Brian Cowen (Laois-Offaly, Fianna Fail)

I thank all Deputies who contributed to the debate yesterday and today. Clearly there is much interest in this Bill, and rightly so. I thank everyone who gave time and consideration to their contributions. I welcome all the opinions I heard from all sides in our attempt to improve the position for those we represent, regardless of our political persuasion.

Deputy Bruton referred to the relationship between Government expenditure and tax levels and the delivery of public services. I do not accept the rather gloomy picture he paints of an overtaxed economy which gets nothing for its taxes. Tax must be looked at relative to income. For instance, the income of a person on the average industrial wage rose by over £11,000 between 1997 and 2005 while the total tax, PRSI and levies for a person on that wage was cut by more than £200 in that period.

Looking further we see that since 1997 average income tax rates for all individuals at all income levels have dropped by an unprecedented amount. For a person on the average industrial wage, the average tax rate will be 10 percentage points lower than it was in 1997 — less than 17% in 2005 as compared with over 27% in 1997. For 2005, the percentage of the income tax yield coming from those earning at or under the average industrial wage is estimated at just under 6% as compared with over 14% in 1997. In 2005, over 34% of income earners — 657,000 earners approximately — are entirely out of the tax net, as compared with approximately 25%, or 380,000, in 1997. Those simple statistics set out the facts so far as individual taxpayers are concerned.

The most recent OECD data show that Ireland, in 2003, had the lowest tax wedge in the EU and one of the lowest in the OECD for the average single worker. For the average production worker who is married with two children with a carer in the home, Ireland now has the lowest tax wedge in the entire OECD. The OECD data show that the tax wedge for such workers has fallen more sharply in Ireland than in any other OECD country, reflecting the progress that has been made in this area.

Deputy Bruton referred to an increase in the overall tax burden. Tax as a percentage of GDP went up from 28.1% in 2002 to 29.3% in 2003 according to the OECD. However, this increase was due to increases in capital gains tax receipts and the extra revenue from property taxes. Tax on ordinary income as a percentage of GDP fell.

However, I share the concern of Deputy Bruton and others about achieving value for money. That is something we must continuously strive to improve. I believe that this Finance Bill will continue the Government's focus on ensuring equity and competitiveness in our economy.

I wish to refer to some of the specific measures touched upon by Deputies. On the aiding and abetting provision which is being introduced, I am glad there seems to be a general welcome for changes proposed to section 1078 of the Taxes Consolidation Act, which deals with revenue offences. I agree with Deputies that we must learn from past experience in dealing with tax evasion, and strengthen the law where necessary.

I am also pleased that there appeared to be a general welcome for the measures to allow Revenue to make inquiries in relation to single premium life policies. It is too soon to say what the tax yield from these inquiries may be. However, this is a useful measure that will help to clear up some of the legacy of past evasion. I note in passing that the proposed provision contains important safeguards against inappropriate access to personal data, such as medical records.

Some Deputies suggested that the review of tax schemes I announced in the budget is not necessary or that I should have made certain decisions in advance of this review. The Government is undertaking the review to determine what we can learn from past experiences and whether it should seek to bring about any changes, given the current level of economic and sectoral development. Those are matters to be decided upon based on what emerges from the review. The questions include the role for a wide range of tax relief schemes, in particular those availed of by high earners; what targeted incentives we would consider to be merited or that can deliver the community benefit where there is a deficit that cannot otherwise be filled by the marketplace, by way of public provision or otherwise. The Government must also look at balancing the benefit of such reliefs with the need to ensure that all taxpayers make an appropriate contribution to their society. Various issues raised by Deputies in respect of the benefits to high earners will be examined as part of the review.

Deputy Burton referred to the difficulty in obtaining data relating to the cost of certain tax reliefs. A number of provisions have been introduced in recent Finance Acts to help address shortcomings in this area. The Revenue Commissioners introduced a number of changes to the forms relating to the annual return of income by PAYE and self-employed individuals and companies in respect of 2004 as well as to the P35 form which is returned to Revenue by employers at the end year with totals for earnings and deductions for each employee in respect of the tax year 2005.

Deputy Burton referred to the relief for third level buildings. This relief was introduced in 1997 on Report Stage of the Finance Bill by the then Minister for Finance at the request of the then Minister for Education and Science. I do not intend to extend the relief in this Bill. The Finance Act 2004 provided that expenditure incurred up to 31 July 2006 would qualify for the relief, provided that a ministerial certificate regarding the financing of the project was issued by 31 December 2004. A small number of outstanding applications for certificates were under examination by my Department in December 2004 and it was not possible to complete the detailed examination and assessment by the cut-off date of 31 December 2004.

My announcement of 22 December stated that the applications had to be received by 31 December 2004 instead of the previous requirement for the ensuing ministerial certificate issuing by that date. It would have been unreasonable to preclude the institutions concerned simply because the examination process had not been completed. The three cases in hand are to do with public institutions. I do not wish to comment on whether the applications will be successful since they are being examined, but the three proposals were from the University of Limerick, the Waterford Institute of Technology and St. Angela's College, Sligo.

The question of overpayments by PAYE taxpayers was raised by a number of spokespersons and Deputies. I recognise the concerns which have been expressed. The PAYE system has served the country well for 45 years and the Revenue Commissioners are satisfied that the vast majority of PAYE workers receive their full entitlements each year. These entitlements are, in the first instance, reflected in the tax credit certificates issued at the beginning of each year. Revenue is currently in the process of issuing over 2 million certificates to PAYE taxpayers for the 2005 tax year. These certificates reflect the most up-to-date information Revenue has on an individual and they are accompanied by a leaflet giving details of the credits or reliefs to which taxpayers may be entitled.

While it is right and proper that Revenue seeks to make sure that taxpayers receive their entitlements, it will always be important that taxpayers bring changes in their circumstances to the attention of Revenue. Many of the reliefs mentioned in recent weeks, such as medical expenses, tuition fees, service charges and union subscriptions, are not known to the Revenue until the individual claims for them.

Revenue is currently engaged in a comprehensive modernisation of its PAYE computer system, which will include the ability to make amendments and claims over the Internet and much closer computer links with the Department of Social and Family Affairs. When the roll-out of the new system commences later this year it will provide a greatly improved level of service for PAYE taxpayers, including, subject to defined parameters, a facility for automated reviews of liability where Revenue is satisfied that the figures are correct. The Finance Bill includes provisions in sections 20 to 24 to underpin this new service. These provisions can be discussed in more detail on Committee Stage.

Deputy Boyle suggested that the increase which the Bill proposes in the limit for publication of settlements with tax will lead to widespread low level tax abuse. I do not accept this argument. Deputies Crawford and Ardagh also discussed the question of these thresholds, although they took a different view. It is a question of balance. The limit of €12,700 has not been changed since it was first enacted at a rate of £10,000 in 1983. If indexed according to the consumer price index, the figure would be a little more than £26,000. In many recent publication cases, the bulk of the settlement consists of interest and penalties rather than tax underpaid, which could often be relatively small sums relating to periods many years ago. This goes against the original purpose of the provision when it was introduced in February 1983. It was said to be for "the larger back-duty cases involving default by the taxpayer". The new proposed level strikes a good balance.

Deputy Connolly is of the opinion that the excise duty on tobacco should have been increased in view of the known effects of tobacco on health. No one can say that the Government has been soft on smoking as we introduced the smoking ban in the workplace and since coming into power in 1997, the excise duty on a pack of 20 cigarettes has increased by €2. However, there is a limit and it must be taken into account when setting excise rates that the volume of cigarettes released from bond has fallen by 24% in the past two years.

Deputy Boyle raised the issue of biofuels. There was a provision in last year's Bill in this regard. The Government is making good progress in discussions with the European Commission on the detail of the scheme to be introduced. I am as anxious as the Deputy to get the scheme up and running.

Various Deputies raised the issue of tax relief for child care. Over recent years the Government has considered carefully the whole area of child care. The Government has increased child benefit by very substantial amounts since 2001. It has been increased by nine times the CPI in that period.

The equal opportunities child care programme funds capital development to increase places, support staffing costs for facilities targeting disadvantage and the improvement of the quality of child care. Over the next five years, 2005-09, the capital envelope for the planned programme of continued investment in child care facilities will be €313 million, which is expected to create about 17,000 places, 3,400 per annum for each of the next five years. The 2005 allocation for the EOCP provides €83.4 million of which €43.8 million is current funding and €39.6 million is capital funding. This is all new spending since 1997. Prior to 1997, the only equivalent provision was a pilot scheme which ran from 1994 to 1997 at a total cost over the three years of €1.6 million.

The Government has also undertaken measures to favour the supply of child care by tax incentives to set up facilities, providing 100% capital allowances available in year one for expenditure on the construction, refurbishment or extension of child care premises which meet the required standards of the Child Care Act 1991. There is also relief from benefit-in-kind taxation for free or subsidised child care where this is provided by employers. Taken together these represent substantial measures from a start-up in 1997, to assist with the cost of child care, in stark contrast to Deputy Ó Caoláin's suggestion that nothing of substance was being done.

Deputy Bruton also referred to indexation in the capital gains code. After indexation relief was introduced in 1978, there was high inflation in the 1980s and high capital gains tax rates. At the time, these high rates were a major deterrent for people considering disposals of assets. Now that the tax rate has been lowered to 20%, and inflation is consistently low, there is no cogent need to retain indexation relief in the capital gains tax system. Most countries do not apply indexation relief to the taxation of capital gains. As regards abolition of roll-over relief, referred to by Deputies Bruton and Crawford, roll-over relief made sense when CGT rates were 40% and above. As the Deputies will be aware, the rate was halved from 40% to 20% in budget 1998. In budget 2003, it was announced that no roll-over relief would be allowed for any purpose on gains arising from disposals on or after 4 December 2002.

The abolition of this relief is in accordance with the overall taxation policy of widening the tax base to keep direct tax rates low. It is logical to tax capital gains when they are realised and this change brings CGT into line with other areas. As regards the question of CGT in a compulsory purchase order situation, the CGT due on a disposal of land under a CPO is calculated in the same way as for any other disposal of land, that is, the total sum received will be the amount to be assessed for tax.

As regards the points made by Deputies Deenihan and Glennon and others in regard to the Gaelic Players Association, I have given a commitment that this will be thoroughly examined.

In answer to comments made by Deputies Ardagh, Glennon and Curran regarding stamp duty for first-time buyers of second-hand houses, I am glad to note that the stamp duty for first-time buyers of second-hand houses has been genuinely effective in helping these buyers take a first step on the property ladder.

Deputy Perry expressed some criticism of preliminary corporation tax payment dates. I note in this regard that, as he acknowledged, the Irish tax system is not over-burdensome for companies. The Government is trying to bring payment dates into line with international standards.

Deputy Deenihan referred to the issue of VAT deductibility for entertainment expenses and I note his plans to propose an amendment. This form of deductibility was available in the past and appears to have been widely abused.

I thank Deputies for their contributions to the debate. Time does not permit me to respond on all the points raised. I look forward to Committee Stage which will offer an opportunity for a more detailed discussion.

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