Rónán Mullen (Independent)

Before I address Bill, I must express a good deal of sympathy for the Government, given the necessity to try to achieve revenue neutral measures. This is at the heart of what is being proposed in the legislation in terms of funding the jobs initiative. This straitjacket means that many measures urgently needed in the economy will be unfeasible.

Policy creation in this country is often short-sighted, but in this case the new Government has made an attempt to support enterprise in a constructive fashion. First, the research and development tax credit changes are very welcome. Although only a technical amendment, it will hopefully have the effect of giving a greater measure of flexibility in the tax treatment of investments in research and development, and undoubtedly this will be particularly welcomed by the high-tech sectors of our economy. This measure will not have a major impact on Government revenues, but it certainly reinforces the message that we are serious about maintaining a cutting edge sector in our economy.

The second measure in the Bill, the suspension of the air travel tax, is to be criticised only in so far as it does not go far enough, and by that I mean complete and permanent abolition rather than suspension of the tax. The original imposition of this tax was a problem at the time and it is a pity this Government has not taken this opportunity to opt for its full abolition. Tourism is a sector we must encourage at every opportunity. The huge economic benefits here are complemented by the goodwill that a revitalised Ireland of the welcomes, so to speak, would spread in Europe. I note the Minister, Deputy Noonan, spoke in the Dáil of a 39% fall in tourist numbers from the UK. Given the strength of the euro against sterling, British visitors will think twice about visiting, but to discourage them further by taxing air travel would be ludicrous.

As an aside, I was always amazed at the number of Germans fascinated by the adventures of Heinrich Böll in his Irish Journal, which documented his travels here in the 1950s. This book was one of the most popular German language books published for decades and is still in print today. It is on such hooks that tourism campaigns are and should be hung, and any goodwill generated in Germany towards us could only be welcome at this time.

Regardless of whatever traditional interest exists in Ireland as a holiday destination, the notoriously frugal Germans are likely to be concerned about our prices. According to a recent report from the World Economic Forum, Ireland remains one of the most expensive places to holiday in the world. Only Denmark, Finland, Norway, Luxembourg and Switzerland are seen as more expensive when it comes to purchasing power parity. The strong euro is a major factor in that, but it underlines the need to increase value wherever possible and places the welcome measures to abolish the travel tax and reduce labour costs and VAT in this sector in context.

On those grounds the reduction of VAT for some tourism related activities is equally welcome. In the long term, all consumption-based taxes like VAT must be reduced. Ireland's success, by which I mean the sustained period of growth before the property boom, was based on a low tax economy, and while many shrill commentators have tried to link that phrase in the public imagination with the unsustainable rise in public spending, the fact remains that we as a State should endeavour to allow each worker and citizen the maximum fruits of his or her labour, and from that I believe economic success will flow. Consumption-based taxes have a disproportionate effect on poorer families who tend to spend a greater proportion of their earnings than those who spend proportionally less and save more. I am aware of the constraints that are on us as a nation but I hope we will soon find our way back to this position of workers and families having maximum control over their own earnings. Today's measure is to be warmly welcomed and my hopes are that it will become a permanent reduction across all VAT bands.

I want to address the portion of the Bill that I oppose, which is the attack on savings represented by the pension levy. I listened with great interest to various Senators, and Senator Darragh O'Brien in particular raised some interesting correspondence. I mentioned that policy in this country can often be short-sighted, and this section is an example of that.

In the past, our citizens were strongly encouraged to invest in pensions to offset the looming pensions time-bomb and this was the basis for the establishment of the National Pensions Reserve Fund. Saving for the future was seen as vital given our ageing population, and it was felt that to encourage this saving, the tax system should contain some incentives. For all classes of people, saving for the future became common, and at the time we patted ourselves on the back for avoiding the trap into which other nations with older populations had fallen. Now, circumstances have changed and rather than a pensions time-bomb, we face the current economic crisis. I accept that Governments need to get revenue from somewhere, and I note the position of the Minister, Deputy Noonan, that this levy is designed to fund the new jobs initiative. Equally, I note that the measure will raise more revenue than the initiative will cost, and I suspect that this is no accident. I also suspect, perhaps cynically, that this levy will be with us for some time to come. The last time something similar was levied was in the 1980s, its term was extended beyond its original planned lifespan. In that case a levy was raised against capital gains within pensions at a time when significant gains were made in a short period. In this current proposal we are taxing assets at a time when most funds are in deficit. It is an unfair attack on savers who have suffered much already. According to the pensions industry, this levy, if extended over the life of the investments, could cost savers about a fifth of their final pension, and, to reiterate, I suspect that this levy will be here for some time to come.

Perhaps there is even a moral argument against this measure. I note that the Minister of State spoke of how provision will be made to allow pension scheme trustees or administrators the option of adjusting the benefits payable under a pension scheme on foot of the payment of the duty. Of course, that will happen. We are looking at some defined benefit schemes becoming redefined benefit schemes. We have crossed a certain line here. People invested in pension funds on a particular basis and understanding and now, retrospectively, these steps are being taken. We cannot simply make a grab for any available source of revenue like we were some sort of banana republic. Savers invested in these schemes because they accepted in good faith the deal offered by the Government and in full knowledge of the Government's fear that it would not be able itself to fund retirees unless large numbers of those retirees had personal savings. Now those savers are to be punished for their earlier responsible behaviour. This is very bad public policy.

It always amazes me that the group constantly forgotten are the hard-working, lower middle class PAYE and self-employed workers, as Senator Zappone said. These people are mortgaged to the hilt and have typically been hit by both tax increases and income cuts. Even in the best of times they did not have huge disposable income. These are the people who will suffer on foot of this measure. The richer will not notice it, the poorer will not have invested in the first place but the so-called squeezed middle, to borrow a phrase from our neighbour, will take the hit. While I commend the Bill's positive measures, I strongly oppose the pension grab contained in section 4.