Wednesday, 24 March 2010
Finance Bill 2010 (Certified Money Bill): Second Stage (Resumed)
I look forward to Senator Donohoe's recommendation on provisions for research and development. It is important the Bill fosters innovative changes for industry and allows businesses to prosper. Senator Butler spoke about entrepreneurship, rewarding enterprise, the smart economy and employment, with which I agree. We need to look after our small and medium sized enterprises.
However, when the economy is rebalanced, with what will we be left? The Government's approach has been about cutting services, increasing taxes but not rewarding entrepreneurship or providing an employment stimulus. There is no provision in the Bill to show if we are serious about research and development or building partnerships with our third and fourth level educational institutions.
Neither does the Bill focus on restrengthening the economy's competitive position or exports. I am concerned with the cost of doing business in Ireland. Any small or medium enterprise or chamber of commerce will tell horrific stories about these costs. These businesses, which employ 700,000 people, must become the mainsail with which we navigate the economic vessel out of recession.
I am already concerned businesses in the Border counties are struggling because of the discrepancies with VAT rates and between euro and sterling. Outside of the Border area, there are very little supports available to businesses too.
According to Members opposite, worldwide factors not Government's policies are responsible for Ireland being in recession. Ireland was the first in the eurozone to get into recession and will be the last out of it.
I accept we face serious issues but yesterday FÁS was spread over three Departments and the word "employment" was removed from the name of one. No innovative policies were announced during the reshuffle while the Taoiseach said tourism, sport and culture will help us. This is from the Government which will not reduce the travel tax, will not work with Michael O'Leary on the problems with hangar 6 to deliver jobs, or separate Cork and Shannon Airports from the Dublin Airport Authority. It will be more of the same from this jaded team of a Government. While I accept a reduction in the deficit is required, at the same time there needs to be a stimulus plan and a hope of coming out of the recession. Confidence has been eroded. People are not spending and jobs are being lost. The fundamental task of Government is to create jobs and employment and opportunities for entrepreneurs to employ. The backdrop of this Bill is very bleak. Some commentators believe we have not yet hit the bottom while others say hope is on the way and the bright lights of the faraway hills are coming closer. Those in retail say they are struggling big time. Banks are not helping with overdrafts, suppliers cannot get paid, staff numbers have been decimated and people are not spending. Deputy Coughlan, the Tánaiste and former doyenne of the Department of Enterprise, Trade and Employment, as it was, said our young people emigrated for the ceol and the craic. I better be careful what I say in case I am accused of all kinds of things. I challenge the Members opposite to agree with the Tánaiste that thousands of young people have emigrated because they want to travel the world for the fun of it. They have not, as Members know well. They left because they cannot get work and they see no hope. They see no vision or policies from Government. The fundamental task of Government is to be pro-employment and pro-enterprise.
I refer to Cork city and county. The Minister for Foreign Affairs, Deputy Martin, promised the Cork docklands project would develop and evolve but there is not a scintilla of a line about the Cork docklands project in the Finance Bill. There is no reference to funding for it, nor for the eastern gateway bridge. There is no vision and no stimulus plan. Senator Mooney referred to a public works scheme. Where is it in the Finance Bill? Roads in this country are in decay, bridges are falling down and quay walls in Cork are crumbling. President Obama presented his stimulus plan to the states' governors and provided them with a chunk of money to fix roads, build bridges and create jobs. We cannot do that but we can dedicate billions of euro to bailing out banks in our failed banking system. Light touch regulation is symptomatic of Fianna Fáil's approach to Government. Every day on the Order of Business, Members opposite give out about the number of public sector workers, their pay and what they are doing yet these are the same people who embraced the public sector unions five to ten years ago, wrapped the euro note around them and threw money at them under the guise of Deputy Bertie Ahern's leadership. Last December the Government deliberately brought down social partnership, the first Government in a quarter of a century to tell decent people they would pay €4 billion. That is not what social partnership is about. I challenge the Minister of State, Deputy Connick, to tell the Government to reopen social partnership, engage with the public sector unions and workers and embrace the Houses of the Oireachtas as one of the pillars of social partnership. Public sector workers have taken a disproportionate hit.
I refer to the windfall tax and the example of a GAA club that wants to sell land, not to make money for the club but to upgrade facilities and provide services to young people. I hope the Minister will examine this. Senator Burke referred to the issue in Westport. We must examine the case of sporting clubs that sell a portion of land, without moving out, in order to upgrade facilities or build new facilities. That must be examined in the Bill.
I appeal to the Minister and the officials to re-examine the airport tax. It is a barrier to doing business. We have increased VAT on local authority services to 13.5% and we are taking away support in PRSI, dental and optical benefits. This can be an innovative Finance Bill to retrain people and reward entrepreneurs rather than pummelling public sector workers. It is a missed opportunity, the hallmark of this Government's lack of vision and policy. I wish the Government would see sense, take to the country and hold a referendum on itself because those who have lost their jobs and those in employment will speak clearly.
There is a different way, called the NewERA, which is an innovative and exciting approach to creating jobs. We should embrace it but sadly the Government has not done so.
I congratulate the Minister of State, Deputy Connick, on his appointment.
I welcome my colleague from the south east, Deputy Connick, who is now a Minister of State. I wish him well in his post and I am sure he will do an excellent job representing not only the south east but the country in an exemplary manner.
Over the past 18 months we have seen over 200,000 mothers, fathers and young people lose their jobs. The vast majority of these are under 30 years of age. We look to them to create the building bricks for our economic future. They are faced with unemployment and immigration. It is very sad to see so many forced out of this country to seek employment and opportunities abroad. My son graduated last year and he tells me 60%-70% of his classmates have left the country. They did not do so for fun, as the Tánaiste might suggest, but to seek opportunities abroad. This Finance Bill provides no incentives, no hope and no ambition to tackle unemployment. It condemns another generation of bright young, ambitious and educated people to seek employment abroad. That is also difficult enough. This is the legacy of this tired Government, which has been in office for too long and is bereft of the drive, ambition and will to explore new imaginative policies to get people back to work. This should be the number one priority for any Government.
I listened with interest to Senator Walsh and other Government Senators saying benchmarking was a mistake. Slow learners, I suggest. Benchmarking might have been successful if the necessary reforms had been implemented and the Government had shown some leadership. We see the results of the lack of leadership in the current problems in the public service. How any Government can cut the pay of low paid public servants at a time when billions of euro are pumped into Anglo Irish Bank with little or no prospect of a return for hard-pressed taxpayers is mind-boggling.
My party recognised that €4 billion in cuts were necessary but we adopted a fairer and more prudent approach in the alternative budget we proposed. We certainly did not propose to attack public servants on low pay. We proposed to exempt the first €30,000 of salary from cuts. Would we have the same problems with the employees in the public service if the Government had adopted that approach? Perhaps we would but I suggest to the Minister that we would be on much firmer ground because the proposals would have been much fairer.
The lack of ambition and vision in this Finance Bill is depressing when set against Ireland's economic challenges. Thousands of struggling households will be bitterly disappointed that the hoped for stimulus has not materialised in this Finance Bill. I suggest it is more of a tidying up exercise to make life easier for the Revenue Commissioners and tax advisers rather than for householders, people in negative equity and those who are now in arrears with their mortgages.
The Minister made a major blunder in announcing that the worst was over. I do not believe the worst is over. The Minister would have been better advised to listen to the suggestions of my party, and indeed the Labour Party, and take at least some of them on board.
It is also extremely disappointing that the Minister ignored the recommendations from his own Commission on Taxation to introduce new smart tax concessions to help the unemployed pay for retraining and second chance education, to support innovation by small businesses fighting to survive by allowing them offset their research spending against PRSI, to support start-up sole trader businesses, as has been done for companies, and help those in negative equity by lowering Ireland's exceptionally high rates of stamp duty on house purchases.
The only impact of this Finance Bill on ordinary families is the application of a 13.5% VAT rate for the first time on local authority services such as road tolls, bin charges and off-street parking, and the axing of existing income tax reliefs for bin charges.
Regarding the carbon tax, despite the major problems identified with the tax on coal and peat the Minister is ploughing on regardless. It is likely that coal with a far higher carbon content will be imported from Northern Ireland, thereby avoiding the tax the Minister is proposing, but the Minister has not come up with a solution to that problem.
As I pointed out, through the Commission on Taxation and the proposals that Fine Gael and indeed the Labour Party have made, the Minister could have come up with a far greater stimulus package to create an injection into the economy and get people back to work. That is the issue on which I began my contribution. Getting people back to work must be the priority of this Government. What we see in this Finance Bill does nothing to get people back to work. That is why it has failed in its intent. If it was intended that this would be some type of stimulus package, it has failed miserably. I look forward to the Minister's comments.
): I will reply to Senator Cummins in the course of my contribution but I want to thank Senators for their comments. I will try to address each of them as best I can.
Before doing so I would like to emphasise how the Finance Bill 2010 is crucial to sustaining an environment in which jobs can be created and maintaining our low tax burden on business. That is essential for our competitiveness. The Bill contains a large number of measures to help Ireland's international competitiveness and ensure we maintain employment until the world economic position improves. We have to build on our existing strengths to put ourselves in a good position to take advantage of the recovery that both my Department and the Central Bank are forecasting for the end of this year.
The measures in this Bill, together with the budgetary strategy, support export led growth in services and goods. The budgetary and fiscal policy, our investment in infrastructure and, as I stressed earlier, our continuous investment over a number of decades in an educated and skilled workforce means our potential to grow and develop is enhanced as the international economic position improves and we focus on harnessing emerging opportunities in knowledge intensive sectors.
I turn to the points raised by Senators in the course of the debate. Senator Twomey started by raising a number of questions regarding specific measures in the Bill and I want to respond to him. He suggested the impact on the public sector of recent reductions in expenditure was disproportionate, and Senator Phelanspoke in a similar sense. I say "yes". The pension levy and the reductions in pay were implemented but they were a necessity in the light of the severe economic circumstances in which we found ourselves. These measures were an unpleasant necessity. We did not want to implement them but we had no choice.
Many speakers drew attention to the banking crisis in this context but what those speakers do not draw attention to is that our receipts as a State are less than our expenditure as a State, quite apart from any question relating to the banking crisis. Hence we are borrowing to pay our salaries in the public service, our transfer payments in welfare and our other day to day expenditure as a State. That is not a sustainable position and Senators - Deputies commit this sin more regularly than Senators - who refuse to acknowledge that or attempt to mislead the public on this issue are doing a grave disservice to the future of our economy.
I am not addressing you, Senator Cummins. I am addressing a general point that has been made in public debate. They are doing a grave disservice to the employment opportunities of children in this country in the future if they believe that an unsustainable level of public expenditure on salaries, pensions, transfer payments and benefits can be sustained at the expense of future generations of Irish men and Irish women. Senator Phelan also drew attention to the question of the reductions in expenditure.
In regard to dental benefit, this is part of the treatment benefit scheme provided by the Department of Social and Family Affairs and is funded from the social insurance fund. The treatment benefit scheme was restricted in the 2010 budget with entitlements under the scheme limited to medical and surgical appliances and the free examination aspects of the dental and optical benefit schemes. This restriction, which the Government will review in the context of budget 2011, is part of the Government's efforts to achieve savings on expenditures from our social insurance fund. The retention of the free yearly examination will still provide for the detection of disease at an early stage.
The dental treatment services scheme is a demand-led dental treatment service for adult medical cardholders, which was introduced in 1994. The service is offered by 1,275 dentists who hold a contract with the Health Service Executive. In the past five years expenditure in the scheme has risen by approximately 60%. In 2009, expenditure reached over €86 million. That is an increase of €22.60 million over the 2008 expenditure figure of €63.4 million.
The reduction in that expenditure in 2010 reflects the imperative to achieve overall reductions in public expenditure while providing essential and developing health services to patients and the public. The Minister for Health and Children and the HSE are currently examining proposals to contain expenditure at the 2008 levels.
Senator Twomey also raised the question of the pensions of general practitioners. I am not completely clear on the difficulties being raised by the Senator in this area but as he said, he might clarify the issue with my officials and I will examine it. I am aware that the Revenue Commissioners published a briefing document on their website last year on the issue of tax relief on pension contributions. If it helps, I can arrange for the Senator to have a copy of that article.
Senator Twomey referred to primary care centres. A recommendation relating to primary care centres has been tabled for Committee Stage at which time, with the Chair's permission, I will respond to the Senator's comments. On the tax treatment of locum general practitioners, there has been no change in the long-standing Revenue practice in regard to determining the tax status of locums working as substitutes in general practices and other medical areas. The position is that notwithstanding that an individual may in regard to engagement be described correctly or otherwise as a locum, the Revenue approach is to examine all of the facts and circumstances of each case having regard to the code of practice for determining an individual's employment or self employment status and having regard to relevant case law on the subject of a contract of service, in the case of an employed person, and a contract for services in the case of a self employed person.
As a consequence of a recent Appeal Commissioner's determination in this area, the Revenue, through various forums, has given renewed publicity to its long held position on the tax treatment of locums engaged in the field of health care and pharmacy. Essentially, the distinction between a contract of service and contract for services is at the heart of the Revenue law treatment of income under the different cases. There is a long established case law governing this matter. It turns on the precise characteristics of the particular relationship between the particular locum and particular medical practitioner or pharmacist in the case of a pharmaceutical operation. It is a matter which has always been determined on a case by case basis. It is difficult to see how it can be addressed in a legislative manner. I am aware the Appeal Commissioner's decision has given rise to considerable debate within the medical profession. However, it does turn to a determination that is made on a case by case basis.
Senator Twomey also raised a number of issues in regard to residents and domicile in the context of the domicile levy. It is no longer possible for an individual to avoid a significant capital gains tax liability on company shares by becoming non-resident for a temporary period. The Finance Act 2003 provides that an individual who becomes non-resident for a period of not more than five years and while non-resident disposes of a shareholding equal to or greater than 5% of the issued share capital in a company or of a market value greater than €500,000 will be liable to Irish capital gains tax on the disposal on his or her return to Ireland. The Finance Act 2006 prevented individuals avoiding Irish capital gains tax by transferring shares to spouses who became temporarily non-resident.
Senator Twomey was anxious to give some leeway to non-resident individuals who wish to invest in the country. Non-residents are only liable to Irish tax on Irish sourced income and Irish specified assets. For an individual to be liable for the domicile levy he or she must be a citizen of Ireland and domiciled in Ireland. The levy provisions contain a measure whereby the Revenue Commissioners may give an opinion to an individual who is considering making a significant investment in the State as to whether or not that individual would be likely to be regarded as an individual who is domiciled in and a citizen of the State in a relevant tax year. This should facilitate the individuals to whom Senator Twomey referred.
Senator Twomey also asked about the potential yield from the levy. While the number of non-resident individuals who file an Irish tax return is known, many of them will have a foreign domicile or are not Irish citizens. The levy only applies to individuals who have Irish located assets worth €5 million or more, with Irish income in excess of €1 million and an Irish tax liability of €200,000 or less. No correlation is currently made between an individual's income tax liability and the value of his or her Irish assets. For these reasons, it is not possible to estimate the potential yield from the levy.
With regard to the availability of short term hire cars, it is not obvious as to what market failure, if any, could contribute to a shortage of such vehicles and would require action by Government. In the past, there was part relief for VRT on cars used to service short term self drive contracts, including cars hired on contract for 35 days or less. However, arising from Revenue audits, there was strong evidence the scheme was being abused by the sector. Following consultations with various parties in the car hire sector, legislation to phase out this relief was enacted in December 2008. It must be recognised that the short term car hire sector made considerable savings on VRT liabilities by switching more of the rental fleet to lower CO2 emitting vehicles. Indeed the cost of new cars has reduced. With the July 2008 rebalancing of the VRT system, the average VRT paid on new cars has for example between the first half of 2008 and now reduced by more than 30%. An attempt was made in previous financial legislation to facilitate this particular sector through the provision of a VAT relief. The difficulty was that the relief in itself became the subject of widespread abuse and the vehicles concerned were not used exclusively for tourist purposes. I accept a difficulty exists. However, the difficulty stems from the nature of the tourist trade in Ireland where demand for such vehicles is greater for a limited period of the year than for the remainder of the year. Clearly, this matter will be a priority for the Department of Tourism, Culture and Sport.
Senator Twomey also raised the impact on the public finances of the initiatives being undertaken in the banking sector, a legitimate and important question which is quite distinct from the issue I addressed earlier in my speech. As I have made clear previously, it is likely that some institutions will require additional capital to absorb the losses arising from the transfer of their impaired assets to NAMA and to maintain appropriate levels of capital. I have also made it clear that to the extent that sufficient capital cannot be raised independently or generated internally the Government remains committed to providing such banks and building societies with an appropriate level of capital to continue to meet their requirements in a manner consistent with EU State aid rules on the credit needs of the Irish economy.
As Senators will be aware, a total of €11 billion in capital has been to date provided to the three largest banks, including Allied Irish Bank, Bank of Ireland and Anglo Irish Bank. Any further capital provision to financial institutions will, of course, be undertaken in a manner which minimises the impact on the public finances having regard to the options available for such capital provision in any particular case. Senators will appreciate that such investments are not undertaken to bail out the banks but to maintain our systemically important financial institutions with appropriate capital levels to prevent greater costs for the economy and taxpayer.
In response to Senator Twomey's points on developers transferring assets to their family members, the NAMA legislation makes provision in relation to various scenarios in regard to the collateral and assets underlying the loans that will be transferred to NAMA. I am not in a position to comment on any specific case. However, I do want to point out that the legislation provides NAMA with the extensive range of enabling powers it requires to protect taxpayers and to ensure the optimum outcome for the State. Section 211 provides that the High Court may declare disposals of assets of debtors and associated debtors to be void if the court is satisfied that the effect of that disposal is prejudicial to the acquisition by NAMA or a NAMA group entity of one or more bank assets and it is just and equitable to do so.
On Senator Coghlan's points, over-capacity in the hotel sector is complex and ideally requires a market response over time. I will respond further on this matter later. NAMA is being established to remove land and development loans from the balance sheets of the relevant credit institutions. The majority of hotel loans generally fall into the category of commercial property loans and will only be transferred if they are associated loans. It has been stated time and again that NAMA will in the first instance purchase loans from participating financial institutions. It only acquires property in the context of enforcing security if and when the need arises in respect of non-performing loans. In the interim, with regard to the transfer of loans to NAMA, section 66 of that legislation provides that applicant institutions must continue to administer, service and deal with all the loans that are eligible for transfer in the same manner as would a prudent lender.
Senator Alex White suggested that I was perhaps indulging in wishful thinking when I suggested our economic position is improving. I beg to disagree. There are indications that the economy is stabilising. Car sales are up and the decline in retail sales is slowing. In addition, industrial production improved in January. This will help our export performance. The live register data indicates that the unemployment rate declined in February. While that decline was modest, it is moving in the right direction. Most economic commentators now expect that the economy will bottom out in the first half of the year with positive year on year growth expected in the second half of the year. This was my Department's view on budget day. The indicators published since are consistent with this forecast.
Senator Coghlan spoke about the hotel sector and its difficulties. This is a complex area in which a number of factors are involved. They may be summarised as demand and cost issues, difficulties in accessing credit and over-capacity. Any change in the claw-back part of the tax incentives would have to comply with State aid rules and be approved by the European Commission before proceeding. It is by no means clear that these changes would obtain the necessary EU State aid approval and if they did the condition attaching to any changes could be restrictive. The claw-back provision is a feature of all property schemes and not alone hotels. Senator Coghlan also referred to the need for funding for certain heritage properties and in particular for Killarney House. The properties mentioned are already in the ownership of the State and managed by the Department of the Environment, Heritage and Local Government with the assistance of the Office of Public Works. Therefore section 28 would not apply to such properties. However, I understand the Minister for the Environment, Heritage and Local Government has recently indicated that his Department in conjunction with the Office of Public Works is close to finalising a programme in respect of essential repair works for Killarney House and that funding is being provided for these works in the current year.
I note Senator Ó Brolcháin's comments on the uses of tax reliefs and the need to keep them under review to ensure they are still relevant. I disagree with Senator John Paul Phelan in suggesting the Bill does nothing for job creation. When I outlined the key measures in the Bill earlier I referred to a number of measures specifically designed to assist in this area.
Senator Dearey welcomed the extension of the scheme of accelerated capital allowances for expenditures incurred by companies on energy-efficient equipment to additional technological categories and especially to the catering and hospitality sector. Senators Coghlan, Mooney and Norris also referred to the difficulties facing the restaurant sector and this scheme will be of assistance to that sector. I remind Senators that this scheme has been extended to additional categories of equipment each year since its introduction in the Finance Act 2008.
Senator Mooney suggested applying a lower VAT rate to restaurants to boost the sector, but this would be very costly to the Exchequer. It was an option I examined in the lead up to the budget. It is important to note that the restaurant and hotel sectors already enjoy the reduced rate of 13.5%. This compares favourably with the United Kingdom treatment of tourist and catering services where such services are subject to a standard VAT rate of 17.5%. In addition since 2007 businesses can recover VAT on conference-related accommodation expenses and in the budget excise duties on alcohol products were reduced by approximately 20%, which should assist hotels and restaurants as well as other sectors of the alcohol industry.
Senators Norris, Burke and Twomey also mentioned that the date from which the windfall tax applies had adverse effects in particular circumstances and cases. As I mentioned, I do not propose to discuss particular cases because the measure will be discussed in more detail on Committee Stage as a recommendation has been tabled for debate. All legislative measures, including tax measures, need to commence on a certain date and there will always be cases affected by proximity to the date. Senator Twomey made the point that the windfall tax rate will only apply to any portion of the gain which is attributable to the decision to rezone land. If a draft development plan is announced which shows that a parcel of land is to be rezoned, the land may increase in value as a result of that announcement. Such an increase in value is not attributable to the rezoning decision as such and would therefore not be subject to the rate. Any increase in the value of the rezoned land which is not attributable to the rezoning decision will not be subject to the 80% rate.
On Committee Stage in the Dáil, Deputy Bruton proposed an amendment to the windfall tax to remove a particular heritage property from the scope of the tax as an isolated case. Senator Coghlan has now argued that two further properties should be exempt from the scope of the tax. This underlines the point that the exemption proposed could not simply apply to a single property so the isolated case argument does not stand up.
I understand Senator MacSharry's concern regarding the potential application of the windfall tax rate to what he described as "brownfield sites". However, the three conditions as set out in legislation must be met before the rate will be applied. These conditions are that the land must have been rezoned after 30 October 2009, the land must have been sold after 30 October 2009 and a gain must have been realised.
Senator Norris also expressed regret at the necessity to make public bodies subject to VAT in accordance with the recent European Court of Justice judgment. In order to comply with the judgment, the Value-Added Tax Act is being amended to provide that public bodies, including local authorities, are made subject to VAT from 1 July next where they engage in activities that could lead to a distortion of competition with private operators. Although some services will become liable to VAT such as waste collection, landfill and recycling services, off-street parking and toll roads, many other services operated by public authorities will remain exempt from or outside the scope of VAT, such as the supply of water, education, health and passenger transport, parking fines, and fees for passports and driving licences. Community and sporting facilities will remain exempt for the present, giving time for a more complete examination of the issues, including an analysis of how the new rules might best be implemented.
I thank Senator Quinn for his broad support for the thrust of the Bill. I note that he referred to research and development and, of course, there are enhancements to the research and development tax credit scheme in this Bill as there have been in most of the Finance Bills that I have taken through the Oireachtas. One significant advantage of our research and development tax credit scheme is that it is open to all companies operating in Ireland, both multinational and indigenous, to benefit under the scheme on the basis of increasing their expenditure on research and development and availing of a tax credit of 25% on that increased expenditure.
Senator Paschal Donohoe also referred to the research and development tax credit scheme and the need to encourage "spin-out" activity from research and development. He gave examples of where that is already happening and referred to the recommendations he is sponsoring on Committee Stage to encourage this activity further. I am aware of the recommendations and, of course, the detail of the recommendations was subject to significant debate in the other House. I look forward to further debating the issue on Committee Stage. While I have undertaken to examine the proposals contained in the recommendations further, there is already a tax incentive in place to encourage the types of spin-out and asset-transfer examples given in his speech. This is the scheme of capital allowances for the provision of intangible assets which was introduced in section 13 of Finance Act 2009.
I welcome the support given by Senators MacSharry, John Paul Phelan and others on the extension of mortgage interest relief for those who bought at the peak of the housing market. The extension of mortgage interest relief will help those who purchased in 2004 or later and the transitional measures may act as a stimulus to those who wish to enter the housing market at this stage. I emphasise my commitment to remove this relief altogether by 2018 which will provide significant savings to the Exchequer.
I thank Senators Hanafin and White for their supportive remarks and I agree with them that it is crucial that we try to develop an environment which encourages the growth of sustainable jobs in an export-orientated economy.
Senator Mooney asked for more details on the national solidarity bond. In announcing the bond in the budget, I said it would enable ordinary citizens to contribute to economic recovery and development. As I indicated at the time, the new bond will not be used to fund additional spending. It is an addition to the existing range of State savings schemes for retail investors administered by the NTMA such as savings bonds and savings certificates. It will add diversity to the State savings schemes by allowing retail investors to invest for a period of up to ten years with a redemption bonus on maturity in addition to the interest payable annually. The redemption bonus will be exempt from income tax while the annual interest will be subject to DIRT. The State savings schemes have long been a cornerstone of Exchequer financing. Investors in them know that they are investing in a State-guaranteed product. They also know that their investment is in turn helping the State to finance the spending it undertakes to promote the economy, provide for its capital investment programme and create employment.
To address a point raised by Senator O'Toole, the Department of Social Protection has recently clarified the position on the PRSI treatment of approved retirement funds. These approved retirement funds are not pension schemes and are instead retirement funds. Under current legislation, withdrawals from them are liable for PRSI at class S. In terms of imputed or deemed distributions, the amount chargeable to income tax is also liable to PRSI at class S. While this is the current position, the PRSI treatment of approved retirement funds remains under active consideration by the Department of Social Protection.
As regards Islamic finance, I thank all Senators, in particular Senator Boyle, for their appreciation of the importance of the financial services industry to this country. It continues to buck the trend even in this difficult economic climate with employment holding up at 25,000. That is despite the difficulties in the domestic banking sector. My job is to ensure that in the face of the competitive threat from established and emerging markets, the International Financial Services Centre is enabled to remain competitive in all areas.
Senator Cummins introduced a somewhat more contentious note in his contribution and suggested that the general trend of Government policy did not support the assertions the Government was making in that regard. Anyone who examines the position can see we have certain innate advantages which brought us a period of substantial economic advance and which remain, including a young highly educated and flexible workforce, a substantial knowledge-intensive industrial base, a business and innovation-friendly tax system and membership of the biggest trading bloc in the world, recently renewed by the overwhelming "Yes" vote in the referendum on the Lisbon treaty. Members of both Houses must note the regular commentary from other countries on our handling of the recession. Despite much of the criticism expressed in this House today, the fact remains that the president of the European Central Bank, Jean-Claude Trichet, has made the point this year that in the case of Ireland very tough decisions have been taken by the Government and rightly so. A colleague of his in the governing council recently stated that the Irish measures are courageous and are going in the right direction. The French Finance Minister, Ms Christine Lagarde, recently said Ireland had set the high standard other countries must follow. The German Minister for European Affairs stated: "I think there is a deeply rooted trust and confidence in [Ireland's] ability to sort out its problems ... There is a fundamental belief that the Irish are going to solve it." These political assessments abroad are supported by reputable international economic commentators. The chief economist of Citibank, Mr. William Buiter, one of the most respected economists in the world, described Ireland's intelligently designed approach to restoring fiscal stability as a model of how to do things. I appreciate Senator Cummins did not agree that it was such a model but it is interesting that people outside the country see clearly that we are moving in the right direction. Mr. Martin Wolf, chief economics editor of the Financial Times, said last month that he admired very much what the Irish policymakers had done and that they really seemed to understand the implications of being in a monetary union. He said Ireland was the only country in this situation that did. He added that the Irish policymakers had dealt with this issue more seriously and reasonably than any other euro member.
There is an extraordinary international consensus among commentators, institutional advisers and those in political positions of responsibility that the Government, faced with the extraordinary storm of the last 18 months, has taken the correct decisions in very difficult economic circumstances. This has restored a great deal of the international confidence in the county that was so absent at the beginning of the crisis. Confidence is a fragile plant which must be nurtured very carefully. We must translate this growing and obvious international confidence into faith in ourselves and our strengths to tackle the different economic problems we face. We can tackle them. Whether it is a question of the provision of fiscal incentives, the resolution of the banking crisis or, above all, creating jobs and renewing every sector of the economy, the prerequisites are that we are competitive, that the public finances are in sound shape and that the banking system is capable of supporting credit in the real economy. The Government has taken decisive steps in all these directions and will continue to do so.
Before concluding, I would be obliged if, in accordance with Standing Order 131, the Cathaoirleach directed the Clerk of the Seanad to make the following corrections to the Bill: in page 32, lines 34, 36 and 39, to include the words "of subsection (1)" before "apply" and "applies" respectively, to identify that the paragraph references pertain to subsection (1); and in page 159, to correct the indentation of lines 42 to 47, inclusive, to the level of paragraph (b) above.
I thank Senators for a constructive debate.
The Dail Divided:
For the motion: 27 (Dan Boyle, Martin Brady, Larry Butler, James Carroll, John Carty, Maria Corrigan, Mark Daly, Mark Dearey, John Ellis, Geraldine Feeney, John Gerard Hanafin, Cecilia Keaveney, Terry Leyden, Marc MacSharry, Lisa McDonald, Paschal Mooney, Niall Ó Brolcháin, Brian Ó Domhnaill, Labhrás Ó Murchú, Francis O'Brien, Denis O'Donovan, Fiona O'Malley, Ann Ormonde, Kieran Phelan, Jim Walsh, Mary White, Diarmuid Wilson)
Against the motion: 20 (Ivana Bacik, Paddy Burke, Jerry Buttimer, Paudie Coffey, Paul Coghlan, Maurice Cummins, Pearse Doherty, Paschal Donohoe, Frances Fitzgerald, Dominic Hannigan, Fidelma Healy Eames, Michael McCarthy, Nicky McFadden, Joe O'Reilly, Joe O'Toole, John Paul Phelan, Eugene Regan, Brendan Ryan, Liam Twomey, Alex White)
Tellers: Tá, Senators Niall Ó Brolcháin and Diarmuid Wilson; Níl, Senators Paul Coghlan and Maurice Cummins.
Question declared carried