Brendan Kenneally (Fianna Fail)

I welcome the Minister of State. I also welcome the opportunity to contribute to the debate on the Finance Bill 2005. I compliment the Minister for Finance, Deputy Cowen, on the way he is putting his stamp on his new portfolio and the way in which he is going about his work. His style obviously contrasts with that of his predecessor, Charlie McCreevy, whom I also compliment. He held the post of Minister for Finance for approximately eight years and we should never forget that much of our present prosperity, to which many speakers have alluded, resulted from the way he ran our affairs. One legacy he has left behind relates to the issue of pensions. He set about tackling the major difficulty in the area of pensions and, to a large extent, resolved the problem. His achievement in this area should never be forgotten.

The largest part of any Finance Bill or budget is the way that income tax affects citizens. Income tax and excise duties are the matters that exercise most people's minds when they look at the measures that are being put forward. It is amazing to hear some people complain about the current levels of income tax. I remember a time when the income tax rate was 65% and people paid 6% or 7% PRSI in addition to that; we are now down to 20% and 42%. I looked at a recent OECD report that showed that of the 30 developed countries surveyed, Ireland was the third lowest in terms of income tax. That gives the lie to anyone who says we are overtaxed. Married people and single parents do particularly well because there is less taken in income tax from that sector than the amount paid in child benefit and one-parent family payments. That is an extraordinary fact of which I was not aware until I read the OECD report. While this might suggest that single people carry the can for married people and single parents, that is not the case. The average take from single people in tax and PRSI is just 16%. They have the fourth lowest burden in the OECD.

One of the problems facing us is the high cost of child care here compared with other countries. Senator Ryan alluded to this problem as well and said there is no easy answer to it. There is no easy answer but huge advances have been made in the area of child care in recent years with the equal opportunity child care programme, a considerable amount of money has been invested and quite a number of announcements were made recently in this regard.

Since 1996, the tax and PRSI burden on the average industrial worker has almost halved. That is a significant achievement. There is a clear connection between lower taxes and job creation as we have created 500,000 more jobs since 1996. I am a great believer in lower taxation because it puts more money in the economy, which ultimately creates more jobs. Some would say that our tax rates are too low and that taxation should be increased to perhaps fund areas in education or health. If people were asked whether they would be prepared to pay an extra 1% or 2% to fund certain areas, they would say yes. However, it would be a different matter when they actually have to pay that 1% or 2%. We have a very low tax regime and we should not forget that.

There has been much debate about alcohol-related problems in this country. We have taken a fairly sensible approach to the matter. The price of alcohol products in our bars has soared in recent years and this is not because the Exchequer has increased excise duties. For many years, nothing went on alcohol at all. The publicans and the breweries have been laying it on year after year. The gross profit rate publicans are now returning is far greater than when I was an accountant a number of years ago. There has been a change in society as well. We have been following continental trends. We tend to do that in many areas and we are now doing it in the area of our drinks culture. More people are drinking at home.

Ten or 15 years ago, a large number of people would have said they would never dream of drinking at home. Part of the reason more people are drinking at home is the high cost of drinks in pubs and nightclubs. There are outrageous charges in nightclubs and late night bars, which I hear about from some of my own children. I accept these businesses have huge insurance costs, which could be debated another day. As a result of high costs in pubs and nightclubs, young people are staying at home and going out much later. It is very simplistic to blame everything on the smoking ban. I noticed a drift away from pubs and nightclubs before the smoking ban was introduced. Some bar men and publicans will vouch for this decline in business. The smoking ban did affect bar trade but not to the extent that is being claimed. Our policy on excise duties has been very sound.

I would like to see a reduction in VAT. The possibility of reducing VAT to approximately 17% was debated a number of years ago, 17% being more or less the European norm. I tended to disagree with the previous Minister for Finance on the issue of VAT. Mr. McCreevy did not believe in reducing VAT rates. He reduced the higher rate of VAT from 21% to 20% when he was under a certain amount of pressure one year. The figure was increased to 21% the following year as he was not convinced that lowering the top rate of VAT was the right thing to do. Obviously, the Exchequer would have lost revenue as a result of a reduction. My concerns about VAT levels are that indirect taxes by their very nature are inflationary. I am worried about the possibility of inflation increasing. We have got everything more or less right so we must be careful that we do not fuel inflation. However, we cannot have lower rates of taxation, changes in stamp duty and lower corporation tax and then have low VAT levels into the bargain. A degree of judgment is involved. Thankfully, the Government has never tried to put tax on clothes and food, which the Opposition parties tried to do in the past and paid very severely for it. We have never contemplated such a move and I do not think we ever will.