Willie O'Dea (Limerick City, Fianna Fail)

In regard to the Minister's announcement on employers' PRSI, I had been somewhat confused as to how exactly this would operate, arising from certain statements made by the Minister and some of his colleagues. However, it is made reasonably clear in today's statement, which I welcome. It would appear that in respect of jobs which generate up to €356 per week income an employer who creates such a job will have his or her employer's PRSI halved, from 8.5% to 4.5%. The Minister must recognise there is a danger in this situation. What about the case of a person earning, for example, €370, €365 or €360 per week? In such a case will there not be an incentive for an employer to reduce wages to avail of the new rate of PSRI? I do not know how the measure will operate - we will tease it out when the Minister answers questions on Thursday, as I am glad to see he will do. Neither do I know if there is to be a kind of tapering, or marginal, relief that may be worked up gradually from the figure of €356. This must be done very carefully otherwise the cure is in danger of being worse than the disease.

The Minister announced a very important change in regard to the tax treatment of research and development expenditure which I warmly welcome. Leaving aside terminology in respect of above and below the line, in effect this means that in order to encourage people to invest in research and development this State will provide tax incentives or credits. As a result of this change, people who now provide such investment will, in almost every case, be able to claim full credit for the investment they provide. That is a very substantial step forward. We must remember there is very substantial tax competition at present in regard to the tax treatment of intellectual property. Other countries have taken various initiatives in this regard. The success of this country has been phenomenal if one considers the figures for recent years as released by the relevant agencies. Ireland has been phenomenally successful in attracting this type of investment which is absolutely vital for the future health of its economy..This is a very worthwhile initiative.

If I may presume on the Minister's obvious interest in this area there are some other aspects of this issue I wish to mention. There is a difficulty with the way such tax treatment is currently calculated, in terms of a base year of 2003 and expenditure over the amount spent in the base year. That has created a number of difficulties for what I imagine to be a relatively small number of firms which spent a great deal of money on research and development in 2003 and have been spending similarly since then. Perhaps a small adjustment, if not in the forthcoming budget perhaps in that of December, would yield very desirable results in that regard.

Another point I wish to make to the Minister in the context of tax relief on research and development concerns the outreach cap. As I understand it, at present an enterprise is allowed to outsource only 5% of its expenditure on research and development to a research institute. It is time to raise that cap substantially. One impact is to prevent linkage between the work done in this regard by research institutes and the work done by business. The Government has taken over many other policies designed to encourage linkage from the previous Government and has announced them in the programme for Government. Basically, maintaining the cap in place runs directly counter to many of the Government proposals with which I agree.

Will the Minister explain what became of the promise in the programme for Government to allow businesses that spend up to €100,000 on research and development to pay the full amount with no reference to the base year? This commitment was written into the programme for Government but I do not see it in the document today and I am bringing it to the Minister's attention.

Small and medium-sized enterprises are the lifeblood of the economy. I welcome the many references to SMEs in the programme for Government. Although there is some provision for them in the document, it is rather scanty. It relates to public procurement and is rather vague. There is no doubt that there is great capacity for SMEs to improve their business through public procurement but I state without fear of contradiction that the efforts made to date to improve the SME share of public procurement business have been an abysmal failure. For example, the first thing they run up against is the requirement for financial records and history. Many SMEs do not go back to the year dot or do not have 50 years of audited accounts, etc. There is too much emphasis on the financial history of the applicant for public procurement jobs and less on the capacity of the applicant to do the job.

Another problem is the famous Department of Finance circular 10/10, which was supposed to facilitate SMEs to access public procurement business. The circular has been honoured more in the breach than the observance. It was supposed to deal with such matters as transparency regarding opportunities which would arise, the capacity of companies or SMEs to break the contract into job lots, the capacity of SMEs to get together and make a joint application, information about indemnity and insurance etc. However, this is not happening. I put it to the Minister there is a need to urgently review this circular with a view to clarifying many aspects of it and to ensure that it is properly enforced.

A section of the document deals with labour market activation. I thought it looked somewhat familiar and now I remember that I saw it in the last budget and in the four-year plan. The measures seem to build on those. I recall the Minister for Enterprise, Trade and Innovation, Deputy Bruton, stating in Opposition that we had to consider scale with regard to these matters. He appears to be considering scale now, albeit a slightly increased scale. There are two difficulties in this regard. First, we must think bigger. If the present rate of unemployment is maintained - hopefully it will not increase - we must consider the scale of it. When he was in Opposition, Deputy Bruton rightly stated - I fully agreed with him at the time - that these measures could be cost-effective regardless of scale.

Second, the present system is unwieldy to say the least. It appears the Government is grafting on these new places to the present system. I realise the introduction of the one-stop-shop, which I welcome, will considerably alleviate the situation in this regard. Recently, I put a question to the Minister for Social Protection in respect of when exactly the one-stop-shop will come into operation. I was not overly enthused by the reply I received because it appears to be years away. What will happen in the meantime? We could do with some streamlining.

I wish to put forward several ideas with regard to labour activation. First, there should be a specific unit in one Department, with access to its website, to monitor the implementation of these schemes to ensure that we are getting value for money and that the schemes are working correctly. Second, apparently there is a problem with branding. I am informed employers do not relate well to opportunities with a social content. This is not rocket science, it is a question of re-branding. We could call it upskilling or further training for the new economy or whatever.

I welcome the Minister's announcement of the top-up payment of €50 per week on social welfare. However, in the vast majority of cases of which I am aware it will not work because the difficulty is that we are dealing with interns or graduates being taken on for work placement in industry or business for a given period. Most of these will be living at home and because of social welfare rules in this country they will be entitled to very little or perhaps no social welfare. In the meantime, the employer is prevented from paying them any money. The €50 initiative announced today is welcome in so far as it goes but I do not believe it goes nearly far enough. I urge the Minister to consider the question of giving legal status to interns. If internship is to be a feature of what we are doing in terms of labour activation then they deserve some legal status at least.

With regard to VAT changes, the original suggestion in the programme for Government was that the 13.5% rate would be reduced to 12%. The Minister has introduced a more focused scheme today and it represents the lion's share of the spending the Government has undertaken in this initiative, some €350 million in a full year. The perennial problem is whether the decrease will be passed on. I have no hesitation in admitting that enforcement in this country is fairly patchy. I am unsure what the Minister has in mind to ensure this is passed on so that consumers may properly avail of it.

A considerable range of labour intensive areas which are VAT rated at 13.5% have been excluded. The Minister is focusing the measure, which is fair enough. However, when one focuses a measure in one direction, one leaves out a whole range of other areas. Will the carpenters, electricians or plumbers be covered? I note the change covers meals in restaurants and theatre tickets, etc. Therefore, as a result of the initiative, the Government will ensure that someone who is having a meal out will pay less but the 13.5% rate still applies to the ESB and electricity charges suffered and incurred by people living in fuel poverty. There is no provision for them. Also, I note hairdressing is included. Yesterday, I passed a barber shop in Limerick that offered haircuts for €20.

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