Sean Barrett (Independent)

I welcome the Minister of State and thank him for the material he sent me this morning in his role over the Office of Public Works, OPW, on how to appraise capital projects.

I agree with section 1's removal of people earning between €4,000 and €10,000 per annum from the scope of the universal social charge, USC, but most of sections 2 to 141, inclusive, are debatable. For instance, will section 64 restart the property problem? Section 52 benefits the aircraft leasing industry. Why was that judged to be particularly meritorious?

The problem is that our tax system grew. The Minister of State has brought us 324 pages. If we continue in this vein, there will be thousands of pages in the Government's lifetime. When the Minister for Public Expenditure and Reform, Deputy Howlin, was present, we made the point that these tax expenditures - interest groups negotiated tax deals for themselves with the Department of Finance - should have been appraised fully in the comprehensive public expenditure review. They are taking a considerable amount of money out of the Exchequer. People make the case that making movies or leasing aircraft will be meritorious and so on. They get a tax break while the rest of society suffers and the tax system becomes so full of holes that it is like a colander. We should ask the IMF to review our system. It is a major obstacle to the country's growth, given that it is full of fiscal privileges and loopholes. A large tax lawyer and tax accountant industry produces nothing and transfers money out of the Exchequer and into the pockets of clients. The system is highly inequitable because the average citizen cannot afford the services of these tax lawyers and accountants. It is a complete mess. We must reform it. As is stated on page 10 of the IMF agreement of April 2011, we will raise the tax burden by €10 billion by 2015. It would be a good idea to reform the tax system and remove the inequities, anomalies and so on.

What should a good tax system be like? When the Minister for Jobs, Enterprise and Innovation, Deputy Bruton, was in the House last week, he referred to Adam Smith in terms of competition. According to Smith, a tax system should possess horizontal and vertical equity, neutrality and certainty and be evidence-based and administratively efficient. Large chunks of the Finance Bill infringe on all of these desiderata. There is a widespread belief among economists that a tax system should have low rates without deductions and waivers, should not distort resource allocation and should not involve large administrative burdens, for example, the many pages in the Bill before us. Let us try to simplify matters. This should be the last of the old-style Finance Bills.

We confer significant tax breaks on those who can afford tax lawyers and accountants. This is inequitable and cumbersome and distorts the economy. Deputy Broughan asked the then Minister for Finance, the late Brian Lenihan, about the fiscal privilege to the construction industry, which amounted to approximately €2 billion over two years. Do we not regret every penny that we invested in the construction industry through tax breaks when the money was needed in the Exchequer? Is research and development the new bubble? We do not know what the results of our investment therein will be.

It was reported today that the UK Government will introduce a general anti-avoidance rule, GAAR, in the tax code, as recommended in a recent report by Graham Aaronson, QC, to crack down on abusive tax avoidance schemes. One of last weekend's Sunday newspapers told of rock stars in a €1.2 billion tax dodge by putting properties in the UK into offshore companies.

Sections 122 to 130, inclusive, relate to compliance. We must crack down on this industry. Dr. Micheál Collins, a member of the income tax commission, writing in Professor John O'Hagan's book on the Irish economy, stated:

In 2010 a minimum effective tax rate of 30 per cent of income was set for earners with incomes of more than €250,000 in an attempt to minimise their use of tax breaks to reduce their tax bills.- a 30 per cent rate is equivalent to the tax level faced by a PAYE worker earning €55,000 ... While there is merit in the provision by government of certain tax breaks, the evidence for many is limited and in some cases it is clear that they lead to unnecessary and arbitrary market distortions.

I regret that the Bill contains more such breaks. The Tax Commission stated:

We recommend that for all future tax expenditures, and reforms of tax expenditures, there should be an ex ante evaluation process in advance of decisions to implement or extend any tax expenditure. As part of this process, the costs and benefits of the proposal should be assessed and the alternative of a direct expenditure approach should be considered.

If a proposal is so good, why does the Minister for X not put money from his or her budget into it? Why must it go to the Department of Finance to get a tax break when, in many cases, we do not know the cost?

According to another paper that Dr. Collins wrote, 28 tax expenditures relate to enterprise, but only in the case of 12 do we publish the cost. In the case of 20 of 28 expenditures, we do not know the number of beneficiaries. Twenty-eight tax expenditures relate to employment, but we have no costings for ten and no published numbers of beneficiaries for nine.

Our tax system must be taken apart during the Government's term of office. It is the fruit of lobbying. The accountancy profession is resisting being brought within the terms of the new anti-lobbying legislation. The system is the fruit of clientelism in politics, where people go up the back stairs at the Department of Finance to negotiate. We never quantify these expenditures, the result of which is a tax system in which average workers pay more than higher earners. This is a problem that we must address. A candidate in the US presidential election, Mr. Romney, is very rich and could not get into the average worker's tax rate even if he wanted to. We must tackle our tax shelters and fiscal privileges. They are significant. In Dr. Collins's estimate, 131 reliefs cost €11.5 billion in tax revenue forgone each year.

Each individual group will claim it is wonderful because, for example, it leases aircraft. After a group receives support in the Department of Finance, the burden falls elsewhere and we get into trouble in terms of special needs assistants, SNAs, carer's allowance, DEIS schools and so on. We must end this dreadful form of fiscal privilege, which is embodied in all of the sections of this legislation without any of the analysis that the Minister of State promotes. We should have put these tax expenditures and the way we organise our tax system firmly under IMF review.

The people who make films believe their movies are wonderful. The commission stated that they were not, given that they cost a great deal of money with little benefit. This separate Exchequer is damaging our country, but I will comment on that matter later. This should be the day when we say that never gain will we have such a Finance Bill. We want a system that is simple and equitable and does not have tax lawyers or accountants. The way in which rich people in Ireland do not pay taxes is not equitable.