mr. Noonan: Thank you, a Cheann Comhairle. This outcome is contrary to the theory which the Minister has frequently advocated and agreed. When the relevant parliamentary question was answered after the budget the Minister was as surprised by the information it contained as anybody else. I have said frequently that I often note the Minister's surprise when turning the pages of a script and giving out information. The Minister hopes to reach his target of 18 per cent on the standard rate and not more than 20 per cent on the higher rate by going in the opposite direction. I acknowledge that Christopher Columbus sailed west to get to India but the Minister is no Columbus and will not achieve his stated programme commitment by moving in the opposite direction in his first budget.
Mr. Rabbitte Mr. Rabbitte
Mr. Rabbitte: The land is very flat around Kildare.
Mr. Noonan Mr. Noonan
Mr. Noonan: The principal problem with our income tax code is not that the higher rate is 48 per cent or 46 per cent, it is that taxpayers move on to the higher rate at very moderate levels of income. This is especially true of single persons. It is the jump from 24 per cent to 46 per cent which will continue to seriously anger taxpayers. That is the issue. People are being taxed on too low an income and should be exempt. The Minister should have taken large numbers of taxpayers out of the net completely. If the Minister follows the Progressive Democrats formula he will not be in Government for long and will not return. This game was tried previously and it did  not work. It is a nonsensical way to address the tax issue. By giving the money to lower income earners, correcting the exemption levels and personal allowances and increasing the standard rate band everyone would gain proportionately because any concessions made in terms of allowances or standard rate bands extend to all the income bands and the benefits are not frittered away for those at the higher level of income.
Any international comparison with our European neighbours or with developed economies will show that the low level at which the higher rate of tax applies is totally out of line with the practice in those comparable countries. The solution to this problem is to widen the standard rate band and increase allowances. If the Minister gives priority to cutting tax rates he will not have the resources to widen the bands and to cut personal allowances, so the unfair system will continue.
If allowances were increased and the standard rate band widened, low paid persons would be taken out of the tax net and persons on moderate incomes would pay tax at the standard rate only. The Minister chose to go down a different road. This has resulted in a socially unjust Finance Bill, enacting a socially unjust budget. Apart from the Finance Bill being unfair it is also bad economics. The Minister's attitude to income tax is bad economics for two reasons: it puts pressure on the social partnership and will do little or nothing to free up the labour market by eliminating welfare traps or allow those on moderate incomes to participate more fully in the workforce. We all know — this was predictable on budget day — that the Irish Congress of Trade Unions is unhappy with the income tax relief which discriminates against the majority of its members. Social partnership has made a major contribution to our increasing prosperity. It is reasonable to expect that those workers who accepted moderate pay increases on the promise that there would be significant reductions in income tax would actually benefit from such tax cuts. The benefits are not up to expectations and this will cause industrial unrest unless the Minister mends his hand. Partnership 2000 will not see the millennium if he continues on the same path of tax relief as in this budget.
Labour shortages are an increasing feature of the Irish economy. The media has highlighted on a number of occasions the shortages of highly qualified persons with skills in information technology. The shortage at the other end of the spectrum is even more acute. Had he significantly raised exemption limits, increased personal allowances and widened the standard rate band the Minister could have remedied this problem.
More persons on long-term unemployment would be attracted to return to the labour force. Married women would be encouraged to join the labour force and low paid workers, who refuse overtime as the extra earnings push them into the higher tax bands, would have been encouraged to work overtime to meet the periodic increases in demand which many manufacturers experience  and for which it would be premature to take on extra workers. This is an increasing problem which is already inhibiting economic growth and should be addressed.
The disappointment and hurt experienced by taxpayers at the unfairness of the income tax measures in the Finance Bill is magnified by the contrast which a cut in capital gains tax, from 40 per cent to 20 per cent, presents. Even this measure which confers huge rewards for the wealthy has a sting in the tail which hits the small investor. Capital gains allowances have been slashed. It is a big man's budget even in respect of capital gains.
I refer briefly to other measures in the Finance Bill. Fine Gael supports the changes in corporation tax announced in the budget. A new rate of 12.5 per cent for all business will be a major asset to the economy. This rate was negotiated with the European Commission and announced by the previous Government. This Administration acted with profound stupidity which has become one of its hallmarks when it reopened this issue at the beginning of its term of office. I am pleased, despite self-created difficulties, the Tánaiste seems to have negotiated her way back to the position agreed by the European Commission last May with the former Minister for Finance, Deputy Quinn.
I note the Minister cast doubt on this today when he said contact between EU officials and his civil servants is continuing and that it is hoped a single rate of corporation tax can be agreed in the near future. He hopes everybody will be in a position to sign off before long. I understood from exchanges at Question Time in the House that had occurred prior to the budget, that the agreement was fully bedded down and that the Administration had signed off. I prepared my remarks on that basis and I note from the Minister that it is not yet bedded down and has not been agreed. The scheduling of the lower rate has not yet been agreed and signed off. I am surprised at that and I hope the Minister will deal with it in reply. My curiosity is aroused by the phraseology used which refers to the final sign off of a planned timetable for achieving a single lower rate. My understanding was that we had national discretion only in terms of a standard rate and no discretion on variables on that rate. I am surprised it is not described as a single standard rate rather than a single lower rate. A single lower rate suggests a variation from a standard rate. Was the Minister frank with us the day before the budget? When questioned on this issue he gave the clear impression that everything was fine.
The Minister should share his thoughts with Members on this issue which arises from the comparatively low level of corporation tax, which we hope will continue to prevail when it moves from 10 per cent to 12.5 per cent. The Minister and Members are aware that other members of the Community, particularly Germany, are extremely critical of our lower rates, particularly in so far as they apply to financial services. The Germans  believe these rates lead to a serious loss of revenue to the German Exchequer. Other European countries are critical of our low rates because they are perceived as unfair competition, attracting away mobile investment — a debate with which the Minister will be familiar. I am sure this has been said to him directly in bilaterals with his colleagues in Europe.
The Minister should be more forthcoming on this issue. The 12.5 per cent rate is not contained in the Finance Bill but movements in that direction are indicated in it. We need to hear more about this from the Minister because the issue is being clouded. All Members are aware that as soon as the EMU agenda is bedded down the next item on the EU agenda is the harmonisation of taxes. We would be well advised to have fully signed off and bedded down a standard business rate of 12.5 per cent before the serious debate on the harmonisation of taxes opens in Europe. Fine Gael, the Labour Party and Democratic Left negotiated the 12.5 per cent rate in their last months in Government. A battle has been won but the war on this issue is only beginning in Europe.
I am pleased the Minister has abandoned his ill thought out proposals in respect of credit unions. They were fully in line with the thinking and philosophy which underpins this Bill — if one has a small stake in the country, the Government will hammer one but if one has a big stake, one will be extravagantly rewarded. Therefore, when the Minister introduced measures in respect of credit unions which were not announced in the budget this did not surprise us. He is also removing the requirement to report deposits in excess of £500. This amounts to brilliant negotiation on which he should be congratulated. When he introduced measures to tax credit unions they hammered him. In negotiations, rather than impose penalties, he grants them a concession.
Mr. Rabbitte Mr. Rabbitte
Mr. Rabbitte: I hope he does not negotiate like that in Europe or we will be in trouble.
Mr. Noonan Mr. Noonan
Mr. Noonan: As Deputy Rabbitte said, the position will be serious if, in fixing the rate at which the currency will lock in, the Minister negotiates with our colleagues on the same basis. I understand he has established a working party which will report to him on 30 September. This is a fig leaf to hide his blushes. It would not be appropriate for anyone to attempt to pull it away.
I ask the Minister to drop another badly thought out proposal, that is, the proposal to extend the opening hours of bookies' offices. There has been no consultation with bookmakers or their employees who are particularly irate that they are to be asked to work longer and more unsocial hours during the summer. Everybody else will get a break but these in bookies' offices will work up to 10 p.m. Everybody else will be able to spend Sunday with their family but employees in bookies' offices will be required to  be inside when races are shown on television and the people whom the Minister believes should be facilitated will continue to place their bets.
This is a bad proposal for which no case has been made. There is no demand for it from the trade or public. Punting is great fun on and off the course and is enjoyed by thousands of men and women. Addictive gambling, however, is a disease and leads to massive social problems. The country does not need extended opening hours at bookies' offices. We will oppose this proposal. It has the appearance of something that was dreamed up by the Minister and his buddies on their way home from the races.
This Bill enacts expansionary budget provisions. Our entry to EMU will reduce interest rates by almost 2 per cent. There is already massive consumer demand in the economy. Against this background a prudent Minister would be wary of inflation and would have moved in the Finance Bill to take measures to meet the threat. There is asset inflation which has hit the housing sector in particular. The young teacher, nurse, garda, civil servant, the worker who earns in excess of the average industrial wage in private industry and the middle sections of the public service can no longer afford to buy their own home, particularly if they are resident in Dublin.
The prospective reduction of 2 per cent in interest rates will add to the demand. The reduction, from 40 per cent to 20 per cent, in capital gains tax has already inflated prices. I have been informed — I am sure the Minister will correct me if I have been misinformed — that 40 per cent of houses sold in the Dublin area since the start of the year have been bought for investment purposes. This is driving prices beyond what young people can afford——
Mr. Creed Mr. Creed
Mr. Creed: Pay-back time.
Mr. Noonan Mr. Noonan
Mr. Noonan: ——and is distorting the housing market. The Minister has to bear responsibility because the reduction in capital gains tax impacted immediately from the first week of January.
On Committee Stage I will table an amendment under which first time buyers of second hand houses up to a value of £100,000 would be exempt from stamp duty. This would provide relief of £6,000. Fine Gael believes this would free the housing market and ensure a much better use of the national housing stock and a much better age mix in existing housing estates. This is economically and socially desirable. It would be much better for society if young couples raised their families where schools, shops, medical, social and other facilities exist and where parents or older neighbours could provide support rather than being forced out to the edges of towns and cities, principally because of the exemption from stamp duty which applies to new houses.
This is a positive suggestion and the Minister should examine it seriously. We will not accuse him of anything if he decides to accept it. It would impact immediately from 6 April, knock some  steam out of the new house market and restore some sense to it.
I will table an amendment to increase from 15 per cent the percentage of income taxpayers may invest free in superannuation schemes. Providing for social welfare and public service pensions could be a nightmare for a future Administration. No funding provision is made for social welfare or public service pensions. The tight fiscal constraints which will follow EMU entry will put the provisions for many public service pensions under severe stress if the economy suffers from the major asymmetric shocks that people talk about.
The Government should actively encourage workers to make provision for their pensions in funded schemes. A provision of 15 per cent of gross income per year is not sufficient for a person at 30 years of age who wants to retire at 60 or 65. This threshold should be raised. I ask the Minister and his officials to consider the possibility of a trade-off in terms of reductions in the pension element of PRSI payments for persons who fully fund their pensions.
I fear for the future funding of pensions. Anybody who looks at the demographics should share this view. Given the stability pact attendant on EMU and the constraints on the Minister in normal circumstances to balance the budget or run surpluses, there will be shaky periods in the future. We should start to make provision now to a greater extent for persons who fund their pensions.
I fear what inflation may do to the economy. Against the background created by the Government of an expansionary budget, it is difficult to propose anything in the Finance Bill that would dampen consumer demand. My proposal, however, on pensions would help as people would be encouraged to invest a higher proportion of their earnings in pension schemes. A significant take-up would reduce consumer demand and act as a break on inflation. In present circumstances where consumer demand is increasing rapidly any scheme that encourages people to invest rather than spend to make provision for their future and that of their families is a good one and will have a macroeconomic effect.
I will table amendments in respect of the black economy and tax evasion. We have a thriving economy and the majority of people who are reaping the benefits are paying their way. Others who are reaping significant benefits are not paying their way. Those whose philosophy of life is to take all and not give anything back must be stopped. We must root out the tax evaders and the warriors of the black economy. The shoulders of compliant taxpayers are too weary to carry them any longer.
In respect of tax evasion, while the Minister introduced some measures that target avoidance which has been brought to his attention by the Revenue Commissioners, I am disappointed he has not addressed the wider issue. The Minister made some general commitments at the end of his contribution. He said he has asked officials of  his Department and the Revenue Commissioners to advise him as to the new powers that may be desirable as a result of the revelations in the McCracken report and recent events — I presume the Minister is thinking of the events surrounding National Irish Bank — but he is very vague about what he wants to do. He said he has asked them to make recommendations to him but he did not tell us whether they have done so.
The Minister also said he has had correspondence from the Irish Congress of Trade Unions about this matter. While he expressed a willingness to meet the ICTU to the degree that he is agreeing a meeting, he did not indicate that the advice from his officials, the Revenue Commissioners, the Irish Congress of Trade Unions or Members of this House will be taken into account in the context of this Finance Bill. Is the Minister talking about legislation at some unmentioned time in the future? Is he talking about the 1999 Finance Bill or is he prepared to take measures on evasion and on the black economy in the context of this Finance Bill? It seems that he is not because he indicated that he will be bringing forward a series of far reaching amendments yet he failed to mention any in terms of tax evasion. The Minister was less than frank on this issue. He gave the impression of activity where I believe there is no activity intended. The Minister should address this matter further in his reply to Second Stage.
I will table further amendments also which will address problems in agriculture, rural development and other areas of the economy. The Minister signalled his intention to table amendments in respect of cross-Border workers, an issue which he said has been a source of contention for a long time. He also said he intended to table amendments in respect of tax allowance for seafarers to assist the maritime transport sector, and he will introduce a new pilot scheme of relief for a defined rural area to encourage its renewal and development as well as a new urban renewal scheme.
It is extremely unfair that amendments of such magnitude should be signalled in the Minister's contribution and are not contained in the Finance Bill. The Minister announced some of these schemes on budget day. Why are they not in the text of the Bill? When will they be brought in? I want to put it bluntly to the Minister that if he brings in a series of wide-ranging amendments which amount to another small Finance Bill on the morning we go into committee, I will not deal with them. The Minister will be on his own. Unless we get the amendments in advance I will not deal with them. I will not put up with a situation where I will be given reams of paper I cannot analyse or be in a position to get advice on and to which I want to table amendments. If I get the amendments too late to do that, there will not be a Committee Stage debate as far as my party is concerned.
Every Deputy in this House to whom I have spoken is interested either in the new urban  renewal scheme or, more particularly, the pilot project of rural renewal. The issue of the decline in rural Ireland is important to all parties in this House and I am looking for a commitment from the Minister, in his reply to Second Stage, that he will give us these amendments in sufficient time so that we can analyse, get advice on and table amendments to them as we see fit. They are, in effect, an integral part of a Finance Bill. They should be in the text of the Finance Bill. They are not technical amendments or amendments that arise from the debate. They are Finance Bill measures which the Minister intended to introduce since budget day and there is no excuse for their not being before us now.
It makes me smile when the Minister talks about the Julian and the Gregorian calendar and his intention to align the tax year with the calendar year. If the Minister's Department and the Revenue Commissioners cannot meet the deadline for the publication of the Finance Bill for a budget that went through the House the first week in December, what hope is there that he will make the major change in aligning the tax year with the calendar year? It is not acceptable that large chunks of the Finance Bill which the Minister fully intends to introduce should be left until Committee Stage. They should be in the text of the Bill and it is not fair to this House.
I say this advisedly to the Minister. A serious problem will arise if these amendments are brought in at a point where they cannot be examined by me, my colleague, Deputy Deenihan, and those who advise us, and if we are not given the same opportunity to table amendments as was given in respect of the sections of the Finance Bill published today.
The Minister also indicated that there will be a number of other amendments, as is usual in every Finance Bill, to deal with tax items currently under consideration. I do not have any problem with that. That is normal procedure, but we want to see in time the amendments already signalled, which are the concern of every Deputy in this House, and particularly those on the pilot project for rural development and the new urban renewal scheme. We will not allow the Minister to waltz them through the House to the advantage of a particular set of locations in the country and to the disadvantage of all the others.
In terms of the Minister's reform of the BES schemes, I understand a problem is emerging with hotels in particular that are in the process of raising capital. They believe that even the amended dates the Minister announced today are not sufficient to allow them invest the capital. There is a problem in BES schemes in respect of wind farms because the planning procedures is unduly lengthy. If we are serious about alternative energy I ask the Minister to request his officials to examine a different regime for any BES scheme that is to fund wind farms to generate electricity.
The Minister proposes to change the filing date for returns on self-assessment and align it with  the day for the payment of preliminary tax. This is a contentious issue in the profession and the Minister should reconsider it. I welcome the fact that these sections will only be brought in by way of commencement order, and I will not set down a marker that we will oppose it, but I ask the Minister to have full consultation with the professional bodies. A commencement order is a good device and I welcome the Minister's change of mind in that regard.
I thank the Minister for a very full explanation of the measures he has laid before us and I look forward to Committee Stage.
Mr. McDowell Mr. McDowell
Mr. McDowell: Before I make the substantive part of my contribution I want to endorse entirely what Deputy Noonan said about the timing of some of the amendments, particularly in relation to the renewal schemes. Frankly, in current circumstances the detailed provisions of some of these schemes are too generous and are not needed. I want to have an opportunity to examine the proposed new scheme over the course of the coming weekend, if that is possible. It will cause some difficulty for the Opposition parties if we are not given the opportunity to do that.
The events of the past few months have come as a considerable shock to a great number of people. They have demonstrated who wields power in Ireland and on whose behalf power is wielded by the Government. It is probably fair to say that for many years the left in this country and elsewhere in Europe used a rhetoric and a language which now seems outdated. We regularly cited statistics which indicated that a small percentage of people owned a huge percentage of wealth. We advocated solutions which were always idealistic but sometimes less than practical. Over the years our language has changed. We now use the language of social partnership rather than that of class envy. We look to advocate solutions which are capable of implementation on the Government benches rather than solutions that made us feel good in Opposition. Our language and message have changed, but the events of recent months have demonstrated more clearly than at any time in the recent past that perhaps our analysis was not all that wide of the mark.
The past few months have given us a rare and important glimpse of how some rich and very rich people live. They showed us how millions of pounds can be stashed away in so called offshore accounts in a bank in Stephen's Green. We have seen how one of the big four banks appears to have actively promoted a product which appears to have been designed to help people evade paying tax. We have seen a report from the Revenue Commissioners which confirms that a huge number of rich and very rich people pay little or no tax. We have seen how some political parties, and one of the most prominent figures in Irish politics in the past 20 years, have been secretly bank-rolled by big business in a way which, to say the least, was unhealthy. More importantly and most  strikingly, we have seen a Government and Minister for Finance whose actions are intended explicitly or implicitly to disproportionately benefit the rich and the very rich, often at the expense of the rest of us.
Last week the Minister decided to take on the credit unions and their members. It was an act of political stupidity and it surprises nobody that the Minister has now reversed his decision. One might be tempted to think the matter is now over, but that would be to miss the point. What is important about this episode is not the substance of what the Minister tried to do, but what it tells us about the Minister's priorities, judgment and instincts and those of the Government.
It is possible the Minister did this under pressure from the big banks. They are never slow to trumpet their importance in our economy. They have always been good supporters of Fianna Fáil. They got a decent kickback in the budget when the higher rate of corporation tax was reduced. Perhaps they wanted more. Perhaps they wanted to ensure that potential competition from the credit unions was snuffed out at an early stage. Perhaps it was the view of the commercial banks that swayed the Minister, but on balance my guess is it was something more than that. I suspect the Minister genuinely believes that this is an anti-avoidance measure. He probably believes it would level the playing pitch between different investors.
In view of what the Minister said, I want to be fair and call a spade a spade. The truth of the matter is that many credit union shareholders do not declare their dividend for income tax purposes. Inasmuch as those people have other taxable income, failure to declare is tax evasion and is illegal. We cannot condone that and we need to do something about it, but that is where my view diverges completely from that of the Minister. We should explicitly recognise credit unions as small community based organisations where ordinary people become shareholders by investing a relatively small amount of money. It is not fair or reasonable to treat them in the same way as people who play the stock market. We should seek to support small savers and the credit union movement. Credit unions are probably the only genuine mutual societies here with a solid public base and they deserve public support. I have no hesitation in saying we should exempt from income tax dividend income from credit union shares up to a certain reasonable threshold. Tax should be charged on money held by way of shares above that threshold at the same rate as the deposit interest retention tax charged by the commercial banks. We should seek to regularise the current position to support small savers. Instead of doing that the Minister chose, in a very hamfisted way, to oblige credit unions to communicate with the Revenue in relation to some of their shareholders and, perhaps more importantly, to put the frighteners on everybody else.
 What is most striking about the Minister's action is the contrast with his spectacular inaction when confronted with other matters concerning richer people. The Minister has no difficulty whatever in pursuing hundreds of thousands of small savers so as to benefit the Exchequer by a mere £2 million per year. It worth putting that figure into context. The Department of Finance in 1997 underestimated its total likely tax take by in excess of £1 billion, 500 times the likely total tax take from the changes the Minister announced last week and abandoned this week. Yet this is the same Minister who refused to have the Ansbacher accounts investigated and who reacted with spectacular nonchalance when confronted with evidence that National Irish Bank was wittingly or unwittingly facilitating tax evasion. I remember well the Minister's reaction a few weeks ago. He was at great pains to explain the total amount involved represented only a tiny part of NIB's total deposit income. What he said and the way he said it reminded me of Margaret Thatcher when she came out of a meeting of British Commonwealth heads of state in Vancouver after she had been persuaded she should support “teentsy weentsy sanctions” against South Africa. She glared with contempt at the assembled media and said these are “teentsy weentsy sanctions”. The message was clear. She was not in favour of them, and she did not want to support them and only did so because she thought they would not be effective.
The Minister's interview a few weeks ago was in the same tone. He was talking about only “teentsy weentsy tax evasion” and clearly he has not lost much sleep about it. The message is clear enough. The Minister will not go after the better off probably because he believes that could lead to a flight of capital. It might also be politically embarrassing if some of those people prove to be financial backers of the parties in power. However, little people have no such power. They cannot threaten a flight of capital. If one were to go after the little savers, the ones who are evading a few pounds or at most a few hundred pounds of income tax, the chances are one would probably catch them. That may force some old people to go back to stashing cash under their beds but the vast majority would pay up. They do not have the power to resist. However, the Minister forgot one critical fact. The small savers may lack financial and economic power and direct access to the corridors of power, but they make up for that in numbers. Ultimately, the small savers could make the Minister and his party suffer, not by withholding their money but by withholding their votes. It is for that and no other reason this decision was reversed.
The credit union provisions are only some of the provisions of the Finance Bill which show Minister McCreevy to be the class warrior he claims not to be. He has long sought to portray himself as an ordinary Joe Soap who tells it like it is, but the events of the last few days demonstrate very clearly that the game is up. The penny  is beginning to drop with people. Slowly but surely they are beginning to realise that Charlie McCreevy's social welfare cuts was not just an aberration. This Minister consistently uses his power to benefit those who are better off.
Perhaps the most clear-cut example is the reduction in the rate of capital gains tax from 40 per cent to 20 per cent. I and others have persistently sought to find out why and at whose behest that decision was taken. In the few months since the Budget Statement I have spoken to commentators and interested people about the contents of the budget. I have yet to meet somebody who knew about the proposal to reduce that tax, who expected it or knows where it came from. The Minister needs to give some straight answers to straight questions. Who looked for, lobbied or asked for that change? He should give us a list of the groups of people who made submissions looking for a change of that kind. Better still he should let us have copies of those submissions. It is a matter of public record that representatives of the Dunnes trust met officials of the Department some years ago and argued for changes in capital taxation. Did the Minister or any of his officials meet with or receive submissions from representatives of the Dunnes trust? Did the Minister or any of his officials receive representations from any of the other super rich people who stand to gain a great deal from the decision he announced on 3 December? We know some super rich have already made huge savings as a result of the Minister's decision. We have to assume he knew that would happen because everybody else did. We also have to assume he was and is happy that should happen and, inevitably, we must ask why.
I did not want to impute to the Minister motives which he may not have had, but I am at a complete loss to find any logical or decent economic argument for the change he made. We are not helped by the fact that he has not given any credible reason for that tax reduction. He has so far consigned himself to saying, and he repeated again here today, that he has always felt too many assets were being tied up because people were reluctant to dispose of them at the 40 per cent rate of tax. Unfortunately for the Minister there is no evidence to support that view. He has consistently failed to stand up that argument and he has been very slow to discuss the matter in public. A single person earning £15,000 a year by the sweat of his brow will pay 48 per cent marginal tax. Yet, someone who buys a house at the start of the year and sells it at the end of the year will pay just 20 per cent on the unearned income which results from his original investment. How can this or any Minister for Finance possibly justify this on grounds of equity? Perhaps I am being naive in assuming that equity means a great deal to the Minister.
The most dramatic and immediate effect of the capital gains tax change has been its effect on the housing market. Between 30 and 40 per cent of new houses built in urban areas, and certainly in  Dublin, are being sold for investment purposes. As a result, many young couples, not to mention single people, are being forced out of the housing market altogether. Those who can find affordable houses often have to travel long distances in order to do so. Young people who cannot find an affordable house in Dublin are being forced to go as far away as Drogheda, Tullamore or Mullingar with obvious knock on consequences for the housing market in those towns.
I am not suggesting the problems of the housing market are a direct or total result of the change in capital gains tax because, obviously, this is not so. However, the change in capital gains tax has increased the incentive to investors to invest their money in property and this, in turn, can only have the effect of pricing ordinary aspiring owner occupiers out of the market.
I assume there is little chance of persuading the Minister to reverse his decision on capital gains tax generally. However, there is surely a persuasive case for excluding private domestic dwelling houses from the windfall tax reduction. Surely the Minister will agree that the last thing we need to do now is stimulate the housing market. It is already suffering from a lack of building land. There are emerging shortages of labour in some critical crafts. More and more people, including returned immigrants, are looking for houses. In these circumstances, the last thing we should do is make private houses an even more attractive possibility for speculative investment.
For many years the State's intervention in the housing market has largely been in order to support the construction industry and the significant employment it provides. Quite clearly, for the moment — and it may not always be the case — that support is no longer necessary. The industry is working at full capacity and there are even shortages of labour. The thrust of State intervention and support must now shift significantly away from supporting the industry towards supporting the purchaser and, in particular, the first time purchaser.
We can do this in a number of ways. We can do it, as Deputy Noonan suggested, by eliminating the burden of stamp duty for first time purchasers of second hand houses. However, we need to go further than this. We have to provide a relative advantage to people who want to buy houses to live in them, in particular, people buying their first house, over and above people who want to buy a house in order to make money. Accordingly, we should re-institute stamp duty on new houses for everyone other than first time buyers.
My wife and I are living in our first house. If we wanted to move — and, incidentally, we do not intend to — there is no good or persuasive reason we should have to pay stamp duty at 6 per cent if we choose to buy a second hand house, but no stamp duty at all if we choose to buy a new house. There are plenty of people in our position. More importantly, the imposition of stamp duty on new houses for people other than first time  purchasers would reduce the attractiveness of housing as a safe way of making a few shillings.
This is a serious and genuine problem which we need to address as a matter of urgency. I have proposed increases in tax which, coming from the Opposition benches, is a little unusual. We need to do that in order to shift the emphasis of our support for the construction industry away from that industry, which is happening anyway, towards supporting the purchaser. The Minister should look at that between now and next week.
We also need to look at the effectiveness of urban renewal designations in making affordable housing available to first time purchasers. I want to return to the area of special designation later in the context of capital allowances and I will have some comments to make in that regard.
In fairness, capital gains tax is a tax which most people will never pay and do not understand how it works. The one tax we do understand is income tax. Once again the Minister has skewed his decisions in a way which disproportionately benefits the better off. We had much of this debate on budget day and we have teased out a great deal of it since. The argument is as valid now as it was three months ago.
Suffice to say that had the Minister channelled all the additional moneys into broadening the bands and increasing the allowances, up to 90 per cent of people would be better off than they will be on 7 April next. The Minister's decision will channel a huge amount of extra cash into the pockets of those who need it least. As a result, he has failed or refused to tackle the poverty and unemployment traps which still exist within our taxation system. He has put the social partnership process at risk and he has used the public's money in a way that is fundamentally unfair. Even worse, the Government is threatening us with more of the same medicine next year.
The Government will say it has a mandate for all this — that it went before the people with a particular election manifesto which they voted to support. Up to a point the Government is right. It is true it started the election campaign by advocating cuts in the rates of tax and only later, and rather hurriedly, added in some commitments in relation to bands and allowances.
It is interesting and instructive, however, to look back to the budget debate this time last year and the arguments the then Opposition parties made for reducing the higher rate of tax. I remember the then Deputy Michael McDowell making a case on behalf of the Progressive Democrats. Typically, he would give the example of a young person earning £15,000 or £16,000 and paying income tax at a marginal rate of 48 per cent. These are people earning just slightly more than the maximum amount charged at the standard rate. In a sense, it is no harm to focus on them quite simply because there are plenty of them.
These people, perhaps more than any others, have a right to feel betrayed by what this Government has done. Far from providing a bonanza,  which many of us may have expected, and far from taking them out of the upper rate of tax, all the budget has done is to reduce their marginal rate from 48 per cent to 46 per cent.
The alternative would have been to reduce their marginal rate from 48 per cent to 26 per cent or 24 per cent. We have said it often enough from these benches in the past, but obviously we must keep on saying it; there is nothing wrong with a relatively high rate of marginal taxation provided the right people are paying it. People on £14,000, £15,000, £16,000 and £17,000 a year should not be paying tax at the high marginal rate. Our taxation policy should be geared towards ensuring these people are taken out of the higher rate band.
Mr. Power Mr. Power
Mr. Power: There was a Labour Party Minister for Finance for a few years, but he did not make too many changes. What did he do about it?
Mr. McDowell Mr. McDowell
Mr. McDowell: We were working on it. The Deputy must have been asleep on the benches for a while.
Mr. Power Mr. Power
Mr. Power: He should have told us.
Mr. C. Lenihan Mr. C. Lenihan
Mr. C. Lenihan: Work in progress.
Mr. McDowell Mr. McDowell
Mr. McDowell: There was a difference in the approach we adopted, which was fundamentally fair. It may not have been spectacularly obvious or attractive, and perhaps that was ultimately to our disadvantage, but it was fair. It would still be fair if we were doing it today.
Reducing the higher rate of tax is of benefit only to those who pay the higher rate on a significant percentage of their income. These are the people who have most cause to be grateful to the Minister, Deputy McCreevy, and his Government.
Before Christmas, the Sunday Business Post produced extracts from a report drawn up by the Revenue Commissioners on the effective rate of tax paid by high earners — specifically, people on more than £250,000 a year. Apparently, the Revenue Commissioners surveyed a number of people earning in excess of a quarter of a million pounds per year. They found that one in five high earners pays an effective tax rate of approximately 20 per cent and nearly one in ten pays an effective tax rate of 5 per cent. Only 8 per cent of taxpayers in the £250,000 plus income level pay an effective tax rate of between 45 and 48 per cent.
These figures are a national scandal and must be addressed as a matter of priority by the Government. In addressing this problem it would help if, in the first place, we could see the Revenue Commissioners' report. Unfortunately, the Minister has decided to suppress the report and has given no reason for doing so. I ask the Minister of State, Deputy Davern, to use his good offices to ask the Minister, Deputy McCreevy, to publish the report.
 I do not know if it is possible to identify the affairs of individual taxpayers from the report — I doubt it — but if it is, surely it must be possible to excise those details from the report. Information of this kind is vital to any public discussion on issues of taxation. The public is entitled to this information and I ask the Minister to reconsider his earlier decision not to publish it.
In so far as we can believe the press reports, and I have no reason to doubt them — the report suggests that high earners reduce their tax liability largely through using tax shelters such as capital allowances. If that is so, we must look carefully at how capital allowances work. In that regard, I support the Minister's decision to reduce the available capital allowances to £25,000. I will support it next week in the event of a vote on the matter.
We also need to look carefully at special designation schemes, such as those proposed for urban renewal, seaside resorts, etc. The purpose of these schemes was and is to stimulate investment in areas where it would not otherwise occur. We need to look urgently at the issues of displacement and dead weight. There is no sense in these schemes if their primary effect is to transfer investment from one part of a town to another or if they merely stimulate investment which would have happened anyway. There is certainly no sense in them if their primary benefit is to reduce the tax liability of people who can well afford to make a fair contribution to our society.
I am not saying all urban renewal schemes are bad. There are areas in cities and towns which would not have been developed but for urban renewal schemes. In the context of what is happening in the housing market and the construction industry and the tax report by the Revenue Commissioners, we need to look at this matter on a case by case basis to assess if they are really needed and if they are achieving the aims they were intended to achieve. I do not propose that we eliminate urban renewal schemes but we need to look again at the criteria and the way they are applied.
The Labour Party supports the aim of introducing a single low rate of corporation tax of 12.5 per cent. I assume from the Minister's silence on this issue in recent months that he also accepts that if a single rate is introduced, it will not be 10 per cent but 12.5 per cent. There are two ways to achieve this. We can either seek to increase the threshold for the lower rate of tax or reduce one or both rates of tax simultaneously. The Minister has taken the wrong road. More than 90 per cent of companies pay corporation tax at the lower rate. They should get the primary and immediate benefit during the ten year period when we make the changeover. We should try to increase the threshold and reduce the lower amount rather than giving the benefit to the 7 per cent of companies which pay tax at the higher rate. I am talking about banks and companies which are active in the financial services sector. They are our most  successful and they do not need a tax break. We should concentrate our efforts on the small companies which have been the backbone of economic growth in recent years. I am disappointed the Minister has chosen to go about it in this way.
This is a period of almost unprecedented growth in the economy and prosperity in the country. For the first time the Government has a real choice as to how it uses additional moneys and resources. The challenge is to use those resources and to make the choices which will make Ireland a more inclusive, safer and fairer place in which to live. By those standards, this Government is already failing miserably and the Finance Bill is just another step along that way.
Mr. Power Mr. Power
Mr. Power: I wish to share my time with Deputy Conor Lenihan.
An Leas-Cheann Comhairle Rory O'Hanlon
An Leas-Cheann Comhairle: Is that agreed? Agreed.
Mr. Power Mr. Power
Mr. Power: Many people might find it strange that following the publication of the Finance Bill the media and the Opposition decided to highlight the changes the Minister proposed for the credit unions. It should not come as a great surprise to those on this side of the House that instead of outlining the true position, they tried to paint an unreal picture. Anyone who looks at what was proposed will realise the Minister was harshly treated. He enjoys a better relationship with the press than most Members of the House, yet he was savagely assaulted in recent days.
It is no harm to outline what the credit unions proposed. In a letter to the Minister following a meeting before Christmas, Mr. Tony Smyth, the general secretary of the Irish League of Credit Unions, said:
We, in the course of the meeting, identified three issues:
Corporation Tax on Credit Unions:
We strongly suggest that the current exemption should remain.
Interest on Deposits:
We recognise the need for change in this area and suggest the application of DIRT at 15 per cent on all interest earned.
Dividends on Shares:
The biggest difficulty I had with the proposal was in relation to disclosure. However, the matter was hyped up out of all proportion. After reading the newspapers over the weekend, members of credit unions were led to believe they would have to face the Revenue Commissioners on Monday morning. I call on the media to be more responsible when reporting events and to concentrate on the facts. Hyperbole is all right in poetry but we should report the facts when dealing with serious issues such as the Finance Bill.
Mr. McDowell Mr. McDowell
Mr. McDowell: Constituency loyalty is serving the Deputy well.
Mr. Davern Mr. Davern
 Mr. Davern: He is in a different constituency. The Deputy is not familiar with rural Ireland.
Mr. Power Mr. Power
Mr. Power: When someone in Government makes a proposal, the Opposition picks holes in it rather than highlighting its positive aspects. There are many positive aspects of the Finance Bill, although I am unhappy with some parts of it. Deputy McDowell and his former colleagues in Democratic Left are envious of some of the proposals in this year's budget.
The Minister explained the steps he will take following the hullabaloo over his proposals for the credit unions. Following his meeting yesterday with the Irish League of Credit Unions, a working group has been set up which will report to the Minister by 30 September 1998. Anyone who had fears about the reports in the newspapers over the weekend can rest easy that there will be no major changes for some time.
The Opposition tried to suggest that the proposals in the Finance Bill to reduce capital gains tax will make the rich richer and the poor poorer. However, nothing could be further from the truth. Fianna Fáil's record in Government shows that it does not neglect social welfare recipients. We have always tried to ensure that increases were in line with if not above inflation. The Minister has introduced a number of worthwhile proposals to help the less well off in society.
He explained on budget day and again today why he reduced capital gains tax from 40 per cent to 20 per cent. Anyone who has been in the House for a few years knows that this economic boom will not continue. These changes are not for this year or next year but are part of a long-term strategy. The Minister's decision to reduce capital gains tax was a courageous and correct one. It is easy for people on the left to make him a scapegoat and accuse him of all types of things. When we look back at the decisions made, we will see how they benefited everyone.
Capital gains tax of 40 per cent was excessive. Anyone involved in that area would not want to make too many mistakes or they would be out of business. The reduction will encourage people to buy and sell shares more often as well as encouraging growth and investment in the economy. U-turns are often unpopular and people do not usually advise the Minister to make them, but I am delighted he has rectified matters since his announcement in the budget of a reduction of the capital gains tax exemption limit to £500.
Over the past few years, the number of people holding shares has increased, and in many cases, especially for those lucky enough to have shares in the Irish Permanent, they have become very valuable within a short space of time. While people did not set out to make a killing, they have found themselves with a nice little nest egg, and the reduction in capital gains tax from 40 to 20 per cent allows them sell their shares and enjoy the profits they make. That is welcome and it answers the nonsense that changes were made in the budget for the rich and that the poor were  forgotten. Nothing could be further from the truth.
Section 67 amends section 21 of the Betting Act, 1931, to allow for extended opening hours for betting shops. In future, bookmakers' premises may remain open daily from 7 a.m. to 10 p.m. from April to August, inclusive, and from 7 a.m. to 6.30 p.m. from September to March, inclusive.
Mr. Hogan Mr. Hogan
Mr. Hogan: Is the Deputy declaring an interest?
Mr. Power Mr. Power
Mr. Power: However, the current restrictions on opening on Christmas Day, Good Friday and Easter Sunday will continue. The Minister's reason for this is that there has been a significant growth in illegal betting with the advent of the racing channel and football matches being played three to four nights a week. Tremendous opportunities exist for punters, so the Minister deemed it necessary to introduce these changes to allow punters who wish to do so to bet in the evening on these events. I accept the Minister's proposal because illegal betting exists and there is no reason betting shops should not be allowed open in the evening. There has been a tendency in the past few years, especially in Britain, for most good racing to take place at night, as it usually generates more betting than the mundane racing in the afternoon to which we have become accustomed.
My worry about these changes concerns staff. The first evening meeting to take place in Britain will be on Friday, 24 April. From my experience of the industry, many people working in it are young married women, some of them with children. This change in their terms of employment is severe. At present, most of them finish before 6 p.m. unless it is a very busy day. However, the office must close at 6 p.m., so they would almost certainly be out of the office by 6.30 p.m. What is proposed to come into effect within a matter of weeks would mean the office remaining open and working until 10 p.m. I see major difficulties for bookmakers and their staff in coming to terms with this. Any permanent, full-time staff would work five days a week, including Saturdays, with a day off during the week. That has not caused problems, but the opening hours the Minister proposes will make employment difficult for most people as regards babysitting arrangements. I appeal to the Minister to put this proposal on hold. While the idea is good, he should not consider implementing it until next year to allow those in the betting industry time to agree a system accommodating these new arrangements under which they could work.
We have become accustomed to Sunday racing in Ireland and it has become very popular. Britain has now decided to follow suit, and the number of Sunday meetings is increasing. Nonetheless, while it might make sense on paper, I do not believe the opening of betting offices on Sunday will prove to be the great attraction people think. Many families still regard Sunday as the family  day and I cannot see many of them keen to spend that day in a betting office. That said, it is up to the individual bookmaker to decide whether or not to remain open. However, it will probably spread the cake more thinly rather than increasing the turnover and revenue for the Exchequer.
I strongly believe extending the opening hours of betting offices until 10 p.m. will have serious consequences for many people working in the industry. We should not rush into this decision which imposes major changes in their work practices. It is important time be given to staff to understand these changes and allow them make the necessary arrangements.
Over the past year, there have been major changes in betting throughout the world. The amount of betting on American sporting events has increased enormously. The advent of the Internet has made a new market available to us. At least 100 firms throughout the world bet using the Internet, mainly on sporting events. Golf, tennis and some big fights are the most popular attractions. Some of the Caribbean Islands and other small islands are offering——
Mr. Rabbitte Mr. Rabbitte
Mr. Rabbitte: They are offering many things.
Mr. Power Mr. Power
Mr. Power: They are, but as regards betting, an attraction exists there which many bookmakers have taken up. A special licence is granted whereby no tax is charged if betting occurs via the Internet and on the telephone. The betting is tax-free but the number of telephonists required to run the operation is such that enormous employment is created. It is something we should examine. We should be at the head of the queue rather than at the back. Some British firms have moved to take up these licences. In many cases, they work in areas where the infrastructure and technology would not be as good as in Ireland. I appeal to the Minister to examine the operation in some of these countries to see how best we can avail of it. It provides employment, it has great potential and it is something the Minister should explore.
Mr. C. Lenihan Mr. C. Lenihan
Mr. C. Lenihan: I will not dwell on the vagaries and intricacies of betting offices and race courses. I will leave that to my colleague from Kildare, the Minister, who has a great interest in this area. I am concerned that small betting office operators, as opposed to large multiple operators, are not disadvantaged by the longer opening hours. It might be helpful if the Minister were to consult widely with the industry before embarking on the new opening hours.
This debate has tended to fasten on the recent dispute concerning credit unions. In my constituency I am reminded almost every day of the valuable work being done by credit unions in areas of disadvantage and also in areas that are not necessarily disadvantaged. They perform a very valuable function. The Minister is to be congratulated on what I can only describe as a very commendable  climb-down. It is sometimes looked at askance in politics when politicians perform what the media often derisively refer to as a U-turn. Sometimes a U-turn or climb-down is commendable. It shows the Minister is listening to public opinion and to the interest group involved, namely, the credit unions.
This controversy is replete with irony in that some of the suggestions contained in the Finance Bill were proposed by the leaders of the credit unions. This suggests that they may be out of touch with the views and opinions of the membership. These opinions were made clear to me during the past few days as I travelled around my constituency — credit union members did not want these measures. Among a certain group of people in my own area, there was a distinct worry about the issue and innumerable people were contemplating taking their money out of credit unions because they felt some threat was being posed to them. That worry has now been dispelled.
I hope the Minister will concentrate in the months ahead on widening the role of credit unions. Nationally, 60 to 70 per cent of companies are described as small companies with a handful of employees. In some cases these are described as micro-businesses. Such businesses find it difficult to get access to capital funds to invest in their business in order to create jobs and profits for themselves and their employees. Perhaps when the Minister sits down with the leaders of the credit union movement he will consider carefully extending their role so that they can play a major part in the development not just of individuals but of companies, small start-up companies in particular.
Credit unions are involved in an area of business which has been sadly neglected or even deserted by mainstream banks. It is known to everybody that the main banks are not interested in the small customer to the same extent as they were in the early 1970s when, amid intense competition, they were literally jostling with each other for the custom of ordinary holders of deposit or current accounts. That is not the case now. During a radio debate the other day somebody suggested that 50 per cent of the public do not have a current account. That is serious and it is an area in which the credit unions can play a part. We should widen their social mandate in relation to the social economy. Partnership boards and county enterprise boards are two examples of where credit unions could play a much more creative role in developing a sense of social equity within our economy. There is not much point in politics or an economy without social equity and without social justice. County enterprise boards are a success in terms of creating micro-businesses. Credit unions could have a very formidable role, in their relationship with county enterprise boards, in creating businesses, often in areas of social disadvantage.
The economy today is facing three distinct challenges. These must have been uppermost in  the mind of the Minister for Finance when he was framing his Finance Bill and his budget. The three challenges are clear. One is the challenge of our participation as an economy and as a country in economic and monetary union which will start in May and reach its ultimate expression in 2002 when cash and notes will be in circulation signifying a single currency throughout the Continent or land mass of Europe. The second, on the domestic front, is the issue of tax equity. Anybody who is old enough will remember that in 1979 hundreds of thousands of people, members of trade unions, employers, ordinary people, took to the streets of Dublin and other parts of the country in protest at the punitive levels of taxation that existed then and which, to a certain extent, still exist. That was a very serious move, one of the great landmark political, socio-economic events in our public life. The sight of thousands of people taking to the streets to protest about taxation was comparable in its own way — although I do not wish to push this comparison — with the unemployment marches of the 1950s. It was indicative of a population who had simply had enough that they were taking to the streets and demanding that the political system respond. The political system has responded, so much so that it would appear the people who originally championed the idea of tax cuts, the Progressive Democrats, are now politically on the wane, because the mainstream parties, including my own and the parties opposite, have taken up the challenge of reducing the burden of taxation on the ordinary individual.
Tax equity is at the centre of this budget. Members opposite, including Deputy Rabbitte, sometimes depict this budget as a rich person's budget. That is not the case. One of the myths in relation to this budget and other budgets is that by reducing the higher tax rate one is somehow disproportionately helping the better off. This is simply not the case. A single person can go into the higher rates of tax on an income as low as £12,000 or £13,000. That is very serious and demands change, a reduction in the rates, both higher and lower. It is important to remember that this Government is committed to reducing the lower rate of tax to 25 per cent over its lifetime. We are starting out on that road.
In regard to economic and monetary union, it is important also to remember that the changes relating to corporation tax are very much in line with what the European Union wants us to do. We have an indicative target of 12.5 per cent corporation tax that we have to reach. We are hopeful of reaching that before 2002. It is important that we make some movement towards that early on. It is important, as we face into perhaps the greatest competitive challenge this economy has ever faced, that our industry, businesses and firms are competitive and not overtaxed in terms of corporation tax. The reduction in corporation tax is welcome. Deputy Rabbitte and others will remember that in the 1980s we had periods of sustained growth without a knock-on effect in  terms of employment. We are now going into what could be described as a “virtuous” circle where, year on year, we are achieving growth figures that are unparalleled in other European and global economies. We are achieving a significant reduction also in levels of unemployment. I believe the employment pickup will improve, but it will require radical action by the Government, and that will have to be done if we are to reduce the still significantly high level of unemployment relative to the growth rates year on year of 6-7 per cent. It is not acceptable and has to be addressed.
We have to be able to convert the benefits of our booming economy into tangible employment. Tax equity is at the centre of this issue. Some people depicted the reduction in capital gains tax as a move against the notion of tax equity but it is not. A number of people, including the stock exchange authorities and business people, have made this point for years. Sadly, those appeals fell on deaf ears. The issue is how we can guarantee more investment in our domestic industry. We must add to the liquidity of the stock exchange so that finances are available for reinvestment in capital formation ensuring access to funds for Irish companies which have found such funds so difficult to obtain. The reduction in capital gains tax should be seen in this light. It is a positive move to create a capital formation within the economy so that our entrepreneurs have access to funds in order to grow their firms.
It is often forgotten that we are extremely dependent on trade and exports. Deputy Quinn noted some years ago that Ireland exports more of its GNP per capita than Japan which has long been regarded as the unrivalled export economy. Japan has difficulties now but for the past 20 years it was seen as an economy exporting dynamically from a small island base — not unlike our situation. It is important that we reduce the burden of capital gains tax so that there is reinvestment in Irish firms.
The serious issue of social exclusion is now being addressed. In Government Deputy Rabbitte played a role in championing drugs task forces and other issues. More recently he spoke about the £20 million which became £30 million. I am glad this happened as a result of pressure from Deputy Rabbitte and others, including those in Government. In addition to the challenge of joining the single currency and tax equity, social exclusion is the third challenge facing us. It is not right that in an economy as successful as ours we are experiencing huge skills shortages which cannot be filled from the ranks of the unemployed. This highlights a serious situation and I hope the Minister will take note that investment in education and training has to be increased over the next few years to resolve this problem. The Government has already committed £30 million to youth development and tackling the drugs problem which is at the centre of the difficulties experienced in disadvantaged areas. It is the soul-destroying social problem which is cutting away  at disadvantaged communities. It is must be tackled first.
I welcome the budgetary measures extending tax relief for corporations or individuals who invest in disadvantaged schools. I hope this scheme is allowed to develop to the maximum extent. Deputy Rabbitte will share my concern at the lack of resources and teachers available in many disadvantaged schools.
This is a positive budget which takes on a number of issues such as membership of the single currency, the vital and difficult issue of tax equity and social exclusion. We must have a debate on public spending and how it can be reduced, particularly in the context of the reductions in Structural Funds. I implore the Minister to examine the neglected issue of private investment in the public capital programme. We will not be able to complete all of the capital and infrastructural projects begun in the past 20 years. We will have to look to the private sector for a lead.
The Minister should also look at the developing area of electronic commerce. This has huge significance for employment. We must find ways to provide incentives for our businesses, schools and communities so that we can compete with the maximum competitive edge in the era of electronic commerce. This sector is most developed in North America but, inevitably, it will come to these shores.
Mr. Rabbitte Mr. Rabbitte
Mr. Rabbitte: I move amendment No. 1:
To delete all words after “That” and substitute the following:
deploring the punitive measures directed against the credit union movement,
regretting the failure to use the available resources to help those on low and middle incomes by significantly increasing allowances and widening bands,
condemning the provision to cut the rate of capital gains tax by half, which will result in a £40 million bonanza for speculators,
declines to give a second reading to the Bill.”.
I agree with some of the comments made by Deputy Lenihan. However, I sharply disagree on the main purpose and effect of the budget which ought to be concerned with the issues of social exclusion and tax equity but has had the opposite, regressive effect. Deputies Power and Lenihan are the only two Government backbenchers to have spoken. They have both been stung by the consensus outside the House that this was a rich man's budget. Both referred to this and are obviously aggrieved by it, as are most of their constituents.
Deputies Lenihan and Power might find it difficult to stomach criticism of the budget from me. In order to respond to the points made by Deputy Lenihan,  I will refer to the document produced by the Conference of Religious of Ireland. Both Deputies might be more amenable to taking instruction from that quarter. The document states:
Budget '98 consciously redistributed the benefits of economic growth to the better off. It failed to meet the Partnership 2000 commitments on social exclusion. It will deepen the divisions in Irish society. Frankly, it is an incredible budget given the possibilities that were available to the Minister for Finance. This budget is an insult to the decency of Irish people who, we believe, would support a more equitable distribution of the available resources.
As a result of budget '98: the gap between the poor and the better off will widen dramatically; the numbers of long-term unemployed will not be reduced substantially; housing and hospital waiting lists will persist at totally unacceptable levels; adult literacy will remain largely untackled and rural exclusion will continue as before.
The list could be extended with ease. As a result of the same budget: the take-home pay of the better off will increase substantially; the tax payable by employers on profits will be reduced; the tax burden will be moved away from profits in the long-term and the major resources in agriculture will continue going to the better off.
There is something profoundly wrong within this society when it fails to give priority to tackling poverty, unemployment and social exclusion.
Government could have targeted these three core issues. It chose instead to prioritise benefits for the better off. This may fatten the Celtic tiger but it is not progress. Substantial resources exist yet these resources were dissipated.
Government chose to allocate its resources to people already better off. Ultimately it is a question of choices. If poverty, unemployment and exclusion are not eliminated now given the resources that are currently available then future generations will reap the harvest of our neglect. Budget '98 will produce a much more unequal society.
That is what this Finance Bill faithfully reflects. I will add one more quote from their Reverend Superiors before I move on to my more customary secular domain.
This was the best opportunity any Minister for Finance has had in a generation to reduce the divisions in Irish society. This opportunity has been squandered. Budget '98 had more in common with Thatcherite Britain in the mid-1980s than with any commitment to tackle social exclusion.
Debate adjourned. 
Dáil Éireann 487 Finance Bill, 1998: Second Stage.