Brian Lenihan Jnr (Dublin West, Fianna Fail)

I thank Senators for their comments and I will try to address each of them as best I can. I will begin by pointing out, in response to Senator Twomey, that the supplementary budget marked a new departure in budget formulation in Ireland. For the first time, detailed multi-annual plans were contained in the budgetary projections. Targets have been set for adjustments to taxation and expenditure for 2010 and 2011. While the detailed specifics of the measures are still being formulated, the overall policy areas for examination in this context have been announced. This multi-annual consolidation plan will ensure we restore the public finances to a sure footing by the end of 2013.

Senator Twomey expressed doubts about the reliability of economic forecasting and as the Minister for Finance for the past year I have had to share those doubts on occasion. However, the Economic and Social Research Institute in its recent commentary on Ireland's recovery scenarios made it clear we have a good prospect for recovery if we take the right corrective action. The ESRI very strongly supported the steps taken by the Government to date in the four budgetary adjustments conducted since I was appointed Minister for Finance. These adjustments were not easy but their cumulative effect has been a fiscal correction of between 4.5% and 5% of gross domestic product, which is very substantial by international standards and is the reason investors in other countries are recovering confidence in Ireland.

We have to take these difficult steps and I appreciate that many of them will be the stuff of party debate in both Houses. A moment ago, I heard Senator Buttimer speaking on various Government decisions. The hard incontestable fact is that two thirds of our expenditure relate to payroll and transfer payments to welfare recipients. These are very important payments but the idea that one can economise on expenditure without, for example, having the pension levy is unreal and sooner or later all parties in the House will have to face this fact.

The supplementary budget struck the appropriate balance between the need to restore order to the public finances and protecting the economy. It is important to understand that in making adjustments to the fiscal position for 2009 the supplementary budget was only the final step in the process. In July 2008, expenditure savings of €1 billion were delivered for 2009 and those savings focused on reducing the payroll bill and a range of efficiency measures. I will not bring the House through the October budget, which we already discussed here and I remember Senator Twomey commenting on it at the time. We also had adjustments in February 2009 with expenditure savings of almost €1.8 billion and finally we have the supplementary budget of which the Finance Bill before the House today implements the taxation side.

I know Senators realise that maintaining our public finances on a sustainable path is a prerequisite for economic growth. I am looking forward to the reports from the Commission on Taxation and the special group on public service numbers, both to be delivered this summer. As Senator MacSharry noted, they will have an important role to play in identifying measures that will improve the budgetary position in the coming years.

Our tax system remains competitive and pro-business. Senator Twomey spoke about the increase in taxation in the recent budget. For most income earners, these increases have only brought us back to 2004-05 levels. I do not believe this is excessive given the scale of the financial decline we have seen in our receipts. If the Senator wishes to confirm this fact, I will refer him to annex A(iii) of the published budget book which details the average tax rates of various categories of income since 1997. This table clearly shows that average tax rates for the average worker are approximately at 2004-05 levels. Ireland remains a low-tax economy and even after the supplementary budget, the country will still benefit from one of the lowest tax wedges in the EU for an average worker and one of the lowest in the entire OECD for married one-income earners on average wages.

Senators Twomey and McCarthy raised concerns about the banking sector. It is clear that Ireland, like many developed countries throughout the world, will need further measured and appropriate action in this area. That is why we will establish the National Asset Management Agency, NAMA. I understand Senators had a full debate on this earlier this week. I have no doubt Senators are aware the aim behind the establishment of NAMA is to reduce uncertainty and the lack of transparency about the level of bad debts and to ensure the flow of credit on a commercial basis to individuals and businesses in the real economy.

Senator Quinn questioned the Government's support for entrepreneurship and I remind him that the business expansion scheme and the associated seed capital scheme continue to be available to small and medium-sized enterprises. The limits on the amounts that can be raised by companies and the amounts that can be invested by individuals were significantly increased when the schemes were extended in 2007. Despite the need to secure a substantial increase in tax, in recent budgets and Finance Bills measures continued to be introduced by the Government to maintain and enhance pro-employment business tax reliefs.

Senator Quinn suggested the changes in sections 6 and 11 of the Bill for the treatment of income and losses from dealing in residential development land represent retrospective taxation. I am satisfied the changes being made do not represent retrospective taxation. An individual subject to taxation under schedule D in respect of income from dealing in residential development land is not required to pay preliminary tax on his or her 2009 taxable income until October and November 2009 while the final liability for the year of assessment 2009 will not be settled until October and November 2010. In the case of a company, the final corporation tax liability of any company affected by the change in the tax rate to 25% announced in the budget will not be settled until after the date of the budget announcement and in almost all cases not until the end of 2009 at the earliest for companies with accounting periods ending in March 2009. In these circumstances, the tax changes announced are not retrospective in effect.

Senator Quinn also raised the issue of liability of personal retirement savings accounts to the income levy. The position is that an employer contribution to a personal retirement savings account is chargeable to income tax in the hands of the employee as a benefit-in-kind under the 1997 Act. As the income levy treatment follows the income tax treatment, the employer's contribution to the personal retirement savings account is subject to the income levy. The income levy was specifically designed to maximise the yield by gaining access to income that can generally be sheltered from income tax. It should be noted that it is not only pension contributions that are subject to the income levy; capital investments, patent royalties, forestry, mining operations and earnings from writers, composers and artists are also subject to the levy.

In reply to the point made by Senator Quinn on employers' contributions to PRSAs and the 1% life assurance levy I announced on 7 April 2009, this is one part of our concerted effort to raise the necessary revenue. Since the supplementary budget, a number of issues have been raised by the life insurance industry. In response to these concerns, I have agreed to change the implementation date to 1 August to give a longer lead-in period for implementing the new levy.

Senator Quinn also raised the increase in the standard VAT rate in the 2009 budget. As I stated previously, the timing of the VAT increase was unfortunate given the subsequent temporary reduction in the UK rate and may have sent the wrong signal to consumers. The subsequent increase in the UK rate was temporary.

Senator McCarthy asked what was the marginal tax rate for an individual earning €80,000; it is 50%. However, looking at marginal tax rates can be misleading, in particular in the context of the credit system. What really matters is the effective rate of tax. The marginal rate of tax for a single individual earning €36,400 is 30% while the marginal rate for another individual, earning €36,401 - that is €1 more - is 51%. However, they both have the same average effective tax rate of 19.2%. I could give other examples - but I will not weary the House - to show that marginal tax rates are not as decisive as many Senators seem to suggest.

I thank Senators, including Senators MacSharry, Boyle, Hanafin, Butler and Buttimer, for their contributions. I appreciate the understanding shown by the Senators of the progressive nature of the measures contained in the Bill and the recognition that we are exposed to changes in the international position. I thank Senators for their constructive debate today.