Joan Burton (Dublin West, Labour)

I echo Deputy Bruton's good wishes to the Minister on his first Finance Bill, which is a momentous responsibility and occasion.

I put a modest proposal to the Minister's predecessor who was not inclined to entertain my suggestions, namely, that our tax system should develop the office of a tax ombudsman or advocate, as it is called in some countries, on behalf of the taxpayer. This is long overdue and is urgent because there are growing problems in the pay as you earn system, particularly since the introduction and development of tax credits.

A predecessor of the Minister, Deputy Quinn, began the move to that reform, which former Deputy McCreevy followed up and implemented. While it has worked well, this has taken a long time because it is a complex element of the tax system. There are many people in the pay as you earn net who are at risk of overpaying tax, particularly where someone changes job, on the basis of marital status or where a person has recently retired, for instance, a person who retires from the Army or Garda Síochána who takes a second job, or someone who receives more than one stream of income. I can give examples of where the pay as you earn system is faltering.

The Minister's proposal to extend the Revenue on-line service to those in the pay as you earn system is welcome, but it is not sufficient to address this problem. There are no measures in the system to identify promptly overpayments by taxpayers and to refund those affected. This is a breakdown in the administrative system arising from the development of the tax credit system.

Those in the pay as you earn system deserve to be refunded any overpayments as quickly as possible. It is not good enough for the Revenue Commissioners to say that after the end of the tax year, if the taxpayer completes a tax return, any overpayment will be identified and refunded. The Revenue Commissioners need to be proactive in seeking to identify overpayments as early as possible during the tax year and make appropriate arrangements for repayment. I will not repeat the point made by Deputy Bruton in regard to areas where there are specific tax allowances and many taxpayers fail to take them up. In this regard, medical receipts, refuse service payments and family income supplement are disaster areas for full claims by people of their entitlements. However, I am not talking about those areas but about the predilection of large elements of the system to overcharge the people to whom I have referred. Unless a taxpayer is fast in submitting a return, he or she will not get a repayment.

In addition, there is effectively a limitation of four years on seeking a refund of an overpayment. This is completely inadequate and I see no good reason for it. I hope the Minister will take the opportunity presented by the Bill to allow PAYE taxpayers a much longer period to make claims for refunds. It is a matter on which Members on all sides of the House will agree.

Most of those liable to pay tax do so because they have no choice — they are in the PAYE system. It is high time the Revenue Commissioners acknowledged their duty to compliant PAYE taxpayers and sought to give them a just deal under the tax system.

A challenge faces the new Minister for Finance in regard to taxation, namely, whether he is willing to grasp the nettle of genuine tax reform in the interest of fairness and equity for all sectors, particularly the PAYE sector. The Labour Party demands tax justice for all. However, the Government has for years focused on tax breaks for the very well off. During his eight years as Minister for Finance, Mr. McCreevy specialised in redesigning the tax system to facilitate tax breaks for the very well off. At the same time, the small print in his Finance Bills ensured PAYE taxpayers on very modest incomes paid a significant amount of tax, not only in PAYE but more particularly in high indirect taxes, such as VAT and stealth charges, whether for hospital admissions and accident and emergency services or, as we increasingly see, refuse charges, which are now veering towards a norm of up to €500 per annum.

The real test of the willingness of the Government to reform the tax system is whether it is willing to dispense with some of the tax breaks which so disfigure and distort the tax system. In particular, I reiterate the call I made last year for a permanent tax commission which would, once and for all, bring into open public accountability the cost of the various tax break schemes, particularly property based schemes, who the likely beneficiaries are and the duration of the benefit. This is the minimum information we should be easily and rapidly able to obtain in regard to the myriad of tax breaks, from those relating to holiday cottages to tax exemptions for stallions and so on.

A farcical situation arises. The Revenue Commissioners are finally recovering up to €500 million every year from those who defrauded the tax system in earlier decades by the use of devices such as non-resident accounts or undeclared overseas accounts. However, it is deeply ironic that just as these tax evaders are being caught up with by the Revenue Commissioners, slowly but surely a new structure is developing in regard to legally based tax exemptions. In the long run, it is likely the structure of legally based tax exemptions, particularly those created by the former Minister, Mr. McCreevy, will have the same effect as the tax avoidance that so disfigured the 1970s, 1980s and 1990s, that is, a narrow tax base in which those in the PAYE sector will continue to bear the greatest share of responsibility for funding the Exchequer.

This is the real dilemma. Our tax base has historically been too narrow. Hence, those caught in the PAYE sector end up paying high marginal rates while others make no contribution. I want a situation where there are lower tax rates but everybody pays — in other words, a flatter, more effective tax system.

I want to raise a number of technical issues with the Minister in the course of this debate on the Bill, as well as on Committee and Report Stages. On 22 December the Department of Finance announced a time extension, set out in section 31, which gives tax breaks for buildings in third level institutions, colleges and universities. Despite my putting down questions to the Minister, he has so far refused to identify who the beneficiaries of this extension are. He stated in a written reply that it concerns three third level institutions, but he refused to identify the institutions, the developers or the investors in these schemes.

It is legitimate to ask the Minister, on the record, who these people are, why there was a delay in applying for the schemes within the required time, what the likely capital investment is in the schemes and what the likely cost will be in tax forgone. I asked about these matters in a parliamentary question that was not reached last week — I suppose we were detained too long on other matters. However, these are legitimate questions and I would like answers.

The Minister stated in the budget and when he announced a review in regard to tax breaks that this type of property investment scheme was not to be extended, particularly while the proposed review of tax breaks was being undertaken. Unless I get answers, this constitutes a breach of the undertaking given by the Minister at the time of the budget that there would not be an extension of this type of break until completion of the investigations to which the Minister, the Taoiseach and the Tánaiste referred on a number of occasions.

I welcome the anti-avoidance measures introduced in the Bill, in particular in section 36, to prevent the recategorisation of income as capital gains, whereby, if a taxpayer successfully shifts income from the income category to the capital gains tax category, his or her marginal rate of tax can fall from 42% to 20%. It is incumbent on the Minister to explain what amount of tax revenue has been lost recently because of the use of this tax arrangement whereby income was converted into capital gains, thus resulting in significant savings.

This was a topic beloved to an obsessive degree by the Minister's predecessor, Mr. McCreevy. He was always delighted by the increase in the receipts from capital gains combined with the fall in the capital gains tax rate. It is interesting that in this, the Minister's first Finance Bill, he should move to stop avoidance in this area by shifting income, because his predecessor denied this was a possibility. However, while the Minister should expand on why he opted for this, the change is welcome.

On behalf of the Labour Party, I broadly welcome the proposals in sections 73 to 77, which will see an extension of the powers of the Revenue Commissioners, creating further offences of aiding an abetting tax evasion and fraud, including those by officers of companies, including banks. This measure is long overdue. It is deeply disturbing to people who had non-resident accounts and are being rightly and strenuously pursued by the Revenue Commissioners to repay both tax and penalties in regard to these illegal tax investments that the people who organised the schemes and made the arrangements, particularly those in the top echelons of some of our banks, got away virtually scot-free.

It is unbelievable that the many thousands of people who had non-resident accounts simply thought these up on their own. Little old ladies did not pop into bank branches in Manorhamilton and ask: "Can I have a non-resident account, please?" or "Can I have a single premium life product?" The reality is that customers were advised by their banks to open this type of account. Banks incentivised and in some cases pressurised staff to get people to open this type of deposit account. It appears that banks have been able to get away with aiding and abetting tax evasion and they have not been taken to task. It will be welcome if the Bill successfully advances the powers of the Revenue Commissioners in this regard. I note, however, that none of these provisions will have a retrospective effect. I would be grateful if the Minister could elaborate on this point. I know he said that the notion of retrospection is not constitutional. However, complex legislation has been introduced in regard to IFSRA, and one of the actions it is taking is setting up measures and reviews on the suitability of people serving as senior officials in banks and as directors of banking and financial and insurance companies. I do not understand why directors or bank employees who were involved in the past in aiding and abetting tax evasion were promoted to much higher levels and may now be passed with flying colours for even more elevated service in the banking sector. I would like to return to this aspect.

On single premium insurance policies, the Revenue Commissioners have been examining for some time the recovery of tax from investments in these policies. A new scheme is to be put in place to pursue these people. We are all aware that a great deal of business was written in this area over a long period, most of it completely legitimate. There is no problem with anyone who retired and received a lump sum from their employer putting the money into one of these policies. The chairman of the Revenue Commissioners indicated that the problem lies with people who for tax purposes in the first instance did not declare the money they invested in these products. It is estimated that this will net between €1 billion and €1.5 billion. What concerns me is that it is probably the fourth opportunity for people who used the system to evade tax to come clean in regard to tax evasion. There were the first two tax amnesties, followed by the review of overseas non-resident accounts and DIRT accounts. It could be the fifth or sixth opportunity to come clean afforded to investors in the insurance related bank product who were also Ansbacher or Jersey trust depositors. Is the Minister proposing to allow such serial tax evaders to get away with it or will the Revenue Commissioners initiate prosecutions against people involved in this type of activity?

I acknowledge that the majority of citizens are honest in their tax affairs. However, the small minority of them who are tax evaders and who have repeatedly robbed our health and education systems deserve little mercy from the Revenue Commissioners. The Minister furnished details of the number of prosecutions in this regard, which are very small. Just two prosecutions last year resulted in convictions, and the number has decreased in recent years. Contrast that with the position in regard to social welfare. The week before last, I read a newspaper report where someone was properly prosecuted and received a suspended sentence for illegally claiming €18,000 in rent allowance. This does not happen in the case of tax evasion. It is a bit like a Hollywood marriage for some people where one little bout of tax evasion is not good enough so they must have a go at it five, six, seven or eight times. It is outrageous for the Revenue Commissioners to "go soft" on these people. I presume the arrangements included in the Finance Bill are not the last word on this scheme. I understand there may be administrative difficulties in carrying out this review. I would like the Minister to talk to us in greater detail on the matter on Committee Stage.

Why is it not possible to get more information on the real cost of various tax avoidance schemes? The Minister may have read a lengthy article in one of last Sunday's newspapers detailing the extraordinary multi-million euro payment made by a number of companies to pension funds on behalf of their owner-director managers. These are the high rollers in society. We are not talking about small family companies employing approximately 30 or 40 people. This use of pension schemes was specifically enhanced in the last two budgets by the former Minister and Deputy, Charlie McCreevy, as yet another scheme for the very wealthy. I concur with what Deputy Bruton said about incentivising people to save for pensions, but what is happening in regard to some of Ireland's wealthiest people is outrageous. People are being encouraged by the former Minister's last two budgets to provide for multi-million euro pension funds which will be, effectively, entirely exempt from tax. They may even be exempt over generations because our tax structure means that capital transfers between spouses are largely tax exempt. As a result of the way many of these schemes are designed, it may be two or three generations, if ever, before they will fall into any kind of tax net. Contrast this with people working for a modest income who find it difficult to save for a pension and are restricted in the amount they can put into the pension fund. This must be one of the key areas where there is one taxation structure for the very wealthy and another for ordinary people in modest employment.

I have asked numerous questions about the cost of tax forgone in respect of self-administered pension funds and other related schemes that have been developed and expanded, particularly on foot of the changes in the 2003 and 2004 Finance Acts. All I have received from the Revenue Commissioners and the Minister for Finance is repeated statements that they are unable to give me any information other than to suggest that there are approximately 2,500 of these pension schemes. If we are to make rational decisions about taxation policy, we need the relevant information so that we can see the cost to the Exchequer of these schemes and what the effect is on more modest savers in ordinary employment. The pension structure in Ireland has become a two-tier structure which is, in effect, a scandal.

Perhaps I can make a point, particularly in regard to women. Up to 1973, many women had to leave work because of the marriage bar. They took up home duties looking after the family and bringing up their children. Many of these women did not get back into full-time employment whereby they would qualify for pensions. Contrast what is being done for high rollers, where €7 million is being invested in a pension scheme, with the position of some women in their 50s and 60s who have no entitlements in their own right and may depend significantly on the pension entitlement their husbands have built up. That is a good example of there being one structure for one set of people and another for a different set of people who have made a great contribution to this economy. Fianna Fáil used always to sing the praises of the women who stayed at home, were home-makers, looked after their family and helped care for elderly people, but when it comes to pensions, many people are hardly at the races, although I want to refrain from using horsey references. Tens of thousands of women do not have pension cover. That is an issue we need to explore.

The vast bulk of PAYE taxpayers will pay tax at the top rate. The Minister said that people earning the minimum wage will be lifted out of the tax net. We will return to that question in November when we will see if that promise is sustained, particularly with changes in the minimum wage. A single person who earns a little over €30,000 will pay tax at 42% on any additional income or overtime. That is a high marginal rate of taxation in anybody's book. The Government has created a two-tier structure of taxation, with heavy taxes and high marginal rates for people in receipt of low incomes, particularly if they work overtime, while there is a plethora of tax avoidance schemes for the very wealthy. I do not know how long the Minister for Finance considers this can continue. While suggestions from the Taoiseach, Tánaiste and the Minister that they find the notion of people on incomes of €200,000 and above paying no tax to be socially and morally unacceptable are welcome, what will be done about it? There is no evidence in the Bill that any real element of tax justice will be introduced. We are seeing a wink and a nod arrangement whereby the Taoiseach and Tánaiste are saying to enraged taxpayers they will sort out some of these abuses but, in the meantime, in the small print of this Bill, nothing is being done to close or cap some of the worse abuses.

The Labour Party stated in its pre-budget statement, a copy of which we sent to the Minister, that we favour either the capping of all the allowances or a review clause that would ensure that no taxpayer, regardless of whatever tax breaks of which they availed, can pay less than the minimum rate of 20%, having taken into account credits and personal allowances. Every citizen uses the facilities of this country, be it the roads, schools, the fire brigade service or the hospitals, and therefore no citizen should be exempt from responsibility to pay a fair share of tax according to his or her means.

There is a case for tax incentivisation. I am on record as supporting targeted investment, for example, the business expansion scheme, investment in funds and, more recently, investment in research and development. I am on record, particularly in discussions with the Minister's predecessor, of favouring targeted tax incentives for a period. In these cases, the schemes have been discussed in detail. Where there were abuses, they have been eliminated. This is one issue to which we can return on Committee and Report Stages. For example, when there was talk last year of the Minister's predecessor abolishing film investment tax relief, the Revenue Commissioners brought to our attention abuses about which they were extremely nervous, and that was useful. We have since heard that those abuses have been dealt with through various mechanisms. It would be interesting to hear from the Minister whether the Revenue Commissioners are satisfied with what has happened in that regard. The purpose of these incentives is to promote investments in risky but important enterprises or areas of economic activity. For the most part, the ones I outlined are effectively limited or capped. If they are not, I would be interested in hearing why they are not.

The Minister for Finance, Deputy Cowen, is a former Minister for Health and Children. Therefore, I want to raise with him the galloping tax breaks for the provision of private hospitals and nursing homes. The former Minister for Finance, Charlie McCreevy, argued that such tax breaks would increase supply and lower costs for users, but I do not see that happening. Once again we have no information on how these tax breaks are working. Nursing homes are being built in the green belt around the greater Dublin region. They are located in rural areas. The tax break for them is conditional on their existing on that basis for only ten years. These nursing homes are in areas where there are no footpaths and no public transport. For some elderly people, going into these homes is effectively like a life sentence. They cannot go to the church, pub or post office. The Minister must be familiar with nursing homes in villages and small towns where old people can get out and about.

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