Brian Cowen (Laois-Offaly, Fianna Fail)

I thank Deputies for the many interesting contributions to the debate on the Finance Bill 2007 and I look forward to a constructive and informed discussion on Committee Stage. In my reply, I will respond as far as possible to the points raised by the Deputies in their remarks on the Bill.

Deputy Bruton referred to the alleged anti-family bias in the Bill and in other aspects of Government services delivery. I do not go along with that. If one look at the facts, in 1997 a married one-earner family on €30,000 per year paid nearly 25% of its income in taxes and levies and this year the percentage will be 5%, or one fifth of the 1997 amount. On €20,000 per year, the figures for tax liability were 20.7% then and 2.7% now. The same pattern of reduction applies to married two earners. The simple fact is that we have championed the family by reducing and removing the tax burden, increasing child benefit substantially and introducing measures to help with the costs of child care.

The position is that the tax burden has reduced considerably for all earners in the past ten years directly as a result of the policies pursued by the Government. There are many more people at work than there were ten years ago and they are paying much less tax on what they earn. It is not correct to say, as was implied by Deputy Burton yesterday, that a single person on a wage of €34,000 with additional marginal earnings due to overtime or some other reason will pay tax at the same rate as very high earners with incomes in excess of €1 million. The effective tax rate of a PAYE person on €34,000 is less than 10% in 2007. If such a person earns, say, an extra €2,000 in overtime, his or her effective tax rate will be about 11%. A person who earns €1 million will have an effective tax rate of 40%. Even where a person with income of that magnitude seeks to avail of tax reliefs to reduce their tax liability to very low levels, and the number that do so is small, the horizontal measure, which I introduced in Budget 2006, will ensure that their effective tax rate will be not less than 20% in any one year.

This Government's approach has been all about keeping personal and business taxes low to strengthen and maintain the competitive position of the Irish economy, and we have been very successful in doing so. The reform of the tax structure over the past ten years has been one of the contributory factors in our economic success, which gives people money in their pockets and lifestyle choices which were not available in the past to previous generations.

Deputies Bruton and Burton may also wish to note that for a married one-earner couple with two children on average earnings, Ireland has the lowest tax wedge in the entire OECD area. In addition, when cash transfers from the State are taken into account, such couples face a negative burden in Ireland because they receive more in the cash transfers than they pay out in tax and social security contributions. Ireland is the only OECD country where this is the case.

Deputy Burton decries the effect of individualisation and claims that this measure was introduced in 1999 to increase the female labour supply. This is not the full story. The weakness of our income tax system at that time was how heavily it bore on single people because, in order to improve their position, we had to give double increases to married one earners and this used up scarce tax resources. If we want to go back on individualised tax bands, we will inevitably raise the relative burden on single earners for a given amount of tax relief. While I accept that people may make life choices at different times in their lives, I am not sure if we can turn the clock back at this stage.

I welcome Deputy Bruton's positive comments on the various "tax back" initiatives being taken by Revenue to help taxpayers receive the tax reliefs to which they are entitled. To recall what is being done, starting in 2007 credit institutions will be allowed to operate DIRT-free accounts for those over 65 and incapacitated persons; and all age-related credits and credit for trade union subscriptions will be given as far as possible automatically. Revenue is also looking at making arrangements so that the non-reimbursed amounts paid on prescribed drugs under the drugs refund scheme can be automatically refunded at the person's marginal rate of tax, and for 2008 the plan is to move to giving automatic repayments in respect of certain hospital and other medical expenses. Other automatic relief options, for example reliefs in respect of nursing home payments, are also being explored. I regret that Deputy Burton does not appear to share Deputy Bruton's positive view of these developments and is still calling for the establishment of a tax advocate's office. As I indicated previously to the House, I do not see the need for such an office. A robust internal complaints procedure already exists in Revenue for handling taxpayers' complaints and taxpayers can also ask the Ombudsman to review their case if they are still not happy. Given the comprehensive and accessible system already in place for complaints or appeals by any taxpayer who feels unfairly treated by the tax system, it is not obvious to me that there is a case for putting in place the additional layer of a tax advocate's office.

On a related point, a number of Deputies criticised the fact that since 2003 taxpayers can only claim tax rebates for the previous four years. The quid pro quo for this is that Revenue can only go back four years in seeking tax due, except where there is clear fraud on the part of the taxpayers. There is a symmetry in this measure which is perhaps overlooked.

A number of Deputies have referred to the mid-Shannon scheme. First, for the record, I never said that all property-based incentive schemes would end. In budget 2006, I made it clear that any proposals for the introduction of new reliefs should, as far as appropriate, be time limited and be subject to an assessment of costs and benefits prior to their introduction where relevant, and that full information of those availing of the scheme be made available to Revenue. This commitment has been followed in full in that scheme.

This scheme, which originated from a submission received from Shannon Development in the lead up to Budget 2006, was the subject of an ex ante evaluation by Goodbody Economic Consultants which I have had published on the Department's website. One of the principal objectives of that evaluation was to assess the potential costs and benefits of the proposed scheme in advance of any implementation. In the view of the consultants: the Shannon region appeared to be relatively underdeveloped from the point of view of tourism; there was potential for a relatively small and targeted investment in tourism infrastructure in line with what they saw as the limited tourism potential of the region; and a subsidy to attract such investments would usefully redistribute economic activity to a relatively less well developed part of the country.

Accordingly I have introduced this time-limited pilot measure. However, while I appreciate Deputy Bruton's perceptive analysis of how the worth of such schemes should be assessed, cost-benefit analysis helps to inform the assessment but all such decisions on reliefs in the end come down to a matter of judgment. I note there is broad support in the House for this measure, when one listens to the wider spread of Deputies commenting on the Bill, and I welcome that.

To reassure Deputy Burton, the scheme does not apply to apartments or holiday homes and the environmental impact, according to the study I mentioned, should be limited. The scheme is aimed at promoting the development of tourist-related infrastructure in the region and the selection of projects will be carried out by an independent board in line with guidelines to be drawn up by the Minister for Arts, Sport and Tourism in consultation with me.

Deputy Cowley made a plea for tax relief for projects in Mayo, in particular for Knock, and Deputy Boyle referred to Cork. This was in contrast to Deputies Bruton and Burton who favour limiting the spread of such relief. We can discuss the merits of both of these courses further on Committee Stage.

Deputy Boyle asked what is so special about the horse industry. Jobs are what make the industry important — jobs in rural areas and jobs where no jobs might otherwise arise. I spelled this out in my Second Stage opening remarks. Deputy Boyle's concern regarding the sale of a stallion after the rolling over of the four year allowance for the cost of stallion acquisition is wide of the mark. In cases where the cost of a stallion is written down for tax over four years and the horse is subsequently sold, the stallion owner will be taxable on the full sale price rather than just the profit from the sale of the horse. Therefore, it is hard to see how the measures introduced in the Bill could encourage the widespread selling of horses for the purposes of rolling over the four year allowance along the lines described by Deputy Boyle.

Deputies Boyle, Burton and Bruton raised the challenge of global warming and looked for further measures to reduce our carbon footprint. My policy is to incentivise carbon reduction by fostering new technologies, encouraging alternative fuels and extending tax breaks such as the business expansion scheme, BES, to genuine recycling — wind farms and bio-fuels already being covered. There are other policy choices, for example, increasing the tax on coal, gas, electricity, oil, air fares and so on and if that is the Opposition's policy, in all fairness, they should tell the voters so.

Some Deputies have commented on the lack of green items in this Bill. However, the most significant tax item that this House has ever passed in respect of alternative energy was in last year's Finance Bill. Finance Act 2006 provided for excise relief of more than €200 million for bio-fuels over a five year period. This scheme commenced last November on foot of receiving the necessary EU state aid approval and has managed to successfully kick-start the domestic bio-fuels industry. The scheme will ensure 2% of the transport fuel market comes from bio-fuels by 2008. Significant additional non-fiscal measures which will increase this target are due to be announced shortly by my colleague, the Minister for Communications, Marine and Natural Resources, Deputy Dempsey.

Deputy Ó Caoláin wanted to know why we cannot proceed with vehicle registration tax, VRT, changes now on high CO2 emission vehicles. This is simply because we need to get this change right from the outset and to consult with both car dealers, car users and those concerned with the environment. Any system linking VRT to CO2 emission levels will need to be relatively simple, and capable of adjustment over time to maintain appropriate downward pressure on emissions. We also need to make sure we will be able to continue to get the €1 billion or so tax revenue, which, in the end, is the reason for VRT. Incidentally the closing date for receipt of submissions under the public consultation process is 1 March, so my officials will very shortly commence work on the design of the new system taking into account the views of submissions received.

On the more general point of our national climate strategy, my colleague the Minister for the Environment, Heritage and Local Government, Deputy Roche, has established a ministerial task force on climate change to oversee the preparation of a new strategy. He intends to publish this strategy by Easter, taking into account submissions received in the public consultation, policy developments in other sectors, in particularly energy, as well as commitments made in the budget.

Deputy Boyle's comment that the cost of carbon credits for this country will be of the order of €1 billion to €1.5 billion is completely inaccurate. Independent consultants retained by the Government have assessed the average price of credits to be €15 per tonne in the 2008-2012 Kyoto compliance period. Against Ireland's total credit purchasing requirement of 18 million tonnes this translates into a cost of €270 million.

Deputies Bruton and Ó Caoláin referred to our dependence on the property boom. In so far as stamp duties and capital tax reserves are concerned, this is not the case. We have not built the budget on expectations of continuing large increases in these sources of revenues. Our tax forecasts now, and in previous years, are modest, indeed cautious, on this score and we are as a result criticised for large overshoots. I should also point out that the main reason we are receiving more in tax is the significant growth in the economy. The tax and economic policies being pursued by this Government have put more money into the pockets of taxpayers and they are spending and investing that extra money as they see fit. This extra spending and investment yields extra taxes.

Deputies Connolly and Crawford expressed their disappointment at the stamp duty threshold for first time buyers on second-hand houses not being increased from €317,500 to take account of house price increases. They will, however, be aware that the Government decided to ease the burden for first time buyers by instead increasing their mortgage relief — doubling the ceilings on mortgage interest relief for first time buyers from €4,000 to €8,000 in the case of a single person and €8,000 to €16,000 in the case of a married couple or a widowed person. This initiative is aimed at putting the money straight into their pockets instead of into the pockets of sellers, which would probably happen if the stamp duty threshold was changed.

Deputy Burton has mentioned the use of company shares, where the stamp duty is 1%, to circumvent the stamp duty of up to 9% on acquiring land. This is claimed as some sort of special deal we gave to land developers when, in fact, the 1% stamp duty on company shares dates from 1951 when it was set by the then inter-party Government. It was looked at in 1996 when the rainbow Government sharply increased stamp duty on residential property to pay for the abolition of residential property tax, RPT, and local service charges, but was left unchanged. Contrary to what the Deputy claims, our fingerprints are not on this.

Deputy Bruton referred to the proposed renewal of the BES and associated seed capital scheme and the survey carried out by my Department during summer 2006. The aim of the survey was to identify the types of companies that generally avail of the scheme and to determine the nature and extent of the benefits of the scheme to companies that have availed of it in the past. Of the 1,391 companies surveyed, 491 responded, representing 35% of those to whom the survey was sent. This is a very good response rate for a survey of this nature and the survey clearly indicates that the BES has been good for manufacturing, good for jobs and good for investment in small firms throughout the country.

I would like to clarify for the House, however, that my decision to extend these schemes was not based solely on this survey. A thorough review was carried out by my Department in conjunction with the Department of Enterprise, Trade and Employment and the Revenue Commissioners and the results of this will be published shortly. The review took account of the findings of the report of the Small Business Forum, Small Business is Big Business, the survey of small and medium enterprise, SME, finance equity carried out by Forfas, and the PricewaterhouseCoopers, PWC, report Strategic Advisory Services, Enterprise Ireland's Seed and Venture Capital Funds Programme 2006, as well as a range of submissions from interested parties. The extension of the scheme was considered by the tax strategy group in the context of budget 2007 and the relevant papers will also be published in the normal way.

On the basis of all of this work, I concluded that there was a strong case for extending the schemes, given the clear market failure in providing equity capital for small firms in their start up and early development phase, the evidence of how vital the schemes have been in the past for such firms and the continuing needs in this regard, the potential return to the economy from indigenous Irish companies and the clear support for continuation from a large number of representative and other bodies in the public and private sector.

On a more macro-economic level, Deputy Bruton indicated that public spending was outpacing economic growth by 50%. This is not correct as growth in public spending, both current and capital, has been maintained at around 10% on average over the past five years, compared with average annual gross national product, GNP, growth of around 9% over the same period. This level of increase has allowed for major improvements in the level of public services with tangible impacts in areas such as education, roads and public transport. More resources are being allocated to strengthen front line public services such as health and justice and we have invested considerably in building up our economic infrastructure in a way that supports the growth potential of our economy.

The recent national development plan, NDP, provides a coherent framework for progressing this strategic approach to resource allocation into the future. Moreover, in making available the necessary resources, this Government has succeeded in keeping our public finances within sound and sustainable overall parameters, to the extent that Ireland's overall economic and budgetary position is now the envy of Europe. Our national debt is among the very lowest in Europe, we are running a healthy budget surplus, our economy is strong, and unemployment is low.

Naturally, it is not just a question of making available the resources, as we have done — good governance requires that we ensure that the public gets good value for money for every euro spent. That is why the Government has put in place a comprehensive value for money framework that addresses every aspect of public expenditure from the planning phase right through to implementation and delivery. This Government has made available the resources that are necessary for public services and for investment in our economy. We have done so in a way that is manifestly prudent and sustainable and we are taking very concrete and innovative steps to promote value for money and to link public expenditure with public service outcomes.

A number of Deputies mentioned the issue of farm taxation measures. I recognise the important contribution of the farming sector and I have included specific reliefs in the Bill for the farming community and, more important, for the rural economy in general via the mid-Shannon scheme and the replacement of the stallion relief scheme. This Government's commitment to support the vitality of the rural economy is not open to question.

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

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