Michael Noonan (Limerick East, Fine Gael)

I support this amendment in general terms. It is a good idea and should be normal practice when a Minister proposes changes in the tax code and particularly ones that involve tax increases. This arises from our previous debate on tax breaks, specifically on section 23 and capital allowances. While some people are against these in principle, I am not. By and large, people respond to the profit motive and if such a tax break is introduced they will respond to it. If the way in which they behave gives an economic or social benefit to the wider community it is worth examining the proposed tax break. As I said on Committee Stage, we have seen examples of where such breaks were quite beneficial. For example, tax breaks have stimulated inner-city regeneration projects all over the world, starting in some American cities and then in Europe.

I recall that in the 1980s the late John Boland, as a Government Minister, was one of the great advocates of tax breaks. He applied a series of them to derelict inner-city areas, which were successful at a time when there was little such activity to provide jobs. More than anything else, they removed acres of dereliction from city centres. In my own city of Limerick, 39 acres of derelict sites were designated within half a mile of the city centre. They were all rebuilt and it was a good development project.

Other tax breaks were provided for social purposes. I remember when it was virtually impossible for families to get any relative into a nursing home because there were not enough homes and consequently insufficient beds. A tax break was provided by a former Minister for Finance, Charlie McCreevey, which provoked a rush to build and invest in nursing homes. That provision had beneficial social consequences.

The problem with tax breaks is when they become an industry driven by tax lawyers for the purposes of tax avoidance. One of the objectives of that industry is to enable people to turn income into wealth at the expense of the taxpayer. The crucial concept is that tax breaks designed to turn income into wealth are of no benefit to the wider community. It works very simply in that instead of paying the tax one should pay to the Revenue Commissioners, one gets a break. One then converts that tranche of income into a house, apartment, hotel or some other kind of fixed asset. Consequently, a small group of people is increasingly enriched. The common factor in all such tax breaks, however, is that if unpaid tax is used to convert income into a fixed asset, certain individuals are enriched. It is therefore a device for turning income into wealth, which is of no benefit to the wider community. It hurts the wider community because the income paid to the Revenue is used for social and economic purposes by the State, but if certain income is foregone then there is no such benefit. All budgetary measures should therefore be analysed carefully.

It is a flaw in our budgetary system that proposals from the Minister for Finance are, in the first instance, examined to see how much money they will yield. The test is tax yield or tax foregone. The second analysis is the political effect of the proposed measure and whether the party proposing it will lose or gain votes as a result. However, there is no real assessment of the social or economic effects of many such measures. There is a crossover between political fallout and social effects but when a tax break is being introduced there should be an analysis of its economic and social effects. The tax foregone should also be assessed, in addition to the potential yield of a tax increase. In view of the business we are in, there is an assessment of the political impact but not of the social or economic impacts. In general terms, therefore, I agree with the proposition in the amendment.

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