Shane Ross (Dublin South, Independent) | Oireachtas source

I am grateful for the opportunity to speak on the Bill, which gives us an opportunity to review the Government's strategy, or lack thereof, for the economy of the country.

I note the bullish remarks made in the Minister's opening speech about the prospects for growth and the prospects for the economy. Generally, that is what one expects from a Minister for Finance in a position of this sort. The view he expresses is undoubtedly the view that is expressed by overseas Governments. It is undoubtedly the view expressed by the troika. It is undoubtedly the view that is expressed mainly by the IMF and the EU as well. The Minister is reflecting the plaudits that he and the Taoiseach have been receiving for their steerage of the economy over their period of office. Indeed, no one is more pleased with what has been happening in the economy than the German Chancellor and her satellites in other countries in Europe, because we are doing precisely what they asked us to do. The question is, at what cost, and is the cost worth it? It is my belief that it is at a heavy cost, that it should not have been paid and that it probably is not worth it. Having said that, I acknowledge the fact that there has been in recent weeks a better mood in this country. There is a little more business optimism. Whether or not it is based on reality is another matter. Undoubtedly, people are beginning to ask whether this is true or whether all the stuff that we are getting from the Government about having turned the corner is correct. What I dread is the possibility that they will be bitterly disappointed.

Of course, I note that the Minister for Finance predicates all his budgets on a 2% growth rate. It is dangerous for him to base his budget measures on growth rates handed to him from somewhere else. It is possibly a little more dangerous to take them from the Department of Finance, but figures from Europe yesterday on European prospects for GDP would not indicate that the sort of growth we were anticipating only a couple of weeks ago will necessarily happen. It is an extremely fragile recovery and it is also something that is extraordinarily difficult to predict.

I will make one or two points about taxes. No doubt, as I have stated, there were some good measures in the budget. There are some welcome and courageous measures in the Bill. The uniform welcome that was given to the retention of the 9% VAT rate on hospitality and tourism should tell the Minister something. It is not only as a result of the strong lobby group that has lobbied hard and successfully, but also because somewhere in the Department of Finance the penny has dropped. It takes a great deal to make the penny drop and precipitate a change of mind in the Department of Finance. Somewhere the penny dropped that by reducing taxes one creates a little employment. The penny dropped because this was done last year as a temporary measure - the rate was reduced from 13% to 9% - and the tourist sector and hospitality sector have boomed, or certainly taken off and prospered, as a result. The significant point is that employment has been retained and has perhaps increased - one cannot measure it exactly - as a result of this measure. There is little doubt about that. One cannot tell what would happen if the rate was readjusted to 13%, but what one can say is that the rise in employment and the cut in VAT coincided and are obviously very much related. The Government, in its wisdom, and rightly so, decided that the cut to 9% would remain. Why did the Minister not draw some rather more sensible and far-seeing conclusions from that and state that tax, of itself, as a weapon, is not necessarily good for the economy or good for the people, and that reducing taxes in certain areas is good for employment in those areas? What I would like to have seen was a statement by the Government that because the measure had worked in the areas concerned it was going to try it in other areas such as the retail sector or, maybe, in a gentle way, in the construction area, where they are crying out for help and need help. These are also labour-intensive areas. If the special VAT rate produces jobs in one area, it will certainly help to produce jobs in another. What seems to have happened here is that there has been a piecemeal decision, partly as a result of strong lobbying, to retain the lower rate, but the Government has not gone the further mile in stating that tax reduction is a weapon that will produce more employment. We rightly make an enormous amount of fuss about defending the 12.5% corporate tax rate, and that was in the Minister's speech as well, because of the extraordinary employment that results from our having a low rate of 12.5%. Undoubtedly, that is the key figure that attracts multinationals. If we can use tax there and we can use tax in the hospitality sector, we can surely use it as well to provide an incentive to small businesses.

Having said that, I do not accept the Government's decision to fund what it believed to be a loss resulting from the retention of the lower VAT rate by increasing the pensions levy. This is a breach of trust of a monumental and inexcusable nature. By hitting the pensions levy and extending it, the Government has broken a promise, but has also hit the sector with cuts in expenditure. Obviously, the Government regards those who have been paying into pensions, particularly the elderly, as fair and defenceless game. Nowhere is that more apparent, as well as in this treacherous measure to increase the pensions levy, than in the increase in DIRT, to which Deputy Maureen O'Sullivan referred. The increase in DIRT also hits those who have been provident, those who have been forced to save for their old age and those who are defenceless. Actually, the rate is not 41%; it is 45% when one includes the PRSI. Savers will really get back a negative amount. Those who have saved money in this difficult period, most of whom are elderly, will be penalised for doing so. The Government may state that this is a means of getting people to spend. I doubt if it will do that. My guess is that savers' instinct will be to circle the wagons even further. It is the lack of vision that is the problem, because the tax incentives have worked elsewhere.

The Government got considerable mileage from its levy on the banks. It is a good idea, although it creates a circular movement in that by levying AIB one is levying the taxpayer. It is important that we also use taxation in a way that avoids the banks which brought competition to this market but have recently departed, such as ACC and Danske, seeing Ireland as a hostile place that taxes them out of existence.

I do not agree with Deputy Maureen O'Sullivan on the financial transactions tax for several reasons. It will deter smaller banks from competing with Bank of Ireland and AIB and, therefore, will enforce the cartel. The tax incentives given to the IFSC, and copied by many other Governments, has brought employment for more than 30,000 people in that area of the Dublin docks. That lesson must be learned. Foreign investment is the engine of the economy at present. Small business is still unable to get money from the banks the Government is supposed to be forcing to offer credit. We must show imagination in using tax as a delicate weapon that, where necessary, offers incentives to businesses to create employment.

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