Brian Lenihan Jnr (Dublin West, Fianna Fail)

The intention behind this amendment is that the exemption from corporation tax provided by section 486(c) of the Taxes Consolidation Act 1997 in respect of the income and gains of new start-up companies should be extended to sole traders. Deputies opposite acknowledge that I do not want to go over ground which has already been covered. The rationale was to encourage those who are unemployed to set up as self-employed sole traders. I am not convinced about this amendment because the inevitable pressure will emerge as to why a person setting up in salaried employment cannot avail of a similar relief. The incentive is aimed at stimulating new activities, which I appreciate, but the operation and impact of the incentive is better targeted, monitored and controlled by confining it to companies and leaves it less open to unintended manipulation.

My opposition to the amendment is not primarily on cost grounds. It remains the case that the incentive, in its current form, is more cost-effective in terms of value for the Exchequer's revenue forgone than would be the case if it were extended to income tax liabilities. Resources are scarce and we need to invest them in areas where we believe we will get the best return. The logic of the proposal to provide tax relief to individual taxpayers who are start-up sole traders could be extended in order to provide a similar tax exemption to individual first-time employees. The trend in all of our tax arrangements in the past 20 years has been to try to equalise the position of the self-employed and those in employment, and this proposal points in that direction, namely, that I should provide a similar tax exemption to individual first-time employees. I would like to be able to do that, but I am not in a position to do so. We have scarce resources.

The Opposition referred to the different rates of tax during the debate, which creates a multiple of costs in terms of the impact of the proposed relief. A further important point can be made for maintaining the provision of the relief through the corporate tax system. Any additional funds or savings arising through the relief and retained in the company's structure can be used to reinvest in the business, which is the intention behind the incentive. If, on the other hand, additional funds or savings are paid out by the company for the benefit of directors or shareholders they will be subject to income tax in the normal way.

There is a safeguard, in terms of the use of the savings generated, as intended by the incentive. It would not be available if one extended the liabilities of a sole trader or a non-corporate entity. In contrast to the position for start-up companies, there will be no tax charge to be paid as a result of drawing funds out of the business in a non-corporate context. There are various grant aid and other supports available to persons setting up a new business, through the county enterprise boards and Enterprise Ireland. I will not discuss the entire scheme and the different channels in place. Suffice to say, there is already substantial public investment in incentives for those who do not have companies but wish to start up businesses. The form of the relief, as it stands, is a valuable protection for the taxpayer, in so far as moneys generated as a result of the relief have to be re-invested in the enterprise or are subject to taxation.

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