Feargal Quinn (Independent)

I welcome the Minister of State, Deputy Kelleher. The Minister for Finance, Deputy Brian Lenihan, was also welcome, as were his words. I must agree with Senator MacSharry when he stated the world has changed. We cannot sit back and merely do what we have done in the past. We must change as well. If these changes are taking place, to what extent are we taking the right steps and to what extent are we going in the right direction?

I draw the Minister's attention to the danger of big Government and the benefit of entrepreneurship. I am not sure that, in general, this Government understands that the success of the economy will depend on entrepreneurs and we must find a way to ensure that happens.

I mentioned previously that I met Ms Elaine Chao, the former secretary for employment in the United States. Her job was to ensure jobs were created but she stated it was her intention not to create jobs but to create the environment in which entrepreneurs could create jobs, and that is what we must ensure we do. I am worried that big Government will do things itself. I remember somebody saying to me some years ago that he would get very worried when he saw anybody making decisions who never had to worry about where to get the money to pay the wages at the end of the week. I am not saying that applies to any particular Minister.

Commissioner McCreevy expressed concern earlier this month that raising taxes for high earners could produce diminishing results. If one looks back to 1977 and 1982, the steps we took on those occasions damaged the economy. It was not until 1987 when we took different steps that we were imaginative and got some sense of what we could do differently. It was former Minister for Finance, Ray MacSharry, who was given the task in 1987 and grabbed hold of it with imagination.

Let me offer one example of that imagination, that is, the Irish Financial Services Centre. The Irish Financial Services Centre reduced tax by a percentage and this is the real message we must get across. With ingenuity it is possible to reduce the rate of tax and take more money in.

The example I have often used is former Minister, Charlie McCreevy's, betting tax. I remember he came in here and spoke of reducing the betting tax from 20% to 10% and there were howls that he was looking after friends in County Kildare. The following year he came in and stated he would reduce it to 5% because he took more money in at 10% than he did at 20%, and he took more money in at 5% than he did at 10%.

He stated it is essential we remain focused on the dynamic and human nature that drives risk-taking, economic activity and tax revenues and that we guard against policies and tax rates that drive risk-taking, economic activity and tax revenues backwards. He stated that it was higher economic activity and not simply high tax rates that generated high tax revenue. We could sink or swim depending on whether we lost sight of these simple facts. We are in danger of being over-regulated and too top heavy. We must avoid solving the problem by increasing tax rates to bring in more money. The real benefit is gained conversely.

Senator MacSharry discussed the cuts in social welfare and other payments mentioned in today's newspapers. Some time ago, I referred to a letter to the Irish Independent that concerned me. The letter writer had met a friend who was getting more money into his pocket after he had been made redundant. He used to earn €38,000, €33,000 or so after tax, but he was better off staying unemployed thanks to mortgage relief and so on. His objective was to lower his golf handicap. I mention this letter because we are in danger of going in that direction if we do not understand what is occurring.

I welcome some of the steps referred to today. According to newspapers, Accenture, which employs 1,400 in Ireland, is planning to transfer its headquarters to here. I do not know how many more jobs this would create because it may not bring many people with it. WPP, the large British marketing and advertising agency, moved to Ireland last year. Our lower tax rate makes us attractive, which the Minister for Finance recognises, and we must acknowledge that by reducing tax rates we can bring in more money.

I draw the Minister of State's attention to one or two matters. I am concerned about the retrospective aspect of the pension levy contained in section 2. In addition, I disagree with the retrospective aspects of sections 6 and 11, which will abolish the 20% tax rate on profits from dealings in residential development land from 1 January 2009. Adopting retrospective tax policies is always dangerous, not least because it complicates the system and makes the filing of tax returns more complex for businesses and individuals. Retroactive taxes should always be avoided, for which reason I am recommending changes to sections 2, 6 and 11, but we will discuss them when we deal with the recommendations. As the difference between January and now will not be great, the implementation of the changes dating from after the Bill's enactment would be more sensible.

Regarding the new tax regime for intellectual property, a recommendation on the definition of intangible assets has been proposed. I welcome the inclusion in the Bill of the promised new regime, but I hope that this section will help to attract international business to locate such operations in this country, which occurred previously. However, I draw attention to the definition used in the context of intellectual property. Under section 13, exemption from stamp duty under section 101 of the Stamp Duties Consolidation Act 1999 has been extended to include any trade name, trade dress, brand name, service mark, publishing title, sales authorisation in respect of medicine or product arising from any design, formula, process or invention and rights derived from research undertaken in the field of medicine.

The definition of an intangible asset should be broadened to include marketing and distribution base lists, such as customer lists and other databases. My company introduced a product called Superclub and identified our customers, the majority, who used it. This scheme played an important part in helping my business to develop, to improve customer service and to bring the customer back to the business. If intellectual property is given tax relief in the Bill, such things as customer lists could be included. This area provides a considerable opening for other companies to set up in Ireland. Thus, I recommend a change to section 13 so that the definition of an intangible asset would include customer lists and other marketing and distribution lists, which are invaluable to businesses. When I was involved in An Post years ago, I realised it would be of benefit to attract Reader's Digest to Ireland by way of our post office service, and its customer list was very valuable to it.

I am concerned by the provisions in section 5 on the deductibility of mortgage interest on borrowed money used to purchase, improve or repair residential premises. Given that the interest comprises some of the cost of carrying out a rental business, it should be tax deductible. It would pay the Government to introduce such a measure and, therefore, I recommend the removal of the restriction on interest.

I was approached by someone and, while I am unsure as to whether the issue has been addressed, I will refer to a letter. It is a little technical. Employers have been setting up group pension arrangements for their staff on a defined contribution basis for many years. According to this person, two models are available, the traditional approach introduced in 1972 and the newer group PRSA approach. It has taken time for the latter to become established, but it was designed by the Pensions Board to deliver transparent, simple, portable and flexible pensions. After years of research and development, PRSAs have become popular. Large companies, such as eBay and Irish Life & Permanent implemented PRSAs for their staff pension arrangements, with the employer contributing in each case.

According to the writer of the letter, the problem that needs to be addressed is that employer contributions into PRSAs have always been treated in the same way as employer contributions to traditional pension schemes, that is, they have been run through payroll with no benefit in kind. That has been changed with the introduction of the income levy, to which employer contributions to PRSAs are deemed subject. The reason is technical, but it relates to the way in which the PRSA contribution legislation was originally framed.

Employees who have joined staff PRSA schemes will have to pay a levy on the contributions paid into their PRSAs by their employers, whereas employees in the old style pension arrangements will not have to pay such a levy. This is obviously unfair and distorts the market. The man told me that he spoke to a wide range of industry experts and the head of the pension division in Revenue, all of whom agree that this was not planned. It was inadvertent and needed be changed. The problem is that no one seems to be moving to change it, despite how simple that would be - for example, there could be a line in the Finance Bill stating that employers' contributions to PRSAs are exempt from the income levy. This would not be a major income generator and it was not the target of the income levy. As the man said, it is unfair to hit one sector of the pensions market, which is the most highly regulated sector of the market, with the levy while leaving the broader pensions market unaffected. I apologise for sticking to the detail of that letter, but it is an important matter. The measure seems unfair and as it was not the intention, perhaps it can be solved in another way.

I welcome many of the measures contained in this comparatively short Finance Bill. Last week, I spoke to Dr. James Watson, the man who won the Nobel Prize in 1962 for identifying the double helix structure of DNA. He referred to America, innovation and investment in universities and in research and development. According to him, all this occurred around universities. Aside from Harvard, he used the example of the Massachusetts Institute of Technology, MIT, which was established in the same area. Many innovations came from it and the jobs created were long-term jobs because they were based on science and technology. The same occurred in Silicon Valley, where there was a very high level of investment in universities in Seattle. The steps taken in the Bill are recognition of the fact that we can do something in this regard.

I am concerned about the long-term effect of big government, that is, the belief that the Government can solve everything. The less government there is, the better the chance of solving a problem. The term used in the European Union is "subsidiarity", namely, trying to make decisions closer to the citizens. In our case, more and more decisions seem to be taken at Government rather than local level.

When an attempt was made in Britain to change what is called council tax or, under Margaret Thatcher, poll tax, it was very difficult. When we tried to change it, and did so in 1977, we did away with what we called rates. What has happened is more and more decisions are being made at the top. I do not know if any Minister in the future will be brave or foolhardy enough to re-introduce rates, but the more we bring decisions to the top in Government, the less likely it is the right decisions will be made. I encourage more thought being given to how we can manage to pass responsibility closer to where the systems are.

Another criticism was made by Dr. Eoin O'Leary, who said:

The problem would seem to be that Irish Governments continually suffer from group-think. They surround themselves with an elite consisting of policy advisers, consultants and spinners whose main function is to tell ministers what they want to hear. There are too few dissenting voices inside the corridors of power. Those who do offer alternative perspectives are either ridiculed as naive or accused of being resentful at not being part of the elite.

I am concerned there are too many academics and economists being given too much say in advising the Government. That is what went wrong in 1977, when we into difficulty, and the same source of policies was used in 1982. It was not until, I understand, 1987, when those who grabbed hold of the initiatives said they could do something about the situation in a different way. The basic concept was that by reducing the tax rate, more money could be taken in by the State.

That concept has been applied in a number of different ways. It happened in 1987. What did we do last October? We increased VAT by 0.5% at the same time Britain, which supposedly has a socialist Government, reduced it. We saw what happened. It is a reminder to us that we should not automatically assume the way to get more money into the Exchequer is by increasing the tax rate, because very often the opposite is the case.

I encourage the Minister of State to think along those lines, because if we are to solve this problem we need different thinking from that which we have had in the past. We need skill, initiative and courage to take some of those steps.