Brian Cowen (Laois-Offaly, Fianna Fail)

I sincerely thank all Members who contributed to the debate. I wish to reply to some of the key points made. As for various comments made by Senator John Paul Phelan on the review of reliefs and incentives, I must point out, by way of background, that I have ordered the review of two dozen tax incentive schemes in the past year to ensure we get value for money. As a result, I propose to phase out or modify many of these incentives. Some are being left in place because they can deliver value for money for the public. These reviews have been published so that members of the public can judge for themselves the actions which the Government is taking and the reasons for those actions. I am pleased with the outcome of this thorough review process.

Senator McDowell made a thoughtful contribution about tax reliefs and their role in stimulating various sectors of the economy. His remarks showed that he had carefully studied the various reports into tax reliefs which were carried out in 2005 and which were acted on by me in the 2006 budget and Finance Bill.

The cost of tax reliefs and the question of who benefits from them is as follows. Page B.23 of the budget 2006 booklet contains a table detailing the destination of tax reliefs. Members will note that of the €10.8 billion in relief for the tax year 2002, the latest year for which figures are available, a sum of €5.6 billion or 52% went on personal tax credits and reliefs, a sum of €3.4 billion or 31% to help fund pensions and savings, and significantly, more than €1 billion or 10% went on capital allowances for traders, including farmers, to ensure their viability and job creation capacity. Those tax credits and reliefs include mortgage interest relief, medical insurance and medical expense relief. Hence, the vast bulk of tax relief each year goes to ordinary taxpayers at all income levels and to sustain business investment and jobs. This point is often forgotten about in this debate.

Senators John Paul Phelan and McDowell have quite rightly pointed out that tax reliefs and incentives can be very effective. Tax incentives have the capacity to deliver economic benefits to our people as a whole. Senator Mansergh also made this point. The evidence for this is there for all to see in the shape of significant developments, regenerations and improvements which have resulted from some of these incentives in Dublin. Examples include the development of the Custom House Docks area, Temple Bar, the successful development of Tallaght town centre and, more recently, the major development of the HARP area in Smithfield, in which more than €200 million was invested between 1999 and 2004. Outside of Dublin, one can point to various urban renewal schemes which have helped to revitalise and transform the inner city areas of Galway and Limerick in particular. It has also worked very well in many other towns.

Tax incentives have a role to play in economic management. It is right to use them at the right time and in the right circumstances. However, as Members on all sides have noted, they can outlive their usefulness. Senator John Paul Phelan has suggested that I should have terminated the various reliefs and incentives immediately. This is not the approach suggested by the consultants. A "soft landing" approach is being adopted in order not to damage our very successful economy.

As for Senator Phelan's call for a cost-benefit analysis of the scheme of relief for the construction of private hospitals and nursing homes, I remind him that the schemes were reviewed by Indecon Economic Consultants as part of the overall review of property tax incentives in 2005. Indecon consulted widely in the course of its review, including consultations with the Department of Health and Children and the Health Service Executive. Its report was published on 6 February 2006 and is available on the Department's website. The consultants recommended that capital allowances for private hospitals and nursing homes should continue.

Private health care is a long-established feature of the system of health care provision in Ireland and acts as a strong complement to the publicly-funded system. Members should consider the number of private nursing places that have been provided under the tax incentive schemes introduced by the former Minister for Finance, Mr. McCreevy. Had the Government not done so, I would hate to think of where our care for the elderly programme, which already has service pressures, would be at present. The Government is committed to exploring fully the scope for the private sector to provide additional capacity in the health system.

The key objective is to provide the required extra capacity, whether this is in the public or private sectors. A number of Government policies support the co-existence of public and private health care such as the designation of private and semi-private beds in public hospitals; income tax relief on private health insurance premiums; income tax relief on medical and dental expenses, including nursing home fees; while the National Treatment Purchase Fund sources capacity in private hospitals for public patients which has greatly decreased waiting times.

The average waiting time for medical procedures was the big issue in health when this Government took office. There are now other service pressures, such as overcrowded accident and emergency departments, with which we must deal. The synergy between public and private health care can work for a greater public good, especially for public patients. The Tánaiste's policy direction to the Health Service Executive to build private hospitals on public sites will free up beds for public patients in public hospitals and is another example of how increased capacity can be created, benefiting public patients and others. The idea that private sector investment excludes a benefit for public patients is patently ridiculous.

I am glad to note the support expressed by Senators for section 17, which contains the measure on the restriction of reliefs. Senator Henry and others referred to the listing of the donations scheme in section 17 which related to the restriction of reliefs. I considered this issue very carefully and discussed it with Opposition spokespersons on Committee Stage of the Bill in the Dáil. Omitting the scheme from the specified reliefs list would reduce the effectiveness of the restriction, the aim of which is to increase the effective tax rate of those on high incomes towards 20%. A tax relief is available for donations, once it is used as part of the 50% availability for tax relief. The suggestion has been made that if people already use that relief for other purposes, they should have the private discretion to provide for further relief for donations. Such a discretion would be differentiated by a person's income at any given time, as opposed to those who do not have that prospect.

I have sympathy for the point, but the focus of this budget has been to bring about a situation where we eliminate the possibility of high-income earners paying no tax at all. Let us deal with that first and let us observe how the specified relief scheme works during the course of the year. I am open to the idea of developing philanthropy and I am aware that there are more and more high-income earners in this country who may be interested in allowing some of their resources to be diverted into areas of public good. Given that the proportion of high-income individuals who will be affected by the restriction is relatively small, the effectiveness of the donations scheme will be unaffected in most cases.

Where relief under the donations scheme has been denied in any one year as a result of the restriction, it can be carried forward to the next year and the following years. In other words, if the 50% limit for relief is used up in one year, it can be availed of again in the following years. It is not a question of people being denied relief, rather it is more like a deferral of the relief in the interest of the equitable principle of people paying tax in any given year. A balance of principles must be achieved.

Senator John Paul Phelan asked me the reason for the changes in film relief. The significant improvements in the section 481 relief for film production were introduced in light of the representations made by the Irish Film Board and supported by the Minister for Arts, Sport and Tourism and his Department. The key argument was that the Irish film industry faced significant challenges from the increasingly competitive international tax environment for film production. Particular significance was placed upon upcoming changes to UK tax legislation. The arguments of the Irish Film Board, supported by the analysis of the Department of Arts, Sport and Tourism, persuaded me that there was a case for improving the relief. Accordingly, I proposed an increase in the overall cap on expenditure that can be raised under section 481 from €15 million to €35 million and increased the existing 55% to 66% limit on the proportion of a film budget that can be raised under section 481 to an overall limit of 80%.

Senator Phelan also questioned the effectiveness of the five-year scheme of targeted excise relief for biofuels with a view to assisting biofuels to achieve an initial target of 2% penetration of the transport fuel market by 2008. I disagree with that view. This is a major expansion of the current two-year pilot scheme. It was sought by the line Department involved and I simply acceded to that request. It is an area we must develop.