Brian Lenihan Jnr (Dublin West, Fianna Fail)

Apart from the general matters raised by Senators, I would like to respond to particular contributions. Senator Twomey suggested that I did not know what the yield would be from the higher universal social charge on income in excess of €100,000 arising from self-employment. I have said that this charge would raise €80 million in 2011 and I have further elaborated that this charge would pay for the reduction of the universal social charge for medical card holders, which is expected to cost approximately €80 million in 2011. It is an important point in our fiscal future. We will have to explain where money comes from.

The Senator will also be aware that this Bill provides that the new student contribution that replaces the student services charge will be allowed for tax relief in respect of second and subsequent children that attend college simultaneously. This was not the case with the old student services charge which was not eligible for tax relief at all. While it is not my area, the Student Support Bill 2008, which completed all Stages in the Seanad earlier this week, provides for a significant streamlining of the student support grants system. It provides for the amalgamation of the existing four different grant schemes into a single statutory scheme and gives authority to the Minister for Education and Skills to designate a single awarding authority for the new scheme compared with the present situation where there are 66 awarding bodies. I hope that addresses some of the concerns raised by Senator Norris.

I thank Senator Hanafin for his support and, in particular, elaboration on the reasons for our approach to the public finances and solving the problems of the banking sector. I thank him also for his remarks about the changes to stamp duty on residential property. As he indicated, the reduction in the rates is intended to stimulate the residential property market. He recognises that the universal social charge is a progressive tax and improves our current taxation system. It is more sustainable than the income and health levies which it replaced and removes many of the anomalies and steps intrinsic to these charges.

Senators O'Reilly and Hannigan voiced concerns about the universal social charge. In response to the suggestion that the entry point is too low, when investigating the charge, I found that I could not provide for a zero rate at the bottom that would be available to all income earners regardless of income. My only other option was to introduce an exemption threshold. That is one step. My experience is that steps higher up the income ranges cause anomalies and poverty traps. Taxpayers can lose in net pay terms from an increase in gross pay. One of the objectives in introducing the universal social charge was to remove such an anomaly which was a feature of the old system of the income and health levies. One cannot widen the tax base without bringing persons into the tax net. It is also true that one cannot bring people into the tax net without charging them some tax. If any income earner moves from a position where he or she pays no tax to a position where he or she pays some tax, no matter how small, he or she will feel an impact on his or her net income. Income earners are feeling an adjustment, but I reiterate my belief everyone should contribute something, no matter how small.

Senator Ross should note that, in spite of the shortened timeframe for the Bill, I have introduced specific amendments to improve the competitiveness of the international financial services industry. The Bill extends the assets that a section 110 company can acquire to include plant and machinery, commodities and carbon offsets. The extension to include plant and machinery will be of benefit to Ireland's international leasing industry, in particular, the aircraft leasing industry. The inclusion of commodities will facilitate the use of Irish securitisation companies in Islamic finance transactions, while the inclusion of carbon offsets is part of a broader initiative to develop a green financial services centre. I thank Senator Mooney for his support on the Irish Financial Services Centre initiatives.

On the points made by Senators Ross, Donohoe and Norris on bondholders, as I said in the Dáil, I have provided for burden-sharing with holders of subordinated bonds in institutions in the Credit Institutions (Stabilisation) Act 2010. However, as we have discussed on numerous occasions in the other House, senior bondholders rank equally with depositors in having claims on Irish banks.

I add in reply to Senator Ross that, in the context of discussions with the IMF and the European Union, it was clear that "burning" such bondholders was not an option supported by these authorities. In the current circumstances there is no way that the country, whose banks are so dependent on international investors, could unilaterally renege on senior bondholders against the wishes of the European Central Bank.

The Senator suggested also that the 12.5% rate of corporation tax could be reduced to below 10%. Members of this House and of the Dáil point to numerous measures they believe are not working in the economy and society and which they argue, in some cases correctly, should be fixed. The Senator takes issue with perhaps the single most successful policy tool at our disposal, one that has worked and continues to work. While trading companies, whether foreign or indigenous, would not complain if the corporation tax rate was further reduced, there have been no widespread calls for this to happen. The focus of industry, in common with that of the Government, has been on protecting and maintaining our low rate of tax in the face of significant negative sentiment internationally. Apart from costing more than €700 million in tax revenue which we could ill afford at this time, a reduction of 2.5% in the corporation tax rate would leave that task immeasurably more difficult.

I disagree with the point raised by Senator Alex White on the external determination of policy. However, I note that the provision of financial assistance by the European Financial Stabilisation Mechanism, EFSM, and the European Financial Stability facility, EFSF, for any member state would be on the basis of strong policy conditionality and based on terms and conditions similar to those of the International Monetary Fund.

I welcome Senator Boyle's comments on the removal of tax reliefs and the implementation of the recommendations of the Commission on Taxation.

A number of Senators, including Senators Boyle, Ormonde and O'Malley, alluded to the taxation aspects of civil partnership. I wish to update the House on the current position. The legislation to make provision in the Tax Acts for the requirements of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 has been largely drafted. It is unfortunate that, because of the unusually truncated process, the legislation was not completed in time to be part of the finance Bill. However, I am assured that the legislation can be dealt with by the new Government in a finance (No. 2) Bill before April, if the Government is so minded, and all taxation aspects could be made applicable from 1 January 2011.

I echo the point made by a number of Senators, especially Senator Harris, on the need for high quality debate and how it is so often to be found in the Seanad. I agree with him, Senators O'Toole and Quinn that the finance Bill may not be what we would like to see in terms of its measures, but it is necessary.

I thank Senators Butler, Leyden and Ellis for their acknowledgement of the progress made in recent years. Senator Leyden has endorsed the need for the bank guarantee, although Senator McCarthy raised issues with it. I reiterate that the introduction of the 2008 credit institutions financial support guarantee scheme succeeded in stabilising a challenging liquidity position for the Irish banks. Similar actions have been taken by other member states in the European Union. Had the guarantee not been introduced, we would not now have an economy, never mind a banking system.

I note the points made by Senator Leyden and numerous other Senators, including Senators Hanafin, Butler, Quinn, O'Reilly and Norris, on the green energy sector and its potential. The Government set a target of having 40% of our electricity generated from renewable resources by 2020. Already we have achieved a figure of 15%. The target will be achieved through the provision of support under the REFIT scheme and investment in the electricity network. The State energy companies are investing in renewable energy production. EirGrid has planned a €4 billion investment under its ambitious Grid25 investment programme. The ESB is investing in smart metering, electric vehicle recharging capacity and wind farms projects, as well as supporting the development of certain emerging technologies. We have provided €60 million in capital funding for the retrofit programme which will deliver energy efficiency savings through labour intensive employment. The Exchequer will fund a further €12 million investment in ocean energy research, in addition to the activities of the ESB and Bord Gáis Éireann in promoting technologies capable of harnessing wave and tidal power. I could cite many other examples of Government support for green energy projects - covering tax incentives, information programmes, Exchequer support and the involvement of commercial State companies. In short, investment in energy efficiency and renewable energy projects is an integral part of the Government's activities.

I remind Senators that the business expansion scheme is being revamped and renamed the employment and investment incentive. We will have an opportunity to consider this matter in more detail on Committee Stage tomorrow. The incentive will target job creation in companies through the provision of additional tax relief which will be awarded where it has been proved that employment levels have increased at the company concerned at the end of the holding period or where evidence is provided that the company used the capital to meet expenditure on research and development.

On Senators Quinn and Ellis's comments on the abolition of the patent royalty exemption, the exemption is being abolished on foot of a recommendation to that effect made in the report of the Commission on Taxation which expressed reservations about the effectiveness of the measure in incentivising companies to engage in research and development activities in Ireland. The Government concurs with the recommendation and considers that, despite various refinements made to the scheme during the years, the tax relief does not provide sufficient value for money. Its abolition was announced in the national recovery plan.

Senator Quinn mentioned that first-time buyers had been adversely affected by the stamp duty changes and asked whether a transitional period could be provided for. I have provided for a transitional arrangement in circumstances where the effect of the budget changes is to increase the stamp duty payable on the transaction. It can be paid under the new regime - because stamp duty is being reduced - where a binding contract was in place before 8 December 2010 and the instrument is executed before 1 July 2011.

I advise the Senator that the proposed "pay and file" self-assessment changes were withdrawn by me in a Report Stage amendment in the Dáil. The change was worth considering. One of the problems with our budgetary process is that receipts come in in November and the Minister for Finance then introduces a budget shortly before Christmas. Because the receipts come in so late in the year it reduces the room for manoeuvre in the timing of the budget. The idea in bringing forward the "pay and file" dates for the self-employed was not to penalise them in any way but to ensure there would be an earlier date on which the receipts could be calculated in the Department. That said, I acknowledge the significant pressure smaller businesses and farmers are under and, therefore, I decided not to introduce the change this year but to leave it to a subsequent Minister to address the issue.

Senator Ellis referred to the price of petrol and taxation, especially the carbon tax. In that regard, it should be noted that the carbon tax amounts only to 3.4 cent per litre of petrol and 4 cent per litre of auto-diesel. Petrol and especially auto-diesel are cheaper here than in Northern Ireland.

I note the support voiced by a number of Senators, including Senators O'Malley and Ormonde, for the changes I have introduced on the restriction of property-based tax reliefs.

I understand the Leader of the House, Senator Cassidy, spoke on this subject as well. It is important for Senators to understand that this subject is not easy. There is no doubt that the generosity of these reliefs contributed to the bubble that took place in our economy and to the construction boom. I was amazed to learn that a section 23 relief property would qualify an applicant for tax relief on income deriving from properties not of section 23 in character. Many of these reliefs are set to continue for a long period. While the entitlement to acquire such reliefs may have been restricted in recent years, the long duration and working out of these reliefs over a long period was compromising the public revenues. The intention at my Department and the advice I received was to cut off what was described as "the tail" of these reliefs over time. All that is left is the tail. My intention was to cut off the tail in small slices. However, a thorough job was done in the budget presentation where, in effect, the entire tail was removed - decapitated is probably the incorrect term. I am unsure how one removes a tail from an animal but the tail was entirely removed in one operation. Clearly, this would have exposed many businesses and private individuals to extreme hardship and insolvency. It would have accelerated bank losses and left the State open to legal challenge. The correct procedure is to carry out this inquiry, examine all the facts and work from the facts to a reasoned conclusion on this matter.

This issue illustrates another point of importance in our economic debates. For many years I have been listening to speakers on many sides of the House suggest this problem was created by developers and bankers. However, when I saw people queueing at my constituency office to discuss section 23 reliefs they were not developers and bankers. They were receptionists and secretaries, hairdressers and teachers. They had purchased second and third properties and benefited from the tax reliefs. This serves as an illustration of a point which has been ignored in our economic debate: it is easy to isolate and target individuals who are culpable in part for what took place, but there is a denial of general responsibility for what took place which is simply unreal. Anyone who attended to their constituency business in January and witnessed the queue of individuals complaining about section 23 relief and its restriction would have realised these individuals were not wealthy property developers or bankers but people in the varied occupations that make up the great majority of vocations in Irish life. In any event, this has been the approach taken on the issue of property-based tax reliefs.

I acknowledge the positive economic statistics quoted by Senator Mary White. On this positive note, I conclude my response and I thank Senators for the constructive debate.