John Curran (Dublin Mid West, Fianna Fail)

I welcome the opportunity to speak on the Finance Bill which specifically gives legislative effect to a number of the proposals made in the recent budget. Before looking at the Bill in detail, I would like to look at its economic background.

For more than a decade we have seen an extraordinary period of economic growth. This did not happen by chance, but rather by adopting and implementing a range of policies that fostered economic development and growth. We have succeeded in attracting a significant amount of foreign direct investment into Ireland. On a per capita basis, foreign direct investment into Ireland is the highest in Europe. This has been achieved by the strategies adopted by State agencies and the policies pursued by Government. Since 1997, for example, the economy has grown at a rate of more than 7% annually.

We must continue to ensure that Ireland remains a pro-enterprise environment. The foundation has been laid upon which to build permanent progress, but this cannot be taken for granted and we cannot be complacent. I have heard Opposition Members say that economic growth would have happened anyway irrespective of who was in power, but nothing could be further from the truth. The economic growth we have seen has occurred because of a range of policies we have introduced, such as low taxation, lower corporation and income tax and efforts to attract foreign direct investment into the country. These have been good policies. In addition, there have been partnership agreements. We have created the conditions for economic growth, but it is the people who have taken the opportunity, worked hard, returned to education and gone for further training who have driven the economy. The result is what we see today and we cannot take it for granted.

If we are to maintain a pro-enterprise environment, we must ensure that regulations do not unreasonably discourage small and medium businesses. While we recognise that regulations are necessary, they must be proportionate. Businesses cannot afford to be unnecessarily caught up in red tape. A reduction of the burden of regulation on business that has been much welcomed is the raising of the audit exemption limit to €7 million. A review of other business regulations is also necessary.

It is worth noting that small and medium enterprises, businesses employing up to 50 people, now employ more than 800,000 people or 40% of the workforce. We should not forget that these businesses are critically important to the economy. Some aspects of the Bill specifically address the issue of small businesses. Section 42 confirms the budget day announcement that the preliminary corporation tax liability threshold for treatment as a small company will be increased from €100,000 to €150,000. New or start-up companies with a corporation tax liability of €150,000 or less for their first accounting period will not be required to pay preliminary tax in respect of the first accounting period. Provisions are also being introduced under which large companies in a group will be allowed offset their preliminary tax between group members for the purposes of working out the adequacy of such payments for interest purposes. We must remain conscious of these SMEs that employ 40% of our workforce.

With regard to very small companies, sections 68 and 89 contain a number of important provisions on the VAT code. Specifically they confirm the budget increases of VAT registration thresholds for small companies, from €27,500 to €30,000 in the case of services and from €55,000 to €70,000 in the case of goods, with effect from 1 March. These initiatives are welcome.

I want to look briefly at the area of income tax. The Government is committed to a taxation policy designed to maintain and strengthen the competitive position of the economy and foster improvements in productive capacity, economic and social development and equity. It is also committed to maintaining a sound fiscal stance and will continue to implement enlightened policies in this area.

The Bill provides for increases in personal and PAYE credits to ensure that those on the minimum wage, which has increased, will stay out of the tax net in 2007. It has reduced the top rate of tax from 42% to 41%. There have been increases in standard rate bands to ensure that those earning the average industrial wage will not face a liability for the higher rate of tax in 2007. Personal tax credits and bands have been increased to ensure that at least 80% of income earners will pay less than 20% of their income in income tax in 2007. We have one of the lowest income tax regimes in the European Union.

Members of the Opposition often use the fact that a substantial number of people are exempt from tax when talking about those on the higher or lower rate. They do not talk about the total number of people in employment, but about people who are paying tax at the higher and lower rates. They deliberately exclude those exempt from tax from their calculations so as to manipulate the figures. The number excluded is a substantial number as it includes all those on the minimum wage who are totally exempt from income tax.

I want to look briefly at the issue of first-time buyers. It has often been alleged here that high property prices are a result of the cost of land and sites and developers' profits. I do not disagree with the allegation that property developers are making substantial profits. However, I fundamentally disagree with the argument that a property's cost determines its purchase price; nothing could be further from the truth. The purchase price that someone pays is absolutely a function of supply and demand. We have recently heard arguments about stamp duty for first-time buyers and so on, but we should be absolutely clear that the price that someone pays for property depends entirely on market forces. Those property developers have made substantial profits, but we must take a step back to see why. The fundamental reason is that affordability and access to loans in the shape of lower deposits, longer-term loans and lower interest rates have driven up prices significantly.

Before the last budget there was a great deal of debate regarding stamp duty for first-time buyers, but the Minister chose not to alter the position that obtained, a decision with which I agree. If stamp duty had been lowered for first-time buyers, the net effect would have been to benefit the person selling the property rather than the buyer. I welcome the Minister's move in this case instead of lowering stamp duty for first-time buyers. We must be clear that the price that people pay for a property is not specifically related to the cost of the site or the construction. It is specifically related to what the market will bear, with prices decided by demand.

In that regard, the changes made in section 6 of the Bill, which confirms the budget increases and the ceiling on mortgage interest relief, are extremely beneficial to first-time buyers. I do not mean those who will buy in future but those who have bought recently. For a single first-time buyer, the ceiling is doubled from €4,000 to €8,000, and for those married or widowed, it is raised from €8,000 to €16,000.

When Deputy Rabbitte asked questions today, he referred to high property prices in Dublin, making insinuations about the Taoiseach's friends and so forth. That was absolutely disingenuous given the prevailing economic position. We have high property prices in Dublin because of supply and demand. Demand is one issue, and supply the other, but affordability is driven by access to funds. In recent years, we have seen mortgages extending over much longer terms. In my day, if one could get a mortgage over 20 years, one was doing well. Now they have gone up to 40, and I recently heard a radio commentator talk about a 42-year mortgage with lower interest rates. That is primarily what has driven prices up.

Those who have specifically argued for a reduction in stamp duty for first-time buyers would not have delivered the market's competitive advantage as they intended. However, the Minister's move in this Finance Bill and budget is delivering competitive advantage to the first-time buyer, which is what I want to see.

While the midlands are not my area, I have an interest in that part of the country. I would like to acknowledge the improvements and advances that the Minister is making regarding tourism along the Shannon. I have taken most of my holidays in Ireland. With two or three children, we have been abroad only twice in the last 15 or 16 years. All our holidays have been here, and the midlands region, particularly along the Shannon, where I have holidayed once or twice, has vast potential. Too often we Dubliners who wish to holiday in Ireland speak of Cork, Kerry or the west coast. The midlands have——

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