Martin Mansergh (Fianna Fail)

I warmly welcome to the House the Minister and his officials, former colleagues of mine on the tax strategy group.

The Minister for Finance is now the longest serving Finance Minister since the 1930s and there is no doubt that he has made an impact, which both friend and foe will agree is greater than any of his predecessors. His period in office since 1997 coincides, but is not coincidental, with the greatest period of economic expansion in the history of the State and long may it continue. I was at an art exhibition in Cologne where I saw a picture of a tiger in a European setting. I thought it was the symbol of the Celtic tiger and I will send the Minister a copy.

The Minister — when I give the statistics, Members will see this is not hyperbole — has discovered the philosopher's stone of increasing tax revenues while reducing tax rates, greatly increasing public expenditure and at the same time improving the public finances. If one goes back to 1996, the last full year of the rainbow Government, tax revenues were €16 billion and in 2004 they will be €33 billion, a little more than double. The Minister did not achieve this by doubling the tax rate. The standard rate of income tax was reduced from 26% to 20% while the top rate was reduced from 48% to 42%. Corporation tax was reduced from 36% in 1997 to 12.5% and capital gains tax was halved from 40% to 20%. While we are on the subject, gross current expenditure in 1996 was €19.5 billion and this year it will be €39.3 billion. Capital expenditure at €2.1 billion in 1997 increased to €5.5 billion in 2004, more than double. However, the general Government borrowing level was 64.5% in 1997 which has been reduced to 33% in 2004. All the signs are that the public finances are in very good shape. I note Senator Browne did not comment on benchmarking, which last autumn was thought would wreck and ruin the public finances. In general, he raised only quibbles but I do not blame him for doing his job.

I was in Germany after St. Patrick's Day and a headline in one of the German newspapers caught my eye. It stated that full employment was possible in eight years, according to a comment by the president of the external trade chamber. We practically have full employment, with an unemployment rate of only 4.5%. I also note that the current issue of Der Spiegel commented that with its tax policy, Ireland attracts entrepreneurs from all over the world who are willing to locate abroad — more or less suggesting, albeit in a slightly exaggerated way, that Ireland is hovering up foreign investment. I heard the Labour Party's Senator Brendan Ryan state that the Fianna Fáil philosophy was winner takes all. I do not agree with him. The Fianna Fáil philosophy is that everyone is a winner and they have been under the Government's tax policies.

The Minister gave priority and nobody, including CORI, could fault him on weighting the benefit to the low paid. For those on the minimum wage, 90% of his or her income is free from tax. It was a move unassailable from the point of view of equity. Senator Browne has to take account of the content of the Minister's speech, that 35% of people registered with the tax authorities are not paying tax at all. When one states that 50% are on the upper rate of tax, one is referring only to those paying tax. However, if one is referring to income earners subject to the tax code, it is only 33%. I wish it were fewer, but it is a good achievement.

We have got much credit for having the lowest tax wedge in the European Union and that is particularly family friendly. I was particularly struck by the Minister's statistic that the amount of income tax paid by those on the average industrial wage is 6% today compared to 14% in 1997. The Opposition should recognise the general advance and its equity. Part of that was due to the tax credit revolution during the last period of office. The Minister has been very good over a number of budgets to the elderly. A tax exempt income of €31,000 for a married couple is impressive. The Minister, although he might not always be credited for it, has good relations with the trade unions and the social partnership is shown by the increase in the credit for trade union membership.

I am glad to note that Luas will be included on the travel pass. I remember that in the tax strategy group, we had a great many discussions on what to do with the income of the bean an tí. In a sense, the pragmatic solution is to do nothing and let it be tax free. I query whether a mother who looks after two or three other children is a similar case and whether the sensible approach would be to make it tax free, thereby encouraging a solution to the child care problem.

If we want a film industry in this country, film relief is essential and this is partly a competitive issue. If other countries are giving generous tax reliefs to films and if we want to compete, we have to do the same. The Minister is right to point out, and everybody realises it, that, as a result, inevitably high earners use this mechanism to reduce their tax bill, but it is a question of the overall economic benefit.

The two most important measures in the Finance Bill are those relating to the location of company headquarters and I suppose that is particularly relevant to the Financial Services Centre but also the 20% tax credit for research and development. I was at a dinner with the executives of multinational companies last night and they take the view that this is a welcome start, but they may want to discuss with the Minister how it could be further extended. I understand the Minister is anxious to avoid dead weight and that he wants incremental benefits. At the same time I am sure the Minister realises that we have to compete with the United Kingdom and Mr. Gordon Brown has made it clear that he will focus on research and development, making Britain one of the most competitive countries in the world. That we have to compete with that may have implications for the funding of higher education.

I wish to comment on something which is not contained in the section on excise duty. I point out to the Minister for Finance, who was previously a Minister with responsibility for tourism, that Ireland has the highest level of excise duty on wine in the European Union. On the next occasion on which the Minister is being pressed by the Minister for Health and Children to jack up the price of cigarettes and does not wish to affect the consumer price index, he should consider reducing the excise duty on wine. Wine drinking is no longer an elite activity. It is important for the tourism industry as the price of wine is something tourists, particularly those from the Continent of Europe, notice most. There is a economic case to be made in this regard.

Gordon Brown announced in his budget a measure whereby tax avoidance schemes will have to be cleared with the revenue authorities. I gather the USA operates a similar system which means there is not a presumption of legality on the part of such schemes. Before next year's Finance Bill, the Minister should examine these measures closely. I congratulate the Minister and the Revenue Commissioners on the amount of tax money they have collected. Huge progress is being made though this is partly because we are in the euro zone and a run in the currency is no longer possible. It is possible to accomplish things today that would not have been easy ten or 15 years ago. While people may not like that from a moral point of view, it is the pragmatic reality.

I welcome section 88 which deals with capital envelopes and I note the Minister for Transport announced this morning that some €3.5 billion is to be invested in public transport over the next few years.

I have some sympathy with the position of the Minister for Finance. I have been lobbied like most other Senators as part of a very strong push by charities to exempt contributions from taxation. The point can be made that charities are exempt from most forms of taxation. The Minister made a significant provision for charities in 2000 when every contribution over €250 was exempted from tax.

Quite generous construction reliefs are in place and the construction industry has been a major underpinner of the economy, particularly in the less strong growth years of the last couple of years. However, the reliefs should not continue indefinitely. The problem with Senator Browne's suggestion on mortgage interest relief and reductions in stamp duty is that experience tells us builders simply increase prices and pocket the difference. The young first-time buyer finds he or she is no better off. I am a little surprised by today's report that there is not a stronger take up of affordable housing in Cork. I must talk to my brother who is an employee of Cork Country Council. Perhaps it is a short-term phenomenon.

The issue of carbon taxation has been around for a great deal of time. We must be very careful in introducing a tax of that kind and consider our competitiveness. The economy of the USA is built in part, whether we like it or not, on cheap energy. If we are not very careful, Europe will increase its competitive disadvantage. If this step is taken, countervailing measures will be necessary to ensure our competitiveness vis-À-vis the USA is not affected.

A matter which was mentioned in the Budget Statement but does not appear in the Finance Bill is decentralisation.