Martin Mansergh (Fianna Fail)

I welcome the Minister of State and his official. This is one of the less controversial Finance Bills because the budget very unusually imposed no new taxation and this was welcome.

This Bill underpins what continues to be a very strong economy. I do not think any of us should start taking for granted a strong economy or indeed the political conditions and the confidence that lead to it.

I refer to an index published by a German economic consultancy at the end of last year. It divided countries into three categories, namely, unendangered, or a danger-free zone, a warning zone and an alarm zone. This being a German consultancy firm, its point was directed more at the German economy. It placed Germany at the highest degree of alarm while Ireland was top of the danger-free zone, ahead of the United States, with 111 points.

This fact is reflected in our employment performance. According to the latest figures, employment is up by 65,000 in the 12 months to the last quarter of 2004, an increase of 1,250 per week. It is even more striking when one examines the labour force figures for April 1994. I am not making a particular point by taking this year. However, then the unemployment rate stood at 14.7% while in June to August 2004 it stood at 4.7%. Since then, it has been further reduced to 4.2%. In April 1994 the long-term unemployment rate stood at 9%, while now it stands at 1.4%. These are major achievements, to which the tax system we operate has made a contribution.

While I do not subscribe to the notion that taxation is the sole key to the success of the Celtic tiger economy mark II, it certainly is relevant to it. The Sunday Times, 2 January 2005, stated that average employment costs in Ireland are now significantly lower than in Britain. Take home pay is exactly the same as the UK equivalent, even though people are paid more there. Similarly, low-income workers are among the best paid compared with other EU states. The Irish Examiner of 10 March 2005 stated, "Families in Ireland with two children where the breadwinner earns two thirds of the average wage of €18,194 take home €24,188, 120% of their wages." Ireland is the least expensive country for employers, which is a relevant consideration. In many of our European partner states, it costs an enormous amount more to employ a worker over and above the wage.

Our tax system is well-calibrated, of which yearly revenue buoyancy is a good indication. Exchequer returns are up 14% in the first two months of 2005, enabling us to sustain a substantial increase in expenditure. There is quite a gap between the preliminary Book of Estimates and the post-budget Book of Estimates. While the provisional book placed gross current spending to increase by 6%, the post-budget book placed it at 10%. On the capital side it was even more, from 4% to 12%. However, I do accept spending is necessary.

In the past 24 hours, interesting developments have occurred with the agreement by ECOFIN to revamp the Stability and Growth Pact. There is no point in having rules and laws that are regularly and systematically flouted. It is better to revise the rules. While not the morally perfect way of doing it, it is pragmatic. The primary instigators of the revision are France and Germany, both of which are having great difficulties in complying with the pact. However, there is some benefit for Ireland in that it relaxes the requirement, particularly as we are a low debt country, to balance the budget, particularly when we have a significant infrastructural deficit.

Regardless of what Ministers say, I deprecate Ireland's claim to be the second richest EU member state. It is not so, as this claim is based on a statistical GDP measurement. We may produce the second highest level of wealth but we do not keep it. If it was measured by GNP, Ireland would be more in the middle ranking. People also rightly point to deficiencies in services and infrastructure when this claim is made. We must be realistic of where we stand, instead of being boastful.

Through my accountant, I have personal experience of the Revenue on-line service system. When dealing with one's own tax affairs, it is always painful to write cheques to the Revenue. However, I admit the on-line system is easy to use and efficient.

The Finance Bill tightens the clause concerning those helping to collude or connive in tax evasion, which is proper order. Accountants need to be conscious of the lines they should not overstep. It is also important for the tax authorities to vigorously pursue past tax evasion. It is not just a question of collecting tax from those individuals but, more importantly, it must deter individuals from engaging in evasion, removing the idea that one can do so with impunity.

There was much debate in the Lower House on tax breaks, a perennial favourite with the media. All Members agree about the need to examine unnecessary tax breaks that narrow the tax base, reduce revenue and sometimes have undesirable effects in encouraging investment in particular activities that do not need such encouragement. On the other hand, there are a large number of pretty wealthy people in the State, a fact not frequently alluded to. It is more desirable that these individuals make a substantial amount of investment in this State rather than in, for example, Portugal, Italy or Croatia. While it may not be morally ideal, it may be pragmatic to introduce incentives in certain instances if one wants money to be spent in the State on certain projects. In such cases, socially desirable ways of directing this investment must be found. The legislation covering financial services is usually technical and the challenge is to balance having proper regulation preventing scandals or abuse that would affect our reputation with keeping the regulation reasonably light and flexible so that it does not impede or discourage activity.

Through a cousin, I have a small interest in section 28, which deals with heritage properties. To maintain public support it is important that this scheme is not abused and that proper access is allowed.

I refer to some points raised by Senator John Paul Phelan. Of course total tax revenue has increased substantially and people are now paying more tax in absolute terms than they used to. This is because of buoyancy and growth in the economy and much higher incomes. While I appreciate the argument was constructed for him, it is intellectually dishonest to talk about people spending more on tax when this represents a much lower proportion of their income. Only a very slight increase in indirect taxation has taken place and we have had highly visible improvements in infrastructure. Many schools have been rebuilt and refurbished. Much more remains to be done. A considerable amount of money has gone into special education. The Senator might have attended INTO meetings in recent days as I have done. One of the points made is that most of the spending on education has gone into special education. While fewer people have medical cards, this is because people are much better off.

The child care issue must be reconsidered. While child benefit was very low and has now been brought to a much better level, it does not represent the panacea in this area. I am glad the Minister for Social and Family Affairs has said this matter is now being seriously considered. I agree with what Senator John Paul Phelan said about tax relief on transport. I would like to see more extensive use of our rail freight system. In most countries, including Britain, some subsidy is given to rail freight. We should consider the matter, as our rail network is not adequately used during night hours for freight purposes.