2002 Annual Report of the Comptroller and Auditor General and Appropriation Accounts.

Vote 1 — President’s Establishment.

Vote 6 — Office of the Minister for Finance.

Vote 7 — Superannuation and Retired Allowances.

Vote 12 — Secret Service.

Chapter 1.1 — Tax Expenditures.

Contingency Fund Deposit Account.

Finance Accounts 2002.

Mr. T. Considine (Secretary General, Department of Finance) called and examined.

Witnesses should be aware that they do not enjoy absolute privilege and should be apprised as follows. Members' and witnesses' attention is drawn to the fact that as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These rights include the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make a written and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents, and the right to cross-examine witnesses. For the most part, these rights may only be exercised with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any person identified in the course of proceedings who is not present may have to be made aware of them and provided with a transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or an official, either by name or in such a way as to make him or her identifiable. They are also reminded of the provision in Standing Order 156 that the committee should refrain from inquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policy or policies.

I welcome Mr. Considine, Secretary General, Department of Finance, and invite him to introduce his officials.

Mr. Tom Considine

I am accompanied by Ms Brigid McManus, assistant secretary, budget and economic division; Mr. Pat Casey, principal officer, personnel and remuneration division; Mr. Kevin Nolan, assistant principal, government accounting section; Mr. Tom Heffernan, principal officer, public expenditure division; and Mr. Michael Errity, principal officer in the same division. There are two Revenue officials present: Mr. Noel Faughnan, principal officer, and Mr. Gerry Gilgan, assistant principal officer.

Chapter 1.1 of the report of the Comptroller and Auditor General reads:

1.1 Tax Expenditures

Introduction

Exemptions, deductions, credits, and deferrals designed to encourage certain taxpayer activities or to limit the tax burden on certain types of individuals or endeavours are known as tax expenditures — these can have a significant impact on tax revenues. When such reliefs are introduced through the annual Finance Act, a judgment is made that the overall change that will occur as a result will represent good value overall to the State for the cost of the relief viz. the tax revenue forgone. It is generally agreed that prudent financial management requires that the ongoing and ultimate actual cost and outcome for such reliefs are measured and kept under review, that the impact on taxpayer behaviour and on the overall taxbase is monitored, and appropriate action taken as necessary.

Cost Effectiveness

The Commission on Taxation in 1984 acknowledged that ‘the effect on tax revenue cannot always be measured accurately, nor can the results of granting the concessions be estimated with any precision'. However the Commission also considered, while not underestimating the difficulties of doing so, that it was essential 'that procedures be instituted to enable the government to assess the effectiveness of tax incentives on a regular basis'. My 2001 Value for Money Report on the Expenditure Review Initiative concluded that ‘operating on the principle of results-based reviews, the scope of the Expenditure Review Initiative should also be broadened to include tax expenditures such as tax reliefs and exemptions'.

In October 2002 a Department of Finance report on Tax Incentives/Expenditures to the Tax Strategy Group listed 28 major tax incentives/expenditures estimated to cost more than €20m each per annum with an estimated total cost of €7.3bn. The report considered issues relating to tax expenditures and indicated a need to examine tax incentives/expenditures both in the terms set out by me in the Value for Money Report viz. establishing and reviewing the ongoing costs of schemes, and in terms of the introduction of new incentives/expenditures. That included the possibility of linking them to associated targets and time limits within which the provision could be examined and extended, curtailed or withdrawn as appropriate. In response, the Tax Strategy Group acknowledged the need for better data on tax incentives and expenditures. It agreed that there should not be an automatic roll-over of schemes reaching their end date, and that tax incentives and tax expenditure schemes should be reviewed on a case-by-case basis.

Current Deficiencies in Information Gathering

Revenue is the main source of information, statistics and data on tax incentives/expenditures as the collection of statistical information flows from the administration of the tax system. However, the extent of the data available is limited to that included on the various tax return forms and to the degree to which that data is captured on computer to facilitate extraction and analysis. The 2001 Revenue Statistical Report lists a total of 91 allowances and reliefs and indicates an estimated cost for 48 of them. A more speculative estimate is provided in a further 10 instances, and costs are not available for the remaining 33 reliefs.

Table 1.1 Costings of Allowances, Reliefs and Exemptions which are Particularly Tentative and Subject to a Considerable Margin of Error

Tax Relief Provision

1999-00

1998-99

€m

€m

Employees’ Contributions To Approved Superannuation Schemes

456

329

Employees’ Contributions To Approved Superannuation Schemes

645

533

Exemption of Net Income of Approved Superannuation Funds (Contributions plus Investment Income less Outgoings)

1,274

967

Exemption of Irish Government Securities Where Owner Not Ordinarily Resident in Ireland

81

47

Exemption From Tax of Certain Social Welfare Payments

Child Benefit

127

116

Maternity Allowance

8

8

Relief under Profit Sharing Schemes

31

34

Exemption under Approved Share Option Schemes

5

20

Stock Relief

2

2

Rented Residential Accommodation

31

32

Table 1.2 Uncosted Allowances, Reliefs and Exemptions

Certain payments made by a person carrying on a trade or profession to an Irish university or other qualifying educational establishment

Relief for donations made to certain bodies engaged in the promotion of the arts

Exemption in respect of certain income derived from the leasing of farm land

Expenditure on certain buildings in designated inner city area

Relief for new shares purchased on issue by employees

Relief for donations made to "Cospóir" The National Sports Council

Relief for investment in research and development

Exemption in respect of stallion stud fees

Exemption of profits arising from commercially managed woodlands

Relief from averaging of farm profits

Exemption for income arising from payments in respect of personal injuries

Exemption of certain payments made by Haemophilia HIV Trust

Exemption in respect of income arising from certain patents

Exemption in respect of payments made under the Enterprise Allowance Scheme

Exemption of income from foreign trusts

Exemption of lump-sum retirement payments

Relief for allowable motor expenses

Tapering relief allowable for taxation of car benefits-in-kind

Relief for gifts to The Enterprise Trust Ltd.

Reduced tax rate of 10% for authorised unit trust schemes

Reduced tax rate of 10% for special investment schemes

Exemption of certain grants made by Údarás na Gaeltachta

Relief for donations made by companies to First Step Ltd.

Reliefs for activities related to the Customs House Docks Area and Shannon Airport Customs-Free zone

Relief for investment income reserved for policy holders in life assurance companies

Allowances for double-rent, owner-occupier and expenditure on historic buildings in Urban Renewal areas

Relief for various business-related expenses such as staff recruitment, rent, legal fees, and other general expenses

Exemption in certain circumstances on quoted bearer Eurobonds

Exemption of payments made as compensation for loss of office

Renewal scheme for traditional seaside resorts

Donations to Third Level Institutions

Exemption of scholarship income

Donations to Public Libraries

Capital Allowances

One of the main categories of tax expenditure lies in the area covered by the generic title "capital allowances". For instance, the total amount claimed in the 1999/00 tax year (on which the 2001 Statistical Report was based) was €8,310m. Table 1.3 sets out the major elements of that figure including plant and machinery, industrial buildings and rental, and gives details of the number claiming, the average claim and the highest claim.

Table 1.3 Breakdown of 1999/00 Capital Allowance Claims

Capital Allowance Type

Average Claim

Number Claiming

Highest Claim

Total Claimed

€m

€m

Plant & Machinery

210,060

35,249

246

7,405

Industrial Buildings

77,855

3,817

23

297

Miscellaneous Reliefs

62,402

7,676

180

479

Rental Capital Allowances

83,436

1,546

17

129

Total

8,310

*The total claimed, and the estimate of cost below, do not include a significant amount in respect of ‘unused capital allowances' i.e. capital allowances which are not absorbed by a company in the accounting period in which they arise, but are carried forward until sufficient profits are available for offset in future years.

The overall estimated cost of €1,649m for capital allowance reliefs as reported in the 2001 Statistical Report was calculated by applying the relevant rates of Income Tax and Corporation Tax, as considered appropriate, to the capital allowances claimed.

Outside of the breakdown between Plant and Machinery, Industrial Buildings and Rental, no further details or costs are available for the many schemes included in the capital allowance category e.g. urban renewal, rural renewal, seaside resorts, airports, hotels, nursing homes, child care facilities, private hospitals, park and ride facilities, third level institutions. As taxpayers are not required to give details on the tax return of the particular schemes under which the capital allowances are claimed, the amount of the particular reliefs/incentives claimed cannot be extracted from the aggregated totals. A further reduction in the information required on the 2002 Corporation Tax return form will result in the loss of even the aggregate capital allowance totals for that year. 80% of the cost of capital allowances is claimed against Corporation Tax. The requirement for aggregate details was restored for 2003.

While detailed capital allowance data is effectively inaccessible when it is not entered on and coded from the tax return form to facilitate computer processing, the amounts claimed under each of the various schemes can be reviewed on a case-by-case basis from the documentation accompanying the tax return. That approach was the basis of the 2002 High Earners Report which demonstrated how the top 400 earners availed of the various property-based capital allowance incentives to minimise their effective rate of tax. In this group of earners, significant loss relief was generated through capital allowance incentives such as hotels (€12m) and multi-storey car parks (€9.7m) and other miscellaneous property based schemes (€46m). Other loss reliefs claimed included heritage homes (€4m), loan interest (€0.8m) and film relief (€0.15m).

Audit Concerns

As I was concerned about the lack of information available on the cost to the Exchequer of many tax expenditure schemes, I asked the Accounting Officers for the Department of Finance and the Office of the Revenue Commissioners about the steps being taken to address the information deficit. I also sought the views of the Accounting Officer of the Office of the Revenue Commissioners on the level of check on the legitimacy and correctness of the reliefs claimed under the schemes, bearing in mind that a joint Revenue/Department of Finance group noted in 2002 that existing Revenue audit activity might not be adequately covering this aspect.

Department of Finance Response The Accounting Officer of the Department of Finance informed me that the Department recognised the need for close monitoring of tax expenditures and that the Minister and the Department were committed to keeping such schemes and provisions under review. For that reason, the Department had been working with Revenue for some time on ways to improve the availability of costing information to assist in such reviews. Any developments in that area must also take into account a number of other public policy objectives such as facilitating tax compliance and minimising regulatory burdens. He indicated that a number of developments were under consideration including amending the tax return system to capture data on capital allowances. It was envisaged that a working group of Finance and Revenue officials at senior level would be established to examine further the issues involved and to monitor progress.

The Accounting Officer stated that tax expenditures and reliefs were being kept under review. The Tax Strategy Group paper had indicated that with better data it should be possible to monitor, evaluate and review existing tax reliefs in a more systematic manner. It had also indicated that it would be necessary to look critically at existing reliefs. Following the Tax Strategy Group discussion, submissions were made to the Minister assessing a range of reliefs. Following consideration of the issues arising, the Minister had announced in Budget 2003 the termination of nine tax incentive schemes at the end of 2004 and the immediate termination of two schemes. In addition, in the context of the Finance Act 2003, the Minister provided for inclusion in the tax return of certain exempt income.

The Accounting Officer pointed out that assessments of certain reliefs on a more extensive basis had also been conducted through the engagement of consultants. Examples included a review of the Urban Renewal Scheme in 1996 and a review of the Film Relief Scheme in 1999. He also noted that the Seed Capital Scheme and the Business Expansion Scheme had been reviewed on a number of occasions, most recently in 2001, by the Department of Finance in conjunction with the Revenue Commissioners and the Department of Enterprise, Trade and Employment. Both schemes were currently under review prior to their expiry on 31 December 2003.

Revenue Response

The Accounting Officer of the Office of the Revenue Commissioners stated that he was in strong agreement as to the need to be able to accurately cost tax incentives and reliefs and to track the effect of budget changes, and that had already been signalled to the Department of Finance. However, a cornerstone of Revenue's strategy to maximise tax compliance was to keep compliance costs for taxpayers as low as possible through ongoing simplification of forms, procedures and regulations.

Revenue considered, therefore, that the challenge it was faced with was that of being able to gather the costing data required without creating a more complex tax compliance environment for the vast bulk of taxpayers who did not avail of the incentives or reliefs. However, recent technology developments in Revenue, particularly electronic filing through the Revenue On-line Service, were enabling the development of firm proposals to do that in a manner that would source the information needed (and in a timely manner) while keeping the extra compliance burden for taxpayers to a minimum. While Revenue fully accepted the need to have accurate and timely data for the purposes of effective policy formulation, the Accounting Officer also pointed out that there would be substantial costs involved in making the necessary changes to Revenue computer systems and that looking for such extra information from taxpayers would undoubtedly lead to expressions of concern amongst tax practitioners.

As regards the validation of reliefs claimed, the Accounting Officer confirmed that, by and large, the verification of taxpayer specific claims to reliefs was subsumed into the ordinary audit process. Over the years particular verification exercises would have been carried out in individual audit districts in regard to some of the reliefs e.g. film relief, etc. For the future, there was no doubt that Revenue, in obtaining data on claims for such reliefs in a more structured manner (to comply with Department of Finance requirement for detailed costing data), would also be gaining a valuable input to its new Risk Analysis system. That would allow for more targeted monitoring of taxpayers availing of the various reliefs and incentives than was the case at present. He also stated that the establishment of a High Wealth Individuals Unit in the new Revenue Large Cases Division would ensure a much closer focus on the tax affairs of the top 200 — 250 wealthy individuals including the monitoring of incentives claimed by such individuals. Revenue was confident that such a more risk-focused approach to taxpayers generally (including the checking of tax reliefs where risk analysis deemed it necessary) would provide adequate assurance regarding the legitimacy of such claims.

Mr. John Purcell

Committee members will be well aware of my long held concern about the need for policy decisions in financial matters to be informed by a sufficiency of relevant information. After all, it stands to reason that a prudent decision is likely to be made if it is based on accurate and complete data. I return to this theme in chapter 1.1 in which I draw attention to the dearth of information on the operation of many of the tax reliefs and incentives available to qualifying taxpayers.

Tax expenditures, as they are called, are a legitimate policy instrument in many areas, including the stimulation of activity and investment in certain sectors of the economy. By nature, they are diverse, varying from SSIAs to film industry incentives but what practically all of them have in common is the fact that there is a cost to the Exchequer in terms of tax forgone. Clearly, it is important that they are subject to regular review to ensure they are having the intended effect at an acceptable price and, if not, that they are amended in some way or even abolished. This is recognised by all concerned but achieving the desirable objective has been hampered by the lack of information on individual schemes.

In the case of capital allowances which cost an estimated €1.65 billion in 2001, because taxpayers were not required to give details on their tax returns of the particular schemes under which such allowances were being claimed, we do not know what incentives for items such as urban renewal, child care facilities, private hospitals and hotels are costing the Exchequer. Incidentally, we will not even have the aggregate figures for the estimated cost of capital allowances in 2002 because a change was made to the tax form for corporation tax for that year which had this unintentional outcome. Some 80% of the cost of capital allowances was claimed against corporation tax. I am glad to say, however, the oversight was rectified for 2003. One will see from the Department of Finance's response, included on page 4 of my report, that certain reliefs have been assessed on occasion on a more extensive basis but this is no substitute for a systematic approach to evaluating their efficacy and effectiveness.

The good news is that changes are occurring. After initial hesitation, arising from Revenue's concern that the requirement for additional information from the taxpayer would involve a disproportionate effort and run counter to its strategy of simplifying tax returns, agreement has been reached that information will be captured from tax return forms by Revenue on 22 significant reliefs, including property based incentives, donations and superannuation contributions. Naturally, it will take time before usable analysed data are available. Form changes must fit in with the tax return cycle and operational arrangements. Revisions will also be necessary to the Revenue on-line system and form processing systems within Revenue but I understand preparatory work is already under way in these areas. The collection of this additional data will also be beneficial to Revenue as an input to its new risk analysis system which is geared towards identifying taxpayers who may merit more attention from it.

Mr. Considine

I thank the committee for giving me the opportunity to make an opening statement this morning. In his report last summer the Comptroller and Auditor General raised concerns on the 2002 appropriations accounts, about the lack of information on the Exchequer cost of many tax expenditure schemes. He wrote to the Department of Finance and the Office of the Revenue Commissioners about the matter, partially in light of work already under way at that time. I will comment today from the perspective of the Department of Finance, although officials from the Revenue Commissioners are present. The collection of information is a matter for the Revenue Commissioners.

In recent times, there has been a good deal of comment on and discussion of the need to increase the level of information available. This is necessary to enable a better estimation to be made of the costs of schemes which aim to create an incentive for taxpayer behaviour through granting of tax relief on certain investments and activities. Tax expenditures and incentives represent a significant overall cost to the Exchequer. It has always been difficult to determine accurately the overall cost, mainly because there is a lack of detailed and specific information about many schemes. Difficulties of measurement are common in other tax administrations. The current availability of information about cost and other matters relating to individual schemes varies considerably. Information about some reliefs or exemptions, such as medical expenses relief, is captured on tax return forms in a way which allows for specific costs to be captured. Almost all the information relating to the artists' exemption, such as the numbers of claimants and the amounts exempted from tax, can be obtained.

The cost of certain other reliefs is captured not by means of tax return forms but by the Revenue Commissioners by means of separate claim mechanisms which are used. Tax credits under the special savings incentive account scheme, for example, or for mortgage interest relief, are paid at source to the financial institution and credited to the individual or his or her account. Similarly, the health insurance provider sends in the claim in respect of health insurance relief. Information on costs is readily available in all these cases. Specific refund claims must be made from the Revenue Commissioners in other cases, such as the refund of excise duty relating to public transport. Therefore, the relevant costings are to hand in such cases.

It is sometimes possible to estimate the cost of reliefs on the basis of other information available. It is possible to make a good estimate of the cost of the exemption from tax on child benefit payments, for example, from the information that is available on child benefit and from general information available from the income tax file. The costs of film relief or the business expansion scheme can be estimated from information caught by the certification process, together with information supplied on tax returns.

As the Comptroller and Auditor General pointed out, however, information is not available in many areas. In the pensions area, for example, the only information captured in tax returns relates to tax relief for pension contributions for the self-employed. As employer and employee contributions are dealt with under a "net pay" system, they are not returned. Some highly aggregated figures which are sourced from within the industry are available and allow for some tentative estimates. Capital allowance information is aggregated in tax returns under the four broad headings of "plant and machinery", "industrial buildings", "rental" and "miscellaneous". A range of tax incentive schemes such as urban renewal, rural renewal, reliefs for nursing home investment and child care facilities include accelerated capital allowances. Such costs are reflected in the aggregate data in this area.

As the Comptroller and Auditor General's report indicates, the Department of Finance and the Revenue Commissioners are concerned to improve data on tax expenditure to facilitate the review of such expenditure. I will make a few general points about the context in which this issue must be considered before I outline the work in this area. It should be recognised that a great deal of the overall cost of the incentives and expenditures is accounted for by ordinary business reliefs and by pension reliefs for employees, employers and the self-employed. Such reliefs could not be removed without severe and unintended consequences for business, employees, employment and future pension costs for the private sector and the Government.

Table 1.3 on page 3 of the Comptroller and Auditor General's report states that almost 90% of the cost under the capital allowances heading, or €7,405 million, relates to plant and machinery. It is normal in business to allow for depreciation, which represents a real cost in the production of goods. Firms or persons that do not allow for depreciation and price their products accordingly will quickly go out of business. Normal accounting depreciation is not allowed for tax purposes, but businesses are allowed capital allowances for plant and machinery, which provide an eight-year write-down period. This is not considered especially generous from a world-wide, or European, perspective in the case of much of the plant and machinery involved, especially short-life assets.

While such a capital allowance is classified under tax expenditures it is part of any normal system of taxation. It should be clearly distinguished from tax expenditures where non-tax public policy objectives are pursued through the tax system. The cost of the claims of €7,400 million is €1.6 billion, a figure to which the Comptroller and Auditor General referred in his opening statement. It is not reasonable to attempt to add up the estimated tax foregone for any particular heading and to assume that it would accrue to the Exchequer if certain reliefs were eliminated. In such a scenario, there is little doubt that persons who wish to limit their overall liability to tax will examine their choices with a view to a migration of their investments. Correspondingly, they will almost certainly alter their decisions. That includes taking steps to avail of any remaining tax-based schemes.

When one examines how information is captured and how it might be improved, we need to be conscious of the implications of any change for the taxpayer. As the Chairman of the Revenue Commissioners indicated in the response in the report, we should also be conscious of the effect on the Revenue Commissioners' current strategy of keeping compliance costs for taxpayers as low as possible by means of the ongoing simplification of forms, procedures and regulations.

As we assess the priorities for information collection, we need to focus on the tax expenditures for which the availability of cost information would make a contribution to evaluation and policy-making that would justify the additional burden of collecting it. For example, it might be considered that a relief such as the exemption from tax on the investment income on court awards for thalidomide children was given because of their particular status and that there is not necessarily an "outcome" to be measured. The likelihood of the availability of cost information affecting the continuation of the relief seems so low that it might not be justified to require an annual return of such exempt income.

The issue of tax expenditures and, specifically, the need to improve cost information has been discussed and considered in the Department since 2001. It has been discussed at the tax strategy group on more than one occasion, bearing in mind the context that has already been outlined. Tax reliefs and their cost have been a regular item on the agenda of the strategy group since it started its work in 1994. There have been outcomes to the examinations. As well as changing the tax incentive schemes that were announced in the 2003 budget, the Finance Act 2003 required the return of certain exempt income that was not previously returnable.

Following preliminary exploratory work, a senior level group chaired by my colleague, Ms Brigid McManus, was convened last year to discuss the practicalities of improving data capture via the tax return forms. The Department of Finance considered that the priority in such work should be to obtain more information about tax expenditures provided by way of accelerated capital allowances on buildings and about employee pension costs. As a result of this consideration, the Revenue Commissioners will introduce a number of changes to the forms relating to the annual return of income by PAYE and self-employed individuals and companies as well as to the P35 form, which is returned to the Revenue Commissioners by employers at the end of each year with totals for earnings and deductions for each employee.

Over time, the changes to the return of income forms will yield additional information on the cost of various tax reliefs, particularly in the area of capital allowances. The P35 return will supply additional data concerning tax relief on pensions. To underpin this work, the Finance Act 2004 included legislative changes which required an employer to provide the aggregate pension data sought on the P35 form. This means that if a taxpayer declines to fill in the additional sections of the return of income form, he or she will be liable to the usual surcharge and penalties for making an incomplete return. Concerns were voiced on Committee Stage of the Finance Bill 2004 and by practitioners about the possibility that genuine misunderstandings and errors in this area might be punished without an opportunity to revisit and complete the tax return as required. To address these concerns, the provisions were further clarified through a Report Stage amendment to the Bill. The amendment stipulated that the surcharges and penalties would not apply unless the matter had come to, or been brought to, the taxpayer's attention.

As well as trying to improve the availability of data on existing schemes, we are conscious of the need in introducing new ones to bear in mind data capture considerations. For example, the legislative provisions for the new research and development tax credit introduced in the Finance Act 2004 require that the credit be identified separately by the claimant. My Department and the Office of the Revenue Commissioners will continue our work in this area. In addition to work from paper-based returns, we hope information technology developments will facilitate improvements. Recent technological developments in Revenue, such as electronic filing through the Revenue on-line system, or ROS, are likely to be helpful in this regard. Returns filed in this way can readily accommodate information data capture on tax reliefs being claimed while keeping the extra compliance burden for taxpayers to a minimum.

I have so far focused on data capture. We need data on costs for the purpose of helping to assess and review tax expenditures. The question of how best to evaluate tax incentives or expenditures raises similar issues to those raised in evaluating public expenditure schemes depending on the nature of a scheme and the outputs and outcomes expected. Some schemes readily lend themselves to evaluation with the benefits being clearly identifiable and measurable against their objectives. Others are more difficult to assess as the benefits are not easily quantifiable from a cost-benefit analysis perspective. For example, tax relief for expenditure on heritage houses has tourism and heritage policy objectives as does a grant scheme for such houses. Accordingly, while there may be some quantifiable indicators such as tourist numbers, much of the assessment in both cases must rely on more qualitative indicators. Broadly, the same criteria of efficiency and effectiveness should apply when measuring tax expenditures as public expenditure items and, in assessing whether tax instruments or public expenditure or other policy instruments are more appropriate in achieving a policy objective. We must bear in mind a specific aspect of tax reliefs. It often seems the taxpayer's mind-set is such that reducing the tax payable seems more attractive than the simple financial or economic benefit would suggest.

Tax-based schemes are kept under constant review, especially in the context of the annual budget and Finance Bill process, to ensure they continue to meet the purpose or purposes for which they were introduced. Detailed reviews of the costs and benefits of various tax reliefs are also carried out from time to time. Examples are the urban renewal scheme, the film relief scheme, the seed capital scheme and the business expansion scheme. As our data on costs improve, we hope to develop and improve our analysis accordingly. However, many decisions in these areas come down to a policy call at a practical level when political decisions are being made. While improved data will improve the basis for making judgments, we are not looking here at equations from which there is always a single right answer.

I hope this brings the committee up to date on the Department's current approach in this area. We will be happy to elaborate further in reply to particular questions from members.

Can we publish the Secretary General's report? Agreed. I have two questions before calling on Deputy Boyle. Why has it taken so long to produce a detailed report on something as important as the cost-effectiveness of tax reliefs, their benefit to the hotel industry and the number of qualifying people? We need a report on the various incentives which appear to benefit the super-rich. Up to €68 million is deducted from the tax liability of the top 400 earners who benefit from such schemes.

Mr. Considine

As the Comptroller and Auditor General said, everyone agrees we need to make progress on this issue. However, a balance must always be struck. In recent years, there has been a great deal of concern about placing unnecessary burdens on taxpayers. As a result, there has been an effort to keep tax returns as simple as possible. If one has incentives such as the ones outlined, those who will be in a position to benefit from them will be those with significant income. Whether it is film relief or urban renewal, the same issue arises. These incentives will not work unless they are claimed by people. The people who can claim them are people with high incomes. It is an unavoidable fact that if one uses tax incentives, one will enable people with high incomes to reduce the amount of tax they pay.

The Chairman mentioned a study of the 400 top earners. We have been concerned about the matter for some time and, originally, requested Revenue to produce the study. We also requested the second study. The indicators are that matters are improving. Over the years, we have introduced many schemes to broaden the tax base and made major moves in that direction. Almost every Finance Act in recent years has contained measures designed to accomplish that goal. Some of those measures have had a particularly significant impact, including the €31,750 annual cap on the amount of capital allowances on buildings an individual passive investor could set against employment or other non-rental income. Another example is that in the cases of certain hotels, the capital allowance was ring-fenced to rental income for passive individual investors. A further measure was disallowing the offset of losses and capital allowances of partnership against the non-partnership income of passive partners. This measure was also applied to passive individual investors investing in various activities generating losses for capital purposes. The tax credit on dividends paid to shareholders was abolished and a withholding tax on such dividends was introduced. The capital gains tax base was widened.

A great deal has happened in this area. The studies which have been carried out and the points which have been raised as a result of the work of the tax strategy group and others have led to the introduction of significant changes in virtually every Finance Act of recent times.

It is very hard to arrive at an opinion which justifies extending, curtailing or withdrawing a scheme. You mentioned information technology and easing the burden of compliance. It is very hard to quantify that when we do not know what each scheme costs. When one considers the range of schemes benefiting the multi-rich and the relief on private pensions, it appears tax reliefs are greater than the level of investment in the pension fund for ordinary taxpayers. Reliefs benefit people on high incomes with little or no benefit to people on low incomes.

Mr. Considine

There are policy issues as regards much of this issue. In Ireland, the United Kingdom and the Netherlands the private sector makes a large contribution to pensions and ordinary individuals largely look after their pension scheme when they can afford it. This does not tend to be the case in other countries of the European Union. The policy decision to give an incentive to people to do this has been made.

In the case of other schemes, it is very difficult to quantify how large the uptake will be when they are introduced. If there is a view that a scheme should be introduced to give an incentive to taxpayers to operate in a particular manner, one can only make an estimate in most cases of what will be the impact. Once the schemes are up and running, we examine them. Termination dates were set for at least 11 of these schemes in the previous two budgets. It is not a question of allowing them to go without review. They were all reviewed in the context of the previous two budgets and the tax strategy group works on them on a regular basis. We have also brought in consultants to examine other schemes and form a view as to whether they should be continued and in the case of industry schemes, we have involved the relevant Department.

The fact that the estimated total cost of tax reliefs is greater than investment in State pensions is a clear indication that reliefs are being utilised by exceptionally wealthy people who have disposable cash. Of the 91 schemes and allowances operated by the Department, 28 are listed as major tax incentives or expenditures. What is the Department's definition of "major" in this context?

The report indicates that 28 schemes cost more than €20 million per annum, which amounts to €500 million per year. It also indicates that no substantial information is available on the cost of 63 additional schemes. What measures have been introduced to make the schemes more traceable?

I am concerned that the 28 major schemes listed do not provide economies of scale. Incentive schemes available for hotels, car parks and in other areas are being availed of by exceptionally wealthy people, who receive massive tax breaks. I am disappointed that we do not have more information on them.

Mr. Considine

As regards pensions, the total expenditure on tax reliefs on pensions includes people who work as employees.

They account for a very small proportion.

Mr. Considine

I do not believe that to be the case on aggregate. A policy decision has to be made on whether one caps these schemes or allows a particular percentage of them to operate. These are policy decisions.

As regards the question on what information we will capture, in terms of property based incentive schemes forms 11 and 12 will capture the urban renewal, town renewal, seaside resorts, rural renewal, multi-storey car parks and living over the shop schemes, as well as enterprise areas, park and ride, hotels, holiday cottages, nursing homes, associated housing for elderly or infirm and convalescent homes, student accommodation, qualifying private hospitals, including qualifying sports injury clinics, and buildings used for certain child care purposes. The corporation tax form CT1 will capture donations to designated charities and sports bodies, patent income and research and development tax credit. As regards pensions, information will be captured on the retirement benefits scheme employer contributions and employee contributions as well as personal retirement saving accounts and retirement annuity contributions from the self-employed.

Will it be possible to provide a detailed report on the actual tax relief under all those schemes in future?

Mr. Considine

Yes, when that information comes through.

What is the time scale?

Mr. Considine

For the self-employed taxpayer, this information will be captured on the 2004 form 11, which will be filed by the end of October 2005. Preliminary information should become available some time after that date, probably in early 2006.

In respect of PAYE taxpayers the relevant form 12 and the associated system for taking in recording and processing information from PAYE taxpayers is being redesigned. Changes similar to those being made to form 11 will also be made to form 12. The objective is for this to apply in respect of the 2004 tax year but the capture of the relevant information is dependent on the system redesign being completed. It will certainly be available in respect of the 2005 tax year.

Given the time lag involved in any PAYE taxpayer making returns, it could be a year or thereabouts after the tax year before information is available. However, it may be useful to note that a person earning significant non-PAYE income above €3,175 moves into self-assessment for this type of income, while remaining on PAYE in respect of his employment income. Many of the major reliefs and incentives are therefore likely to be in the form 11, which will come through in 2004.

As regards corporation tax form CT1, information will be captured in respect of accounting periods ending after 31 December 2004, and will begin to become available nine months after that date, that is, in September 2005. The superannuation information will be captured in the P35 form to be filled out in February 2006 and preliminary information should become available in mid-2006, bearing in mind that Revenue must carry out a programme to check the quality, consistency and accuracy of the returns.

While I welcome being given dates, I remain disappointed that we must wait such a long time for this process to come on stream. From a return on investment perspective, it would be beneficial to obtain information much sooner than envisaged, irrespective of the cost of the IT upgrade. This would enhance the system and Revenue would know who is benefiting most from reliefs. I am disappointed that we cannot trace the top 400 earners much more closely. The system should be able to identify more closely the benefits and reliefs of which they are availing.

Mr. Considine

Top earners are a separate issue, which my colleagues from Revenue may wish to address. As the Chairman may be aware, the reorganisation of Revenue will result in a unit which will examine the top 250 high earners on the personal side. I believe this will apply to people with wealth in excess of €50 million. Revenue will examine the total situation on an ongoing basis from now on and will also examine the 350 largest corporations. That is a separate issue.

The changes we are making on the return forms cover the whole spectrum, but they are not in any way delaying or interfering with the focus on high net earners.

That process will begin immediately.

Mr. Considine

It is proceeding all the time. One obtains this information by examining the file on each case and the person's overall business position, not by examining the returns as such.

Will Mr. Considine furnish the committee with a copy of that information before the meeting concludes? I would like to get a copy of that before we leave the meeting. Can we have all the details of what is on forms 11 and 1? That is really what we are about. Mr. Considine has the information and I would appreciate if we could get a copy of it.

I am delighted to hear that because tax incentive schemes have transformed much in Ireland. Clearly the issue of their benefit and continuity is based on a very business-like assessment. It is good to know that the top 250 people in corporations are now being closely monitored in how they are availing of these benefits.

We should note the finding of that Revenue Commissioners' report on the top 400 corporations. My recollection is that the effective tax rate for the 400 companies that were assessed was 15%, as opposed to 20% for PAYE taxpayers. Some 40 of the 400 companies did not pay any tax through the use of existing tax incentives and a quarter of them had an effective tax rate of 5%. They were the outstanding figures of that study.

Mr. Considine

In all, three years were examined. The first study was based on the 1993 to 1994 tax year. The second one was based on the 1994 to 1995 tax year and the last one was based on 1999 to 2000.

I referred to the figures for 1999.

Mr. Considine

Of the 400 in 1999, 52 companies, or 13%, had a tax rate of 45% or higher. A total of 231 companies, or 57.75%, paid a tax rate of between 30% and 44%. A total of 117 companies, or 29.25%, had a tax rate of less than 30%. Of the 117 with an effective tax rate of less than 30%, 29 of these had an effective rate of 0%.

Given that this is the first section of the first chapter of the Comptroller and Auditor General's report, does Mr. Considine accept that this is an area that raises a great deal of concern in regard to how the information was sought in the past and the need to gather proper information for the future? Perhaps the information can be categorised into three different levels. There is a need for certain information to help us in regard to how we collect existing taxes and how we might collect future taxes. In terms of public discourse, certain information is desirable, not only for elected representatives but to inform public debate on the issue. The third category could relate to information for the public good. This may not require the same level of scrutiny as the first two categories. Mr. Considine referred to the example of investment relief for thalidomide cases. That is not what we are talking about. What I found interesting about the presentation was not so much the tax incentives referred to, but rather those that were not mentioned.

I refer to how the value of specific tax incentives are measured. Last year's report of the Comptroller and Auditor General lists 33 uncosted allowances, reliefs and exemptions. Will Mr. Considine outline what efforts have been made in the interim to acquire information on the reliefs mentioned? It may help if I give a specific example. One of the 33 mentioned is income from stud farms. There was reference in the 2003 budget to information being made available by those concerns. Do we now have a figure as to what was earned in that regard and what the likely income would be if they were taxed on a normal basis?

Mr. Considine

Deputy Boyle's first point related to categories of information. That is absolutely right; there is no doubt but that there is a hierarchy here. Anybody dealing with this would have to consider how much of a burden is being placed on people to provide information compared with what one is likely to do with it. The thalidomide example is a good case in point. Society, as represented by the Government, obviously decided on this particular one. It is a matter of judgment as to whether there is a value in requiring the people who get this to make a return on it, but that is a matter for political decision at the end of the day. The things that are needed are obviously the top category. We would agree with that. What we were trying to do was focus in on those and to get as much information as we could in that list I gave to members. Our colleagues in Revenue are trying to do this while imposing the minimum burden on the people who have to fill in the forms. What we do not want if we can avoid it, is to have everybody filling in a massive amount of forms even though they have nothing to claim. It is a question of how one can manage that and focus in on the people who have things to claim.

On the question of public debate and the desirability of knowing things, that again is a political decision. There is obviously a cost attaching to it. People will have to make those decisions on a case-by-case basis. Deputy Boyle referred to the case of stallion fees relief. The position there is that that exemption was introduced in the 1969 Finance Act to encourage the development of the Irish bloodstock industry by creating an incentive for investment in Irish stallions. Income arising to the owner or part owner of stallions for the sale of services or the right to services is exempt from tax. Losses may not be set off against other income. Income from a stud farm is charged to tax in the same way as other profits from farming. The income that is charged to tax in full includes income from the keeping of mares and stallions at the farm.

What I am asking is how that has developed since the reference in the Finance Act of 2003 to requesting accounts on stallion fees, which was not previously the case? Do we have that information now?

Mr. Considine

No.

Can we assess from that the amount of tax foregone?

Mr. Considine

First of all, the requirement applies in respect of chargeable periods commencing on or after 1 January 2004 so it would not yet be available. I reiterate the point that losses are also returnable so we would get the whole picture; it would not just be one-sided.

Table 1.2 in the report of the Comptroller and Auditor General lists 33 such uncosted reliefs and exemptions. Has the Department made any progress in the interim in getting information on any or all of these reliefs?

Mr. Considine

As I said, we have been looking at the whole issue in regard to the individual reliefs. Ms McManus has been chairing a group that is examining the matter. The group has adopted a practical approach and tried to identify the reliefs which if we got information would make the best contribution towards decision making. The outcome of this process is the list of reliefs I read out that will now require returns to be made. We will continue to look at that and when new schemes are introduced careful consideration will also be given to getting the required information in regard to them.

Ms Brigid McManus

I have given members a copy of the list read out earlier by the secretary. If we look at some of these reliefs, we will note that some of the issues have changed since. For instance, a number of them relate to donations which were in separate provisions. As the committee may be aware, we changed the donations scheme such that there is one new donation scheme. That is being captured and we have figures on the donation side, for example, because the PAYE side is now dealt with by direct credit to all the various organisations and it is captured on the self-assessed returns. To a certain extent, given that these relate to an earlier tax year, there is a link between the donations. Other reliefs fall into the category of things we hope to capture, including the woodlands and stud farms, for example, by way of the change made in last year's Finance Act. We expect to capture a number of others this year, including some concerned with pensions, which are referred to on the circulated list. Others fall into the third category. The Haemophilia HIV Trust, for example, is one of the categories listed by the Comptroller and Auditor General. We see this as falling into the thalidomide-type category.

There are other reliefs which we do not see as a priority for a first phase, for example, the grants made by Údarás na Gaeltachta, which are exempt in a company's account, for example. I suppose one could make an estimate by applying a corporation tax rate to such grants. In our work, we have basically said that the big areas from which the high earners report indicates that we need to capture data on the major property reliefs that fall within the capital allowances sector. On the pension reliefs, we probably capture the high earners' and self-assessed side, but we are not capturing a large block of money on the employee-employer side. These are the areas on which we are focusing for the moment, plus the exemptions that would have been dealt with previously, including those associated with woodlands and stud fees. We are also capturing a number of other exemptions. The committee will see from the list that we envisage capturing the patent income exemption.

We will capture quite a number of exemptions and reliefs either because the schemes have changed and the payments are being dealt with in a different way or because of the changes we are making on the tax forms. There are others which we probably do not envisage capturing at all, and even more on which the committee will keep an eye when it is known how the changes in the tax forms work.

In terms of follow-on data, we will probably have to consider that as a group if we are to move on to an evaluation phase of some kind of targeted surveys. Once we have identified people who are claiming in some of the big schemes, to evaluate them we may well want extra information that is not just financial or cost information. The tax form would be a very bad way of doing that, but if it gives one an idea of who the people are one can follow up with more target surveys, not necessarily on an annual basis. In this regard, one of the difficulties encountered when we issued the urban renewal scheme, for example, was that we had to use the information known by the local authorities rather than coming at the information from the taxpayers' side. In a sense, we hope the cost information will give us the broad cost but also serve as a basis from which a target group could be surveyed when carrying out the more in-depth studies we do from time to time.

We can publish the document that was circulated.

Can the Department officials enumerate the number of allowances and state how they might be applied to both income tax and corporation tax? How many have a cross-over effect?

Mr. Considine

We were discussing that. It depends on how one defines them.

Ms McManus

It depends on how one defines them. The Comptroller and Auditor General started with Revenue's table, which is an income tax and corporation tax table. The tax strategy group focused on the allowances estimated to cost more than €20 million and looked at certain matters pertaining to the indirect tax side, for example, the refund of excise duty for public transport and some of the stamp duty exemptions for first-time house buyers, which one could also regard as tax reliefs. If one were to add up all the things one might regard as exemptions in the tax code, one would arrive at a figure of approximately 170. The difficulty lies in defining a tax expenditure or relief. If one considers the plant and machinery the Secretary General is talking about or things that are, in a sense, inherent to the tax purpose, one will note that the purpose of reliefs of this nature is not to achieve a public policy objective such as encouraging people to take out medical insurance.Does one regard these as a tax expenditure or does one regard the PAYE credit, which Revenue also lists as a tax expenditure in the sense to which we refer,as falling into this category?Alternatively, does one just regard it as a choice we make about how our personal tax system operates within the personal tax system? If one regards these kinds of things as inherent to the tax system rather than as forms of tax expenditure in the sense of trying to achieve a public policy objective outside the tax system, one's number would be much lower than 170.

Our tax strategy group paper is probably up on the website, where the committee will find the list of reliefs that are estimated to cost more than €20 million. However, if one considered every relief such as those for thalidomide victims and HIV groups, all of which are provided for separately in the tax legislation, one would have to take into account a much greater number of tax reliefs. We can certainly take those that cost more than €20 million and give the committee an indication of whether they concern income tax, corporation tax, or both income tax and corporation tax. I believe this is what the Deputy is asking about.

That is ultimately what I am trying to find out. When we get the types and numbers, maybe we will examine the overall tax forgone in each category if possible. Would it be fair to say that capital allowances are largely of benefit in terms of corporation tax.

Ms McManus

If you include plant and machinery——

Mr. Considine

Bearing in mind the capital allowances, from an accounting point of view one cannot run a business unless one can recoup the cost of capital. In business, that is called depreciation, as the committee knows. This is the proxy for it in the tax system. In the tax system, one is not allowed depreciation. Instead, one is allowed capital allowances. One would tax people on income which was not real because one would disallow costs that the business incurred. This is a very sizeable figure.

It is debatable in terms of cost management accounting. I argue that environmental factors are not costed in terms of taxation either.

Mr. Considine

We will not get into an accounting debate, but if I were running a business and pricing products, I would be anxious to return the cost of my capital. Otherwise, I would go out of business shortly. That is the point I am making.

However one defines the capital allowances — the figures are for 1999 and 2000 — the amount of forgone taxes would have been the equivalent of the amount of corporation tax collected at the time?

Mr. Considine

Yes, but there are sole traders as well. That is capital allowances for everybody. We almost do not think about many of the big items as tax expenditures. For example, the principal private residence has an exemption from capital gains tax. In this regard, the table lists a figure of nearly €800 million per annum. The child benefit allowance is €272 million. The exemption of income of approved superannuation funds, net of pension payments, is €1.27 billion. One must also add in the capital allowances, whatever the argument about how one should look at them from an accounting point of view. These are large items that are well known in the public arena. Policy decisions taken in this area — for example, capital gains tax on the principal private residence and pensions — are the big ones. Other contributions to the superannuation schemes are of similar importance. When we obtain a breakdown of those, as we were talking about earlier, it will be clearer who is receiving them. A policy decision will then need to be made on whether they should continue to receive them.

I have three short questions about property-based reliefs, pension reliefs and reliefs on shares. A decision was made to reduce the number of property based reliefs. Many of them were supposed to finish at the end of 2004. This has since been extended to 2006. When that decision was being made, were any calculations made of the effect of this in terms of cost? Given that the schemes are property based and property prices and valuations differ throughout the country, the unit benefit in terms of tax exemption given varies in different parts of the country. Is this taken into account in how the allowances are given? For example, property costs less in Cork than in Dublin. Is there any measurement of the unit provision on schemes such as multi-storey car parks — in terms of the number of car park spaces provided — or holiday homes?

I will need to be careful how I phrase my last question. Many of these schemes were set up because of representations by people who wanted to see particular incentives. An example of this is the private nursing home scheme or, outside the area of property, the Eircom shares or teachers' pension entitlement schemes. This happens during the Finance Bill process. When a proposal or policy decision is made and this is advanced into a process, what costing procedures are undertaken by the Department? We, as elected Members of the House, only hear about these on Report Stage of the Finance Bill, and because of the way we organise our business, many of these exemptions have become part of the Finance Act without being discussed at all in the House. I am anxious to receive further information, perhaps later, on how many of these exemptions have come through the process in this fashion.

Mr. Considine

There are 11 schemes with termination dates, many of which now have new termination dates. The first was the film relief scheme. The previous termination date was 31 December 2004 and the new one is 31 December 2008. Other changes were also made to that scheme. The ceiling for tax relief per film was changed from €10.48 million to €15 million from 1 January 2005. The urban renewal scheme was supposed to terminate on 31 December 2004, but in the most recent budget this was changed to 31 July 2006.

That is not the question I was asking. I know how long these reliefs have been extended. I want to know whether a process was engaged in to determine the cost of that extension.

Mr. Considine

Estimates are always made, but they can be quite rough and ready. It can be hard to estimate because the information we receive is not broken down in a way which would allow for costings. In some cases, however, arguments can be advanced that more time is required for one reason or another because of delays in getting the schemes up and running, for example. Many issues are considered in deciding whether there should be an extension.

I do not think anything has changed in the way schemes are introduced during passage of the Finance Bill. Proposals come from various sources to the Department on a regular basis dealing with everything under the sun.

I can understand that — it may be more of a problem with the way in which we structure our business in the House. It might be useful if Mr. Considine could provide information about the number of these reliefs that have been introduced on Report Stage of Finance Bills. That would allow us to know whether they had been properly considered by the elected Members by checking the Official Report. From my brief membership of this House I know there are several that have been introduced in this fashion. It is a problem with the process and the way in which we order our business. I would like the information because it would help us in doing our business better in the future.

I asked a series of questions about property tax reliefs, dealing with unit cost, the difference in property evaluations throughout the country and whether the relief seemed to be more effective in one part than another. Is that information being collected?

Ms McManus

Just as we are not collecting cost information on these reliefs, neither do we collect other data. In the tax forms we only collect cost information under the new tax form changes. Certain studies were done, for example, on the urban renewal scheme and the seaside resort scheme a number of years ago. We talk to local authorities and receive an indication of what was done in different areas. That would not have been matched with the tax cost because it was done from another point of view.

It will be possible in future, once we have a bank of information about who is claiming relief, to try to obtain more detail on those reliefs. However, as an initial phase, it would be difficult to try to obtain through the annual tax form an idea of whether capital allowances are claimed in respect of 10, 20 or 30 units and where they are geographically. That is the type of information to which I referred when I spoke of doing more in-depth surveys on a less regular basis by targeting the taxpayers we knew were collecting the reliefs.

An example of this is a matter that has come before this committee already. The Beaumont Hospital car park scheme availed of the multi-storey car park tax relief.

Ms McManus

Yes, and the double rent relief which was available at the time.

The tax foregone — the tax subsidy per parking space provided — was €50,000. Is that an acceptable use of tax allowances? Perhaps the representatives, as civil servants, are not in a position to answer that, but that is the effect of that scheme. The end date of this scheme has just been renewed in the Finance Act.

Ms McManus

The Comptroller and Auditor General may wish to comment on that.

That is a matter of policy.

Ms McManus

Much of the cost of that arose from the double rent relief, which is gone. What has been extended in the Finance Act is the capital allowance element of the multi-storey car park allowance, which is only one element of what gave rise to the tax cost.

I am glad to see progress is being made to capture additional information. I share the view expressed by the Comptroller and Auditor General that it is very important that this information is gathered. Otherwise these schemes cannot be evaluated and priority cannot be made from a policy point of view. Our function is not to consider policy, but policy in general terms cannot be formulated without that information. I have a copy of the list that was read out and the report of the Comptroller and Auditor General contains a list of uncosted allowances, reliefs and exemptions. When this is implemented, how many exemptions and allowances will remain uncosted?

Mr. Considine

As Ms McManus said earlier, it depends on how they are counted and the definition of allowances or expenditures. Following the report on major tax incentives by the tax strategy group, we have attempted to identify those that have serious costs attached and Ms McManus's group has been identifying those where if we sought this additional information, it would make the greatest contribution to decision making.

How many schemes were deemed as having significant costs attached to them?

Mr. Considine

There were 28 schemes that amounted to more than €20 million but capital allowances were only one of them and it would have to be broken down — I cannot give an exact figure. Within the capital allowances there are property schemes, as we include in the list that we distributed. Some of these subdivisions are not high cost but that does not mean legislators would not be interested in them for other reasons. They are listed and the committee can see that in the first list there are 14 property based allowances.

Looking at the table produced by the Comptroller and Auditor General, when we meet next year, how many schemes will still be in that type of group? I see what has been done and what is proposed to do but I have not had an opportunity to cross-reference.

Mr. Considine

Some things have already changed, such as in relation to donations. There are at least three different donations I can see straight away — to bodies promoting the arts, third level institutions and public libraries — and the relief made by companies to first debt limited. If we go through them, many of them are small reliefs.

Ms McManus

Our work will not affect 14 of them. People would not necessarily want us to change some the categories, such as the reliefs for the people with haemophilia. Some of them are issues inherent in how the tax system works, such as the tapering relief for the taxation of car benefits in kind and that was changed in a recent Finance Act. That is basically the relief for mileage and I am not sure there is any interest in capturing that. Another issue is the 10% rate which is being phased out in accordance with corporation tax becoming 12.5% generally. At least 14 or 15 reliefs will remain. We can go through the list with Revenue and categorise those that are still intact law on which we will not capture date, those on which we will not capture data because they have now fallen out of the legislation and those on which we will capture data. We will have to come back to the committee on that. There are also other things that people might consider to be reliefs and indirect taxes that are not on that list.

We might make a note of that when it comes.

Mr. Purcell

The tables originated from the Revenue's definition of these schemes. I am not suggesting that all of these schemes need to be costed. The approach being taken now is sound. My only problem is that some of these schemes are costing money but have not been costed and their termination dates, as a result of the last Finance Act, have been extended in most cases from 2004 to 2006. The Accounting Officer said earlier that information about the cost of these schemes will not be available until 2006. Costing information should be available to assist the Minister and policy makers in future property based schemes.

Before going on to some of the schemes in general, the strategy was to keep compliance costs for taxpayers as low as possible through ongoing simplification of forms, procedures and regulations. That is fine up to a point but many of those involved in the larger schemes, such as multi-storey car parks, hospitals, hotels and holiday camps, would have accountants for tax purposes. I am disappointed the schemes have been in place for so long but the information needed has not been captured, although that is being addressed now.

The report of the Comptroller and Auditor General states that the Department engaged outside consultants to look at specific areas, including film relief and urban renewal. Were there any other reviews along those lines?

Mr. Considine

The seed capital scheme, the business capital scheme, the urban renewal scheme and the film relief scheme were reviewed. The difficulty with these is that we can get one side of the information from the tax return but it is not as easy to identify the benefits accruing. The economy has done extremely well in recent years but that was not always the case. These incentives were seen as a way of kick-starting investments in particular areas and creating much needed employment.

I have seen the benefit of the urban renewal scheme in my area. That scheme was extended by 18 months in the last budget. There was not, however, allowance for new entrants. Projects had to be initiated and 15% of the capital had to be spent. Was a costing done on extending the urban renewal scheme?

Mr. Considine

An estimate of the costs would have been made. However, we do not have the basic or even the roughest data. When a scheme such as this is in place, there will always be people who want to complete it. There are merits to this argument and it is a policy decision how much should be allowed. When limiting it to the pipeline cases, the cost is reduced because new people cannot enter the scheme. We do not have a good handle on the exact cost of this because of a lack of information. However, this will now be captured in forms 11 and 12.

There was considerable debate on the costs and benefits of film relief with consultants engaged to examine it. What are the figures for the annual cost and benefit of the scheme?

Mr. Considine

If the Deputy gives us some time, we will see if we can dig it out.

This morning has proved interesting and I thank the accounting officer and his officials for this information. I agree with the Comptroller and Auditor General that it is important that Members must have accurate and complete data on the cost of concessions as these underpin decisions on policy. I am glad both the Department of Finance and the Revenue Commissioners will now provide better information. I agree with using tax concessions to encourage certain economic and social activity. They have always been part of the tax code and, generally, are defensible. If we want people to own their houses, one can make a very strong argument that mortgage interest relief encourages them to do so. If we want people to insure themselves for health purposes, relief on payments to VHI and BUPA, is of benefit also. Everybody would agree that child benefit is a universal tax relief availed of by everyone who has children and which encourages a particular social policy. There is no doubt about that, but where the issue arises is when one attempts to assess whether a particular tax incentive is achieving its objectives. When I was a Minister, I was involved in the introduction of an urban renewal scheme in Limerick city that worked well. Approximately 40 acres of derelict sites were all built on within four or five years. I would like more information on what is intended and I will pursue a number of issues. From where the policy maker sits, you are encouraging social and economic activity. However, from where the people availing of the relief sit, if they are specifically targeted reliefs, they are not interested in social and economic activity. They are interested in getting involved in schemes to transfer income into assets without being taxed on income. That is what it is about and everyone I know who is involved believes that. If one wants to invest in a holiday cottage in Killarney or Kilkee, the issue is about investing money with the minimum of risk and getting a concession not to pay tax on that money, getting a further concession not to pay tax on the rental income of the cottage and a further concession if one is scoring highly, by transferring personal income into the same scheme to get tax exemption on general income which is not generated by the investment. A whole series of issues arise there.

There are concessions which are justified in particular circumstances which are no longer serving a useful purpose. For example, due to a shortage of nursing homes seven or eight years ago, I strongly advocated a tax relief for their provision in the Finance Bill debate. It could be argued now such a relief is no longer needed as there are empty beds in nursing homes. I agree that every scheme must be constantly assessed. Apart from the costs of the relief, there is an the issue of a fair society. Are these reliefs available to the general taxpayer or are they focused on an inner circle where income can be transferred into assets? Is this a feature of Celtic tiger economy where those with high incomes turn them into assets tax free?

Will the Department be able to provide the committee with a list of schemes that are availed of by small numbers of people? It is fair to distinguish between what is generally available such as child benefit and health insurance and schemes availed of by fewer than 100 people for instance. Are there schemes availed of by fewer than 100 people, and if the Department does not know, can it find out?

Mr. Considine

I agree with Deputy Noonan's analysis. However, to get the social and economic benefits that a politician may think are worthwhile, someone must invest in the schemes. Obviously, the people with money are those who will invest in the schemes and, therefore, benefit from them. One cannot have one side without the other.

That is a given.

Mr. Considine

As to what information we will be able to produce, it is my understanding that we will be moving in the direction indicated. My colleagues from the Revenue Commissioners informed me how they would do this. It might be helpful to the committee if they were allowed to explain.

Mr. Noel Faughnan

The Secretary General set out the time frame in which we are implementing these. The Deputy's specific question was on the numbers of people who engage in these schemes.

There are significant numbers involved in these schemes. I do not want to identify individual taxpayers. However, a number of years ago I read an article in one of the business newspapers that identified a scheme with only one beneficiary. A particular provision in the Finance Bill had introduced this relief but I believe there are others. There are not that many people investing in private hospitals, sports clinics or the bloodstock industry in the State. The tax exile scheme is for approximately 400 people. An extra justification is required for a tax concession when the number of potential beneficiaries is very few. I would distinguish between benefits and reliefs available to the generality of taxpayers and those that are so focused that one might be talking about only half a dozen people. Will the Revenue provide us with information on schemes whose total cost might be quite small but where there are very few beneficiaries?

Mr. Faughnan

In the initial stages, we are trying to address the schemes that are costing the most money. That does not mean we will ignore the schemes with small numbers of participants that might not cost large sums. We regard what we are doing as dynamic. We are starting off with limited numbers of very important schemes. Over time — the following year and the year after — we will change and adapt what we are capturing to extend to other schemes that may be of interest or drop schemes on which we are trying to capture information but which turn out, in the heel of the hunt, to be of limited importance. What we are putting forward here is certainly not the end game. It is the start. We said we would concentrate our efforts, balancing the need for making the process easy for our customers and starting with a limited number of schemes. However, we very much intend to extend and reduce that to capture the information that the Deputy requires. Both the Secretary General and Ms McManus mentioned our large cases division, which is a major initiative in the Revenue, where we focus on the top companies and the top 250 or so high-wealth individuals. Information regarding the schemes in which they are involved or operate will be available to us. We have a major report on the way — which we will publish later this year — on the types of schemes that such high-wealth individuals are using. Specifically, we are talking about capturing data from the whole gamut of people availing of such schemes while homing in on those high-wealth individuals. We will have information on them across the whole gamut of reliefs in the very short term.

The debate so far on the Committee Stage of the Finance Bill, both outside and inside the Oireachtas, has been about identifying those schemes from which the greatest tax is lost. However, there is another debate, with which Mr. Faughnan might not be as tuned in as we, about a fair society. The issue is not the amount of tax being lost but whether there is an inside track and whether schemes are being designed for certain categories of individuals so that they can avoid tax. The bulk of my constituents are PAYE people. They talk to me about their grievances. We have the data to address that, and I believe Mr. Faughnan said the Revenue would not do that in the first year but would subsequently.

Mr. Faughnan

That is correct. However, I stress that, for the category of high-wealth individuals, we will have that available in the short rather than medium or long term.

That is very good. I understand that. The second area about which I am concerned is the schemes whose details Mr. Faughnan has distributed to us. Perhaps he might, when giving the information, identify which of those schemes gives relief for the capital invested and the income deriving from the investment, and which of them has a cross-over effect, like the old section 23, whereby other income can be transferred in for tax-relief purposes. All Governments were involved in the old section 23 in one way or another. It stimulated the building industry at a bad point, and I accept the point made by the accounting officer that one sees things differently in a boom from how one sees them in a bust. Sometimes one has to stimulate economic activity. I was always rather surprised that, if someone owned property anywhere in the State, the rental income on it could be transferred into the investment in the section 23 building without any tax being paid on it. The witnesses will understand what I am getting at. Perhaps they might give us the information on cross-over income. That is where the real avoidance is.

Mr. Considine

I take the general point, but in recent years the Minister has been very quick to move to close off loopholes where they have been identified. I mentioned the very major changes made regarding the ability to move money all over the place. The €31,750 annually on the amount on capital allowances of building that an individual passive investor may set against employment income is one. The hotels that I mentioned earlier are another. The use of partnership losses, capital allowances and so on against the non-partnership income of passive partners is another. There have been many moves to prevent such development. In general, we are very much on the look-out — that is also true of the Revenue — to identify situations where that is happening. We have been waiting for legislation. We have quickly indicated the decision to close off those loopholes.

I accept that fully. However, I am not talking about loopholes but schemes whereby, as a matter of policy, it was possible to transfer income from an unrelated source to the activity attracting the relief.

Mr. Considine

Is that in the past?

I am talking about the past. The witnesses are obviously right up to date on it, but frequently we receive representations about past schemes. On the list circulated, perhaps we might have a sentence or two describing the benefits and what income is subject to relief.

Mr. Considine

The new schemes?

It has just been circulated.

Perhaps the witnesses might forward that to us.

Mr. Considine

Yes.

The third area is the issue of risk. I argue that, if there is a high risk to an investment, it has a better entitlement to a tax relief than if there is no or low risk. When describing the schemes, I would appreciate witnesses indicating which are high-risk activities. I am not asking them to put on their economic guessing caps. They will remember the BES scheme for venture capital. When initiated, that was high risk. One went to the IT industry, put money in and received tax relief. If it went bust, one had to accept the loss. However, very quickly the lobbyists, the tax industry and those who want to transfer income to assets got bricks-and-mortar activity included. As soon as that happened, there was much less risk. One was in a BES scheme, but it if went bust, one owned the hotel, which was probably making capital gains. Perhaps witnesses might indicate which schemes are like that. They are nearly all profit. The people who want to get into the schemes do not want risk, so they want their property back. A distinction must be made between risky activity, which a Government, from a policy point of view, is trying to encourage, and activity that has no risk, being backed by bricks and mortar. I would like witnesses to address that issue in providing information.

Mr. Considine

I appreciate the great faith the Deputy has in our ability to make such categorisations. However, having just come through the debate on the film industry, I can tell him there are very many different views on whether it is a risk.

Or lower risk.

Mr. Considine

It can come down to whether one has a pre-sale agreement. I am not sure we are privy to such information. In any event, we will do what we can.

The witnesses have mentioned a possible 170 reliefs in total, depending on the definitions. Have they done any international comparisons? How many of those apply in other countries? Are we very much in synch or out of synch? How does our regime, in general, compare in terms of those reliefs? The Department must have done a check under EU taxation provisions to see what is available in other countries. Is there any information on that?

Mr. Considine

Whenever we look at a particular tax or, more commonly, the introduction of a change, we would review the position in other European countries. We have not done a systematic comparison, however, of their list of tax reliefs relative to our own. It can be quite difficult to get that information. Some of it might be regarded almost in commercially sensitive terms. There are problems in probing to that level of detail. Various committees at European level look at individual tax items, however. From these we would have detailed knowledge of what obtains elsewhere. As a general rule, however, we would not be able to say, as regards these 170 or so reliefs, that some exist in this country and not in that and so forth.

I am surprised to hear that. Normally when someone looks for a change in VAT or any of the property tax incentives such as urban or village renewal, it is said that this must be cleared through Europe. I know we like to keep our taxation regime independent. On the other hand, often when queries of this nature arise we are told that Europe must clear it. That is why I am surprised a matrix does not exist to which the Department has access in terms of much of this information. Does it mean that when many of these matters arise, they come in under the radar screen and Europe does not know about them?

Mr. Considine

In the case of VAT, as mentioned by the Deputy, this is one of the areas covered by European directives. Precise agreements are in place between the various member states and the Commission as to what may or may not be done in the VAT area. There is also the issue of whether a particular tax might be construed as a state aid. In that case one has to be extremely careful. It is one of the areas where one must ensure whether or not the Commission has made any ruling and also who else has it. That would be investigated in a particular way. Many of these items on the list are not of concern to Europe. This country has fought long and hard to ensure that as much freedom as possible is retained as regards our taxation policy.

The Department circulated a list to the committee concerning additional information it will capture in the forms for the self-employed and PAYE workers as well as all the incentives available for urban renewal and seaside resorts. This information will be gathered on the 2004 forms and must be submitted by the end of 2005. The Department will have that information in 2006. As regards the shortlist as circulated, will the Secretary General say how many of those schemes will expire in 2006? Are we collecting for one year only and taking a great deal of trouble over something that will have expired by the time the information is available? Does the urban renewal scheme, for instance, expire in 2006?

Mr. Considine

It does — on 31 July 2006.

What about town renewal?

Mr. Considine

It also expires on 31 July 2006.

What about seaside resorts?

Mr. Considine

It has gone.

It has gone and we will now collect information on it.

Mr. Considine

Yes. People can still continue to claim under these schemes.

Yes, but no new investment may be undertaken in respect of seaside resorts.

Mr. Considine

No, but I would suggest if one was deciding in two or three years' time whether to have a new scheme, it might be of some interest to know what one was paying out under the existing one. It would form a base as well for an in-depth study into what was delivered under the existing scheme.

The general gist of people's inquiries concerns the cost of existing schemes, not about those that may expire in the immediate future and about which it would be useful to have information for the purpose of introducing similar initiatives later on. It would be possible to see the costs and conduct an evaluation based on the value of the current schemes. In simple English, the Department seems to be going to great trouble to capture information over the next two years and has specifically targeted a handful of reliefs or incentives for this purpose. Effectively those schemes will have expired to a substantial extent and no further expenditure will be allowed, in many cases, in 2006. This initiative will quickly become redundant. If a significant figure is involved, the answer will be that the scheme has closed. Why does the Department not concentrate on schemes that are not expiring so that it might be able to take future decisions on the basis of the information collected?

On Deputy Fleming's point, I thought a cut-off date for planning applications to be processed was involved which prevented new schemes from entering the process. From my information, it was not the fact that schemes were being closed or new applicants being deterred but rather that schemes which did not have full planning permission-——

The closing date for expenditure will be 2006.

When the extension was announced it did not refer to schemes that were——

The Chairman is essentially saying that new applications have been closed off for a number of these schemes and the Department will proceed to gather information next year in respect of these. It is a funny set of incentives on which to begin collecting information. Does the Secretary General understand?

Mr. Considine

Two threads have been running through this discussion. One is the 400 top earners and the other is about getting more information. The perception would be that these schemes are particularly relevant in the context of looking at the 400 top earners and what they actually use as tax shelters. They will continue to be relevant for many years to come. If we want to continue to get quality information on the top earners, we have to do this. These are the existing high-profile schemes. Between that and the pensions, much of the additional information will be captured. As Deputy Noonan said, much of the other stuff is fairly well known. It may be debated any way the committee wants, but the issue is clear enough.

As regards these particular items, I gather from the tone of the debate, that the concern is that these allow so-called wealthy people to reduce their income. If one wants to obtain better quality information for the future, these areas have to be targeted because money will be spent on them for a long time. Perhaps a future Government might decide to introduce a new scheme, in which case the information obtained from these would provide a valuable input for that type of decision.

I want to take up that point. There are two strands and I believe the Secretary General has confused them. The impression I formed was that the Department was concentrating on the top income earners through a designated section and these would be dealt with on a case-by-case basis. The information on the top income earners will be obtained by the new unit from its assessment of these individual cases. There is no need to get it through this mechanism and I therefore cannot accept that such a mechanism is needed on the form for the general body of taxpayers to obtain information on high income earners. The Secretary General has just informed the committee a separate section will deal with that on a case by case basis.

Mr. Considine

Perhaps the Revenue Commissioners might like to say something about this. In the group of high individual wealth, there are 250 individuals, whereas the studies up to now have comprised 400 people. There is also the question of the ease of extracting the information if one does not have the returns coming in requiring those breakdowns. What the people dealing with the top income cases are doing is extracting data from returns. Perhaps my colleague from the Revenue may comment further.

Mr. Faughnan

We deal with the top 250 people. However, we also want to capture information from people outside those. The claims under these reliefs and allowances are not confined to only the top 250 individuals. We want to gather the whole gamut of information for two reasons: first, the cost of the capital allowances and so on; second, Revenue is focusing very strongly on managing risk within its remit. A further benefit of capturing information on schemes that are finishing in 2006 is that it will still be of interest for some 12 or 13 years after that date and will be a major input into our risk analysis and assessment system. This will enable us to focus on the cases that may be of highest risk. We will be using the information for that purpose as well as for statistical analysis. It is not confined to the top 250 individuals, as we are very conscious of the wide population claiming these reliefs.

The information could be of ongoing benefit, even though there is no new investment in the scheme. The Government might simply state that it is changing the rules, as it did in the case of mortgage interest relief after people had entered into a mortgage agreement. Even though people are entering these schemes based on the current regime, if one applies the principle that applied to mortgage holders, the Government could easily change the allowable relief from here on in. It would not be illegal for the Government to make a decision to change the relief in subsequent years.

Mr. Considine

I am afraid that is——

I want to follow the train of thought on the future information.

Mr. Considine

That is not our thinking. That is not the reason for collecting this information. We have been advised that we would not be on firm ground in doing what the Deputy has just described. Mortgage interest relief is a different issue. My Revenue colleague has given the reasons and there are no further angles to it.

I will move to the next issue, namely, chart 1.3 in the Comptroller and Auditor General's report in which he refers to the €8.3 billion claimed in capital allowances. It is stated in the documentation supplied that 80% of that figure was claimed against corporation tax. Will Mr. Considine give a breakdown of the sectors of the economy that obtained that benefit, for example, banking, financial services, construction, chemicals, food industry, agriculture and so on? If the information is not to hand today, will he send it to the committee?

Mr. Considine

Those statistics are not available. As I stated earlier, plant and machinery accounts for €7.4 billion and there is an overall estimated cost in the Comptroller and Auditor General's report of €1.649 billion. One of the advantages of the extra information that we are seeking will be to split up some of the capital allowances so that we will have a better handle on where it is going. As of now, the information that the Deputy is seeking is not available on a sectoral basis.

Is there an industry code reference on the tax return forms for the corporate sector? I am sure the banks finance the acquisition of plant and machinery. The average claim for plant and machinery was €210,000, but the highest individual claim was for €246 million, and even at 12.5% tax rate, that was worth €30 million. There must be statistics as to where €30 million went. Under miscellaneous reliefs, one company had a claim for €180 million and, even at the lowest tax rate of 12.5%, that was worth €22 million.

Mr. Considine

We will put this specific question to the statistical branch of Revenue to see what information it will come up with and we will give the Deputy the information. There are two sides to a coin in that the profitability of some of these companies could be very high and this would be of benefit to the Exchequer.

I understand that. Speaking as an accountant, I understand the need for capital allowances. It is a legitimate expense equivalent of depreciation. I formed an impression from the opening statement that the fact that people seek information does not necessarily mean that they want to cancel the relief. They just want to know the information to allow them make a judgment. There is no logical next step that one must seek to pull it back.

Relief on VHI and BUPA cover is fully justifiable. Tax relief is necessary for many businesses. However, if a company received relief of £30 million, it must be one of the largest companies in the country.

Mr. Considine

I do not want to be misunderstood. The total figure for relief on plant and machinery is available in the Comptroller and Auditor General's report. In addition, there is an estimated overall cost to the Exchequer for the capital allowance reliefs. The industrial buildings and other elements are what we need to break down to get the information on the various schemes. I was making the same argument as the Deputy that this is one of the unavoidable costs of production.

I suggest that an industry code should be included in the tax forms. The public would assume that relief on plant and machinery is going directly to manufacturing companies, but presumably much of it is going to the banks who finance it by sale and lease-back. All I am asking for is information on who claimed the relief. Information has been available to some degree. What are the sectors of the economy that claim this? If the information exists, I welcome it. If not, then an industry code should be introduced.

Mr. Considine wanted to keep tax forms 11 and 12 simple so that taxpayers could complete them. If they are too long and unwieldy, people get lost. Therefore, they must be more user-friendly. To keep the form simple, it should be geared for the majority of taxpayers. If people want to make any extra claims, they can get an additional form. However, that extra information should not be included as it will confuse 95% of the public. A way will have to be found to streamline the process and keeping the form simple is a good start. However, there must be some other mechanism to get the additional information.

Mr. Considine

There is an industry code but I do not know if it is linked to capital allowances. We will put this question to the statistical branch of the Revenue Commissioners and we will provide the committee with the information they supply.

Mr. Faughnan

Regarding Deputy Fleming's previous point, we capture an industry code. We have sectoral analysis across the system. As we do not have a breakdown of the industrial buildings and the miscellaneous release, it is impossible to spread those across the sector. However, we can say which of these broad headings is within each sector. As the Secretary General has already stated, we can provide that kind of information to the committee.

Deputy Fleming made a great point on the leasing arrangements for the financial institutions and the level of profit that they have made in this State. They get many tax benefits when they make claims for leasing, purchasing and the buy-back on equipment. Has the Department any figures on the benefit to financial institutions from those arrangements?

Mr. Considine

We will also request that as part of the information on sectoral distribution of the plant and machinery allowances.

It is being managed very effectively by the financial institutions and, if we went through the figures on plant and equipment hire, we would find that those institutions are the largest claimants. However, they still charge high rates to those who lease the equipment.

Mr. Considine

There is usually a split in this benefit but I am not too sure who gets the lion's share.

Deputy Fleming pointed out that there is no figure for it in the categorisation and coding. It is disappointing that there is no figure on the financial institutions, some of which make €2 million to €3 million per day in profit on the benefit obtained from the purchase-lease and the reclaimed capital allowance.

Mr. Considine

I am not saying that we do not have a figure. I will ask the statistical branch of the Revenue to give the committee the figures for each sector, including the financial sector.

I am especially anxious that the committee obtain a report on the financial institutions.

I accept the value of these expenditures as an instrument to stimulate economic activity in appropriate times.

Can Mr. Considine explain to me why there is a huge demand in the community for nursing home care yet there are empty beds in most private nursing homes? Why is the normal law of economics which should reduce the price not occurring? Is that related to how the nursing home relief is structured?

Mr. Considine

The best person to answer that question is the Secretary General of the Department of Health and Children.

He is not present but when I asked him, he was not able to answer it either.

Mr. Considine

I am not an expert on the distribution of patients within the health system and I just do not know.

Is it not an odd situation that there is an acute need for nursing home places yet there are vacant beds in every quality private nursing home? Is it not odd that these beds cannot be afforded by the community because the price is still high, notwithstanding the availability of places?

Mr. Considine

I am not familiar with the situation. The way Deputy Rabbitte describes it does sound strange. From a public expenditure management point of view, it is a matter for the Department of Health and Children to manage these issues.

Is that true? Should we not make tax outlays to facilitate the construction of more nursing homes in circumstances where the community cannot gain access to them and the price cannot decrease? That is surely a tax and public expenditure matter as well as a health matter.

Mr. Considine

I do not know why the price has not decreased. If the price remains high and there are many vacant beds, I do not understand that logic. If there is a need for nursing home care which has not been met yet, there are vacant beds in private nursing homes the price should change. I just do not know why it is not moving.

Is the scheme continuing? Has it been assessed to ascertain whether these reliefs should continue in the area?

Mr. Considine

The nursing home scheme has no deadline.

That means we will keep building nursing homes. Has there been much uptake of the provision in the Finance Act 2002 on private hospitals?

Mr. Considine

We do not have any information on whether any hospitals have been constructed or are availing of the provision. We do not capture that in the tax return.

Is there no need to make an application to the Department if I decide, along with a few partners, to build a private hospital? Is it only the Revenue Commissioners that hear about it?

Mr. Considine

We do not hear about it. If the requirements to make a claim are met, then one can go ahead and make it with most legal schemes.

I accept that. However, the Department of Finance is the key department and is the engine of policy. Surely the Department should be in a position to evaluate the progress of a scheme such as this because it is specific and was brought in for a particular reason — in fact, for a particular person. Should the Department not be able to monitor that in terms of whether we should continue, broaden it or stop it?

Mr. Considine

That is included in a list we circulated at the beginning of the meeting. The two items on the list of data to be captured are nursing homes, associated housing for elderly or infirm people and convalescent homes and qualifying private hospitals, including qualifying sports injury clinics. The reason we want to capture that data is to get that information.

Will Mr. Considine remind me of what the park and ride scheme was designed to do?

Mr. Considine

It was to facilitate developments which would allow the park and ride scheme to operate. I will hand over to my colleague.

Ms McManus

It basically allowed certain property reliefs for commercial investments within a park and ride facility which would make the park and ride facility economically attractive. It was similar to the urban renewal types of reliefs in designated areas, but it was for an area associated with the park and ride facilities. The idea was to provide a tax break for a newsagency in the area.

The park and ride scheme was pitched towards the Red Cow roundabout to set it out for stimulation as an economic zone. Is Ms McManus stating that small businesses would get a tax incentive to provide hamburgers, sell newspapers or provide a hairdressing salon on the park and ride property?

Ms McManus

The wording was that it had to be incidental to the park and ride and had to be the type of facility that would be used by people who would normally use park and ride services, for example, a facility where somebody could buy a newspaper or similar type of commercial development, but not a cinema which would be drawing in people. I do not have the Taxes Acts with me, but my memory is that it had to be incidental to or associated with the park and ride facility. To the best of my knowledge, the scheme has been interpreted by Revenue as meaning a development which one would expect people parking a car to use. Again, because we do not capture it in a breakdown of the capital allowances, we do not know if anybody has ever used it. One of the difficulties is that, not only are we not capturing costs, if somebody asks whether anybody is availing of capital allowances for child care facilities or park and ride, we do not have that information. That is one of the reasons we are looking for this breakdown.

The parking that takes place in the area to which I have referred is on the road rather than in the park and ride facility.

What is the uptake of the tax credit for research and development? That question is addressed to Mr. Considine.

Mr. Considine

It is too early yet to have any details on it.

I initiated this seven or eight years ago, but without much help from the Department. It has been in place for some time.

Mr. Considine

There is a new scheme but it has not commenced yet. There is a commencement order on it but we have to check whether it will be okay from a State aid point of view.

During the 10% regime the tax system always operated against businesses interested in innovation because it was simply not worthwhile engaging in research and development. At that time, companies tended to carry out research and development in their country of origin. To what extent has the relief as now structured been availed of by business?

Mr. Considine

I think the argument the Deputy is making is the reason that the change was made in the Finance Act. There is one theory that if one has a low level of tax, one must have a broad base so that one is not reducing one's capacity to raise revenue. The other argument is that if one is engaging in research and development investment, very low tax does not provide a sufficient incentive to do so. That is the reason for introducing the change in this year's Finance Act and, subject to the clearance of this State aid from the EU, it will commence. The idea is to encourage additional investment in research and development.

I understand that a year's notice has been given to those who enjoy the stallion's fees exemption. I presume that the Department has all the information it requires on the industry.

Mr. Considine

We will, but the requirement applies in respect of chargeable periods commencing on or after 1 January 2004. We have not got the information yet but that is the requirement.

We have no idea of how much tax has been foregone on this exemption over the years. A measure was introduced in the Finance Act that required the industry to file returns. Did Mr. Considine state that period has not expired yet?

Mr. Considine

This is a provision of the Finance Act.

I bear my own share of responsibility for it.

Mr. Considine

This is a policy decision. The initial stallion stud fee exemption was introduced in 1968.

I am asking about the requirement to make returns.

Mr. Considine

This is in respect of chargeable periods on or after 1 January 2004.

It applies only from 1 January 2004.

Mr. Considine

Chargeable periods.

Does that mean those involved will not have to make returns for the years preceding that date?

Mr. Considine

No.

My information is that, as a result, the main beneficiaries are likely to restructure their business so that much of the income previously accruing in this jurisdiction will now be claimed to be accruing outside this jurisdiction. Does giving that period of notice invite such tax engineering?

Mr. Considine

People have to be given time to make the arrangements.

We are not asking them to pay any tax. We are only asking them to make returns.

Mr. Considine

I know, but people have to be given time to put the procedures in place to provide the information. This is one of the arguments for tax incentives. Why have we tax incentives? Is it the case that if there were no tax incentives, they would be somewhere else? We will only know the answer to that if a new tax incentive is introduced.

It is an interesting philosophical discussion. We have not got that far, however. Nobody wants to tax them at present. It appears to be a reasonable request, in terms of equity and the tax code, for the compliant taxpayers to know how much tax has been forgone over the years, or at least in recent years. That is a reasonable question. We are not talking about a tax incentive. We are effectively talking about a tax exemption.

Mr. Considine

This is an issue for policy decision. That was what was made by——

I agree. I am not questioning the policy decision. I am merely questioning our ability to quantify it.

Mr. Considine

The legal requirement, as the Deputy is aware, was that they did not have to make returns up to now — profits or losses — but for a chargeable period commencing on or after 1 January 2004 they will. That was the policy decision taken and enacted by the Oireachtas.

Is Mr. Considine concerned that tax engineering has taken place and may continue to take place in the interim? Was the Act passed at the beginning of 2002 or 2003?

Mr. Considine

As the Deputy said, nobody is proposing to tax them at present, that I am aware of. I am not sure——

Nobody is in a position to tax them at present.

Mr. Considine

I was just quoting what the Deputy said. I am not sure what is the point. I do not know why they would do what the Deputy is saying they will do.

Does Mr. Considine not know why?

Mr. Considine

In the sense that——

Surely the "why" is clear. They do it to organise their affairs in such a way that, when they ultimately must pay tax, if that day ever arises, they would pay less than they might otherwise have to pay. That is a fairly basic principle we have all learned over the past 20 years.

Mr. Considine

The only answer I can give to that question is that it gets back to the hypothetical point I was making. If we have one particular tax regime, it has one impact on economic activity, and if we have a different tax regime, it has another impact on economic activity.

I would have thought filing returns should not have much of an effect on economic activity.

Mr. Considine

I am not disputing that.

Is Mr. Faughnan concerned that the intervening period might be used to construct affairs in such a fashion to avoid revealing the picture that would be typical of the past five years?

Mr. Faughnan

We follow the legislation implemented in this case. We are satisfied that, going forward, once that information is available to us, it will certainly inform policy decision. In terms of being specifically worried about that, the answer is "no". We will review this expenditure when we get this information during 2005.

Mr. Faughnan will have it for the financial year 2004.

Mr. Faughnan

That is correct. The information will be captured on the income tax form or the return form for 2004. That will be due to arrive in Revenue in October 2005 and the information will be available relatively shortly after that.

Would Mr. Faughnan be concerned if the benefit of the tax exemption was being monopolised by a small number of players in the industry?

Mr. Faughnan

The Secretary General has already outlined the policy and we would very much follow that policy.

Mr. Considine's colleague, Mr. Doyle, and others who appeared before the committee some months ago promised to send us information on whatever template the Department of Finance now operates in respect of public private partnerships following the EUROSTAT decision. The last time I checked, that information had not come back from the Department of Finance. I do not know if it will be with us imminently.

Mr. Considine

I believe we provided that information.

We must have received it recently. I have a sheet summarising the costs, including the legal costs, of seven or eight tribunals of inquiry——

Deputy Rabbitte, we are hoping to dispose of chapter 1, following which I will open the discussion on the Vote.

I know that but I presume it is connected to the reliefs about which we have just been talking. Some 70% of the costs are legal costs totalling €132 million. I suppose that is the source of many of the investments on which we give tax reliefs and which we have discussed for the past two hours.

If Deputy Rabbitte could just——

It is connected to the same question, Chairman. On the one hand, we are paying out this money as fees and, on the other, giving reliefs on it. Perhaps the Chairman is right. Perhaps it is not fair to ask Mr. Considine, but it is time somebody examined it.

Deputy Noonan's point is that there was a time when, no matter what crookedness took place in this country, we thought we were all equal before the tax law. However, we learned during the DIRT inquiry and subsequent inquiries that, unfortunately, we were not. People had and have a high level of confidence in and respect for the Revenue Commissioners, but unfortunately it turned out we were not all equal before the tax law. There is a connection between the discussion we have had in terms of the extraordinary fees paid and what they are invested in. Again, as the State, we are helping the beneficiaries a second time to aggregate further wealth. That is a fundamental point of inequity.

Can we dispose of chapter 1.1? Is that agreed? Agreed. I want to open the discussion on the Finance accounts and Vote.

Mr. Purcell

I will make a brief comment on the Finance accounts. This is the name given to the annual account that records all the receipts and payments which go through the Central Fund, together with the supporting financial statements and schedules in part 1 and the national debt account in part 2, which also forms part of the National Treasury Management Agency set of annual accounts. The committee will be dealing with part 2 of the Finance accounts when the NTMA representatives come before it in the next week or two.

The members will see from the Exchequer account, which is the main account on which the other statements tend to hang, that there was a large surplus for the year on the current account but, in broad terms, this was offset by a deficit of similar magnitude on the capital account. The non-tax revenue detailed in statement 1.2 was up considerably on the previous year, mainly due to windfall receipts from the Central Bank totalling €600 million as a result of the introduction of the euro — that is in respect of the notes and the currency under the old regime — and also a transfer from the social insurance fund of €635 million. There is literally a mine of diverse information in the Finance accounts and I would be loath to attempt to guide the committee in its line of inquiry.

I do not have any particular comments to make on the Vote for the Office of the Minister for Finance and some of the other Votes for which the Accounting Officer has responsibility. There is also the contingency fund deposit account which I am aware exercised the minds of some members on a previous occasion when it was used recently, but that is a 2004 issue and it is up to the committee to decide how it wants to proceed on that.

Does Mr. Considine wish to make an opening statement?

Mr. Considine

No, unless there is a specific item with which the Chairman wants me to deal.

On the Finance accounts, the Minister for Finance, under various statutes, also guarantees borrowing by State and other agencies. These guarantees are not included in the financial statements. Are the balance sheet liabilities not included by semi-States when borrowing? Where are they incorporated?

Mr. Considine

When the Minister for Finance guarantees a loan, that is accounted for in the accounts of the body in question in the normal way. What we have here is a list of the guarantees currently outstanding. There is no issue other than the two that arise, namely, that if the State guarantees a loan, the borrower can get a better interest rate and there is a contingent liability in the case of the borrower not being able to repay. They are the two issues that arise.

There are no additional balance sheet liabilities on behalf of the Department?

Mr. Considine

There is a contingent liability that in the event of a failure by a person, who has a loan guaranteed to repay the loan, the Exchequer would have to step in.

It is not included in the overall accounts and balance sheet as such?

Mr. Considine

In the Finance accounts there is a list of these guarantees.

There is just a list.

Mr. Considine

The value of them is listed.

Mr. Purcell

What Mr. Considine said is confirmed in statement 1.14. It shows liabilities guaranteed by the Government up to a value of just over €3 billion and itemises them in each case. The Accounting Officer is right that they cannot be treated as liabilities on the Government balance sheet, if there was such a thing. We would like to think that it is unlikely that the State would have to step in and meet them. If it does, as in the case of NET, which is an example that comes to mind, it would be shown as an issue from the Exchequer.

It is a contingency.

Mr. Purcell

It is.

Mr. Considine

The case was made in respect of the ACC and the ICC that such liabilities would be underwritten by the new owners. In other words the Exchequer would have got an indemnity from the parent company to that effect.

I have a few questions on the Finance accounts. I refer to page 12 of the Finance accounts for 2002. In 2001 the State received €199,000 for citizen certificates and that figure more than quadrupled to €871,000 in 2002. It is shown under the heading "current non-tax revenue". How many citizen certificates were issued in 2002 compared with 2001? Mr. Considine might give some background information on that topic.

Mr. Considine

Is it statement 1.12?

It is statement 1.2 on current non-tax revenue near the bottom of page 12. I have a number of other brief questions.

Mr. Considine

The 2002 figure in the accounts for citizenship certificates is over-stated due to the timing of bringing to account some of the fees for 2001. Therefore, the difference between the two amounts is less than that shown. The amount collected for citizenship in 2001 was slightly more than €500,000 and was more than €600,000 in 2002. There is not as great a difference as there appears to be from that shown.

The officials advise me that it is true, however, that there has been an increase in the number of applications for citizenship. They gave me the following figures for the number of certificates issued in the period in question, which account for the increase. They figures are as follows: 2001 applications — 1,427; certificates issued — 1,048; 2002 applications — 3,577; and certificates issued — 1,332.

It is a minor point, but I do not understand that when I happen to pick one figure, that of €199,000 for 2001, I am told it is not really the right figure.

Mr. Considine

No, it is very simple.

Mr. Considine might repeat his opening comment on this because I am confused by what he said.

Mr. Considine

With regard to something like this, the Revenue Commissioners collect money and remit it to the Department of Finance at various times. In this case, some of the money they collected in 2001 was not remitted until 2002. The Revenue Commissioners would have their own accounts system. Therefore, presumably such money was retained in their bank account until it was remitted. What we are talking about is a timing issue in the entry into the Finance accounts.

That is what I understand it to be — a timing issue. Mr. Considine is saying it was approximately €1.1 million over the two years in question, but I am even more confused now. Where was this money as of 31 December 2001? If the State had it, surely it should have been shown in the Finance accounts. I do not understand where it was if it was not shown in the 2001 Finance accounts. Is Mr. Considine suggesting the Revenue Commissioners have other accounts that are not shown here? Will he explain the position?

Mr. Considine

Yes, there are other accounts. They have operational accounts to allow them to operate efficiently. It would not make sense to submit every few €10 or €20 collected to the Department of Finance on a regular basis. I assume the Revenue Commissioners have their own accounts, like most Departments in that type of business would have, and that they would be audited by the Comptroller and Auditor General in the normal way. I do not think there is an issue there. I do not know if the Deputy can help me on this matter, but I understand that is the case.

I would have thought that at the end of the year, everything would be shown in one account. I still need that to be explained because I do not understand it.

Mr. Purcell

Perhaps I can help the Deputy and, hopefully, I will not confuse him. For instance, in respect of the main body of revenue, when we talk of big money in terms of tax revenue of €29 billion, there might be €10 million, €15 million or up to €100 million which had not been transferred over at the end of the year because of Christmas and so on. That is held in an account in Revenue — the amount that has been collected but not paid over to the Exchequer due to timing differences. We are talking about only days in this matter. That is noted in my annual report. It is a footnote on the revenue statement in respect of that annual report.

Money would be received in Departments. We are not talking in the norm about large amounts. The largest amount would relate to the main revenue pay-over which, on material grounds, I note in my annual report. For other matters such as motor fines and so on, depending on the magnitude of the pay-over, it can be paid over every few days, monthly in respect of small amounts, and for administrative reasons it may be only paid over quarterly. However, I can assure all present that there is no crock of gold hanging around in Departments that has not been paid over to the Exchequer. These are really the accounts of the Exchequer. The Finance accounts is a traditional name for what was previously called the abstract issues and receipts of the Exchequer.

The only reason I raised that issue is that the 2001 figure was €199,000 and we have been told now that the amount that was due for 2001 was €500,000. It seems that only €200,000 was logged in and €300,000 remains to be logged in at the end of the year. That seems to be most of the money for the year. I am going on the figures given here. I could understand if 10% or even 20% was not transferred at year end. However, more was held than was transferred in the full year. It seems to be a large figure relative to the amount we are discussing. While it is small in the national context, it appears that more was not handed into this account at the end of December than was handed in during the course of the year. A sum of €300,000 was waiting to be transferred. That is a large amount.

Mr. Considine

I take the Deputy's point. There are two issues involved. I might be confusing the matter in that I mentioned the Revenue Commissioners, in the context that I am familiar with their operations. However, we are discussing operational accounts and there is no loss to anybody.

I know that.

Mr. Considine

I take the Deputy's point that perhaps they should have transferred the money earlier. I do not know why they did not.

I am not suggesting anything. It is a tiny issue but it relates to good accounting practice. If the cut-off date is the end of December, there should not be that amount of money left under a heading. Perhaps I am overstating the matter but the cut-off arrangements should be sharper.

Mr. Purcell

The Deputy is correct in terms of good practice. However, these amounts would have been credited in the Department to a suspense account and we see it as good practice, in reviewing such accounts at the end of the year as part of our audit of appropriation accounts, that the substantial amount involved should be paid over. Of course, there will always be small amounts. In this case, much depends on whether it is material but it would be good practice.

I have a separate question. On page 16 of the finance accounts statement 1.6 deals with other non-voted current expenditure. There is a figure for 2002 — a general election year — of €13.73 million for election postal charges. A sum of €13 million was paid, presumably to An Post, for delivering election material. At 48 cent per item — the maximum rate — that amounts to 28 million items of literature. There are approximately 2.8 million on the electoral register. The main parties would have delivered an election address to each of the 2.8 million. Everybody gets plenty of literature delivered to his or her home but I cannot understand how 28 million election items were delivered to 2.8 million voters. That is ten items per voter. I do not believe there was that amount.

Can Mr. Considine provide us with a breakdown of the figure of €13.73 million? Each of the parties and candidates has a facility to send a litir um toghcháin. The candidate fills in a certificate at the post office which states the letter has been sent to, for instance, the 50,000 people on the electoral register in the constituency. An Post is reimbursed by the Exchequer on production of these certificates. I am seeking a breakdown of the figure of €13.73 million in terms of the costs and the numbers of deliveries by parties, candidates or constituencies. It appears to be an extraordinarily high figure. It is good for An Post and probably subvented its figures for 2002 to a large extent but it is a massive amount.

On page 26 schedule 1 gives a breakdown of payments charged to the Central Fund in respect of salaries, allowances and pensions. The leaders' allowances came to €5.7 million while allowances to Independents for expenses amounted to €419,000. Payments to political parties under the Electoral Act 1997 amounted to €4.3 million while payments to candidates for expenses in Dáil elections came to €189,000. This amounts to approximately €10.7 million. I am trying to reconcile how total funding for all political parties, including leaders' allowances, payments under the Electoral Act and refunds made to candidates entitled to refunds as a result of the election, amounted to €10.7 million, yet a relatively minor aspect of the overall election campaign amounted to €13.7 million. The balance is all wrong. It is not Mr. Considine's decision but I am simply seeking a breakdown. I do not expect him to comment because I am making a political comment. An extraordinary amount of money went to An Post to pay for a minor aspect of the election campaign.

Mr. Considine

I can provide further information which might explain it. There were also two referenda in that year.

I thank Mr. Considine. However, I would appreciate getting a breakdown by campaign and by party because it is a relatively large amount.

Mr. Considine

All right.

My final question relates to Vote 6. On page 32 there is reference to technical assistance costs of regional assemblies. The estimated provision was €823,000 but the outturn was only €452,000. Are the regional assemblies doing less that they were originally expected to do or is there a timing difference? I would have expected them to be doing more work than that.

Mr. Considine

Up to the end of 2001 certain costs associated with the EU related activities of the eight regional authorities had been reimbursed from a measure of the 1994-99 technical assistance programme which was managed by the Department of Finance and funded from subhead J.1. The regional authorities submitted their claims for reimbursement to the Department, where they were processed and paid from the subhead.

The 1994-99 technical assistance programme ceased on 31 December 2001. The following 2000-06 technical assistance programme did not include a measure for the reimbursement of the EU related activity costs of the eight regional authorities. From 2002 these costs were funded under the technical assistance measures of the Border, midland and western, BMW, and south eastern regional operational programme managed by the BMW and south-eastern regional assemblies, respectively. Subhead J.2 provides the funding for the measures.

These regional programmes receive EU funding under the 2000-06 Community Support Framework, CSF, in respect of which the EU regulations governing the eligibility of expenditure for 2002 are different from those under the 1994-99 CSF. It took until the latter half of 2002 for the regional assemblies to finalise the application of the 2000-06 CSF regulations to the eligible costs incurred by the regional authorities and establish the arrangements for the reimbursement of regional authority expenditure. Due to this delay the full costs of the reimbursement of the regional authorities estimated for 2002 were not realised and led to a saving on the subhead. It appears to be a timing issue.

On page 32 consultancy services are included twice under two subheads — subhead A.7 and subhead B.

Mr. Considine

Yes, there were two consultancies, one of which, provided for in subhead A.7, is administrative; it is part of the management of the Department. Subhead B refers to consultancies connected with individual programmes or projects.

There are consultancy costs running through a number of subheads in addition to those two. They are subheads D, H.2, M, J.1, J.2 and P. What is being attempted here is the division of the consultancy and putting it under the most appropriate heading. If it relates to administration of the Department, it is included in subhead A.7. If it relates to services, usually the provision of legal and financial consultants, it is included in subhead B. The euro changeover with the benchmarking body was a separate issue and so on. There are, therefore, consultancies running through a number of subheads.

As regards subhead H.2, the public service benchmarking body was estimated to cost €984,000 but it cost nearly €3 million. The figure was €2.7 million.

Mr. Considine

Yes. The cost of the consultancy was higher than anticipated mainly because at the time of preparation of the original Estimate it was anticipated that all invoices relating to the consultancy in 2001 would be cleared for payment and paid in 2001. The payments which had been expected in 2001 did not arise until 2002. That is the main reason. The activity levels comprised a huge task that was undertaken. It was carried out within the time-frame allowed, which was extremely tight.

Another section of the accounts includes item 12, EU funding. I see that there was a considerable underspend on the peace programme. Of the €8 million allocated, only €3.7 million was spent. In addition, there was estimated expenditure of €5 million under the North-South INTERREG programme, yet only €500,000 was spent. As regards other Community initiatives, a sum of €1.7 million was allocated but only €414,000 was spent. There was an underspend of €11 million from EU cross-Border Structural Funds.

Mr. Considine

Yes. To take the peace programme first, the 2002 outturn reflected lower than anticipated levels of activity in that year. The saving resulted from later than anticipated approval of the programme by the European Commission. The new PEACE II programme was approved by it on 22 March 2001. Delays were also experienced in putting in place the implementation arrangements for the programme, with elements being subject to public tender. The programme became fully operational in early 2002. We are talking about delays in bringing the scheme into operation.

It is a major pity concerning cross-Border development, the peace programme and the North-South INTERREG programme, a source from which many community based schemes sought funding. It is regrettable when so much money is being spent in the North to find that there is an inability to draw down funds for the Southern six counties. As a representative of a Border county, I note that many applicants for such funding are frustrated because many schemes are announced but not implemented.

Mr. Considine

As far as I can see, many of the delays stemmed from delays in having schemes approved at European Commission level.

Have they now been approved?

Mr. Considine

Yes. This was back in 2001 and 2002. They are now operating.

Another point I see in the accounts relates to the secret service Vote, where €538,000 from a budget of €900,000 was surrendered to the Exchequer. Can Mr. Considine explain what is involved with the secret service Vote?

That is the whole point of the question.

We will not tell anyone.

It caught my eye.

Mr. Considine

The whole business of the secret service dates back to the early days of the State. There was general agreement that one provided for a comfortable Estimate because it was not the kind of thing for which one wanted to come back to the Dáil to request a further €10,000. That is a feature of this Vote. It is the one area in which the Comptroller and Auditor General does not actually see the details, except in so far as the approval system is in place, the money is requested for the appropriate purpose and signed off by the appropriate people. That is it. I cannot tell the Chairman any more than that.

Of that budget, €352,000 was spent.

Mr. Considine

That is what it states, yes.

That is as much as Mr. Considine is willing to say?

Mr. Considine

That is all I can say.

What plans does Mr. Considine have to cap funding for the contingency fund deposit account?

Mr. Considine

This is another scheme that has been in place for many years. Its purpose is to enable business to be done in a situation where the Dáil is not available to pass an Estimate or grant as expected. In this case the Department of Finance received the request from the secretary to the commission on electronic voting on 10 March to provide funds from the Central Fund for the expenses of the commission. The decision to use the contingency fund deposit account to fund the commission was based on the following considerations: the Dáil was going into recess from 11 March; the commission was operating to a deadline of 1 May and sought to incur expenditure on advertising from early March; and advertising seeking the views of the public appeared in the Sunday newspapers on 13 March.

Given the resolution of the Dáil concerning the examination of the electronic voting system, the funding of an independent commission to look into the secrecy and accuracy of the proposed system was not considered, in itself, to be controversial. The resolution about which I am talking is that of 18 February 2004 which included the following wording: "to introduce legislation providing for the establishment of an independent panel to verify the secrecy and accuracy of arrangements proposed for electronic voting. This panel to be appointed in advance of the enactment of the legislation". It was the Minister's decision on the recommendation of the Department.

Has the fund been used for this?

Mr. Considine

The fund has been used for this.

The preceding letter we received today from the secretary of the commission to Mr. Considine's Department refers to a letter dated 1 March, two weeks before the Dáil went into recess. It states the Government has informed the commission that payments to it will be discharged by Mr. Considine's Department from an appropriate allocation out of the Central Fund. This was before the Dáil was informed of anything.

Mr. Considine

Yes. The letter to which the Deputy is referring is one that went from the Secretary to the Government, appointing the judge, dated 1 March. However, as I said, they did not come to us looking for any money to fund their expenses until 10 March.

The letter dated 1 March stated money would be allocated from the Central Fund.

Mr. Considine

Yes. That was a general statement.

That is different from the contingency fund.

Mr. Considine

Yes.

It is distinct from it.

Mr. Considine

Yes but that is what is going to happen.

The point is that on 10 March the letter was received and the Dáil was going into recess on 11 March.

Mr. Considine

Yes.

This mechanism is used for one of the shortest recesses the Dáil takes to make a decision that otherwise would have been made by a full vote of the Dáil. There are serious questions as to whether it was an appropriate mechanism to do this. It seems from reading the preceding letter that decisions had been made about money being allocated in a general way which would have allowed plenty of time for an appropriate resolution to be brought to the Dáil.

Mr. Considine

We did not receive a request for the money until 10 March and the Dáil went into recess on 11 March.

The Dáil is always in recess during St. Patrick's week. It was known from a letter dated 1 March that the money would come from the Central Fund. I do not know the reason a resolution was not put before the Dail on which Members could have voted in ample time.

We are not going to deal with policy.

The use of the contingency fund is a central question.

It is a small fund.

Yes but there are questions about whether it can be used appropriately. We were informed about its use during a summer recess by a previous Minister for Justice.

Former Deputy Nora Owen.

However, when the mechanism to which I refer is used in this way, particularly there is a time period in which matters can be dealt with appropriately and in accordance with standard procedures and when the nature of the recess is rather short, I question the use of the contingency fund. That is an appropriate question for the Committee of Public Accounts to ask because we are in the loop and must subsequently justify the use of the fund in this way.

We are authorised to ask questions about the contingency fund and whether a cap is to be placed on it. Millions can be channelled through the fund which has been in existence since the foundation of the State.

Mr. Considine

I take the Chairman's point. Up to now, the highest amount paid from the fund was £91,000 in 1995. There is an issue to be considered in how we should go about dealing with this matter in the future. We must look at ways of continuing to do business when the Dáil is in recess. Whatever the rights and wrongs of the matter, we only received the request on 10 March and the Dáil went into recess on 11 March. The Bill was going through Parliament which passed a resolution indicating that it was putting legislation through to make provision for this.

The Bill is still going through Parliament. Committee Stage is being taken in the meeting room next door.

Mr. Considine

I know.

That is where the controversy arises. It is not that we are so much concerned with money for the ordinary, every day business of government during lengthy recesses, we are concerned about instances where appropriate measures could have been taken when the Dáil was sitting and the legislation had been properly passed. That is where the issue arises and the reason there has been concern about the fund's use.

I reiterate that we must not trespass on the policy issue in respect of the use of the fund.

The future use of the fund is an important issue because we are involved in the process. I accept that the amounts are small but it is technically possible for the Committee of Public Accounts to justify post-expenditure allocated in the same way. This should be done under specified circumstances which must take account of the length of the recess concerned. I would like to see the fund only being used in the summer and Christmas recesses.

The committee did not take a view on how controversial the matter is.

It is on the record.

We must be clear that we did not take a view on the matter. The reason the contingency fund can be raised here as an issue is it is audited by the Comptroller and Auditor General and comes under——

The questions I am raising are concerned with its general use, particularly the criteria which govern it and the way in which it can be used. Questions have arisen in respect of the example to which I refer in how it was used. If stricter criteria were in place, we would avoid this concern in the future.

From what Mr. Considine stated, I understand use of the fund was made during the recess in question. The previous week was short in terms of the number of days the House sat. We must be satisfied from the point of view of the public accounts that it was used during a recess period. Somebody may wish to change the length of recess periods and they can do so in the Dáil. That is fine. However, from the point of view of the public accounts, once we are satisfied that the fund was used during such a recess, we have met the requirements under the financial accountability aspect of the matter. The other points are more political in nature and should be dealt with in the Dáil

That is correct. We are totally excluded from discussing such matters.

Mr. Purcell

This was a slightly unusual case. What normally happens, as was the case when the fund was last used in 1995, is that an Estimate is introduced. In this case, because the funding for the new commission was not to be channelled by way of Estimate, it had to become a direct charge on the Central Fund. This meant that primary legislation had to be introduced to give effect to it. I am not making the case one way or the other but relatively it is more difficult to introduce and have legislation passed — I have been watching the progress of the Bill in recent days — than it is to introduce and have a Supplementary Estimate passed. It was, therefore, a slightly unusual feature of this case which added to the difficulty of bringing it through the House.

I accept that but it is still adopting a principle of legislative pre-emption, which is where the concern arises.

Mr. Considine

If it proves to be of assistance, we will consider the issue. There is no doubt that in this case the amount is larger than those relating to previous instances. It is not clear how the concept of the £20,000 comes into matters at this point, particularly as a sum of £91,000 was used in 1995. A review is needed. We will carry one out.

I thank Mr. Considine. What measures are being contemplated by the Department in connection with the control of tribunal costs?

Mr. Considine

That is a big question. To the end of March 2004, the total cost to the Exchequer of completed and sitting tribunals of inquiry and other public inquiries was €144 million. Of this, €102.66 million was paid in respect of legal costs while €41.2 million related to other costs. The figure for legal costs includes some €25.5 million in respect of third party legal costs awarded at three completed tribunals of inquiry. This represents 68% of the total cost of these tribunals.

With regard to sitting tribunals of inquiry and public inquiries, the total cost to the end of March 2004 was €106.4 million, of which €71 million relates to legal costs. The latter only refers to the costs of the tribunal of inquiry legal teams as the issue of third party costs has not yet been adjudicated in any instance. Given the significance of these costs in completed tribunals and inquiries, there is scope for a sharp acceleration in Exchequer costs if third party legal costs follow the pattern of those relating to completed tribunals.

In the light of the considerable actual and potential costs arising, there is growing concern about the ongoing resultant burden on the Exchequer. At the invitation of the planning tribunal, the Minister for Finance made a submission to it last May in respect of the liability of the Exchequer for third party legal costs. As the tribunal has not yet adjudicated on the issue, it would not be appropriate for me to indicate what was contained in that submission.

More generally, there are a number of proposals under consideration aimed at reducing costs. They follow liaison with the Attorney General and the Minister for Justice, Equality and Law Reform. It is the Minister's intention to shortly submit them to the Government for approval. I am not, therefore, at liberty to go into the individual details at this juncture. Broadly, however, they are aimed at addressing a number of issues affecting future tribunals, including tightening and better focusing of the terms of reference, with a view to minimising duration and costs; streamlining the operation of tribunals; and a review of the basis of payment for legal representatives. I cannot be any more specific about the matter until the Minister makes a final decision and the Government considers it.

The Minister recently introduced a Commission of Investigation Bill which passed Second Stage in the Dáil on 5 March and is awaiting Committee Stage. The mechanism provided by it may be considered as either a precursor or an alternative to tribunals of inquiry. It is also designed to address concerns such as those relating to the time and cost of public investigations. Overall it, seeks to provide a more effective and flexible way of investigating matters of public concern while balancing the issues of cost, time and fair procedures and the rights of affected parties.

The main differences between the proposed commission of investigation and tribunals of inquiry are that a commission will be designed, by virtue of its means of operation and provisions on cost, to be less costly than a tribunal. It will encourage and facilitate voluntary co-operation while having full compellability powers in reserve. The carrying out of investigations and the taking of evidence in private are likely to provide more suitable means of operating in some circumstances. A commission will have entry and search powers not available to tribunals and by making its evidence available to a subsequent tribunal, if one is appointed, it will enable such a tribunal to be more narrowly focused and complete its work in a more expeditious manner.

As a statutorily based body, the actions and decisions of a commission will be subject to judicial review. The Bill provides that certain specific matters may be referred to the High Court which, overall, will have a supervisory function similar to that exercised in relation to tribunals. The commission may, for instance, refer cases to it where a person fails to comply with directions to attend or give evidence. Referral will also arise when a person considered to have delayed or obstructed the work of the commission is required to pay the additional costs incurred by the commission or other witnesses as a result of that delay or obstruction.

A witness or other affected party may make application to the High Court where, for example, he or she can test the determination of the admissibility of material that, according to him or her, is protected by the rules of privilege or where the commission does not alter a final report as sought by an affected party. The relevant Minister may refer reports to the court where he or she seeks directions as to whether they impinge on ongoing or prospective legal proceedings.

I can give details of the costs involved or give the Committee a copy of this document.

If Mr. Considine could send us the details, I would be delighted to receive that clarification. Considerable costs are a source of concern to the committee. In that context we have issued an invitation to the Law Reform Commission for its representatives to come before us to go through the accounts in more detail. Mr. Considine's statement provides very welcome news — that there is a more effective way in terms of time and costs but which would also be fair. This is important to the taxpayer because, as stated when accelerated third party costs are adjudicated upon, based on today's evidence the figures could be quite small. Does Mr. Considine have any opinion on the likely amount for third party costs? Is there any estimate?

Mr. Considine

As I said, third party costs in completed tribunals were very large in comparison with the fees of the State's legal team. In the three tribunals which have completed their work third party costs amounted to €25.5 million, while the State's legal fees totalled €6.19 million. One is talking about third party costs being four times greater than the State's legal costs. If that was to translate into the sitting tribunals, one would be talking about very high figures — perhaps €300 million. The State's legal costs for the sitting tribunals amount to €71 million. If one multiplies this figure by four, one is talking about a sum of just under €300 million.

That is very worthwhile information. I thank Mr. Considine for his detailed statement.

We have now touched on a very important topic and are saying that, based on previous experience with completed tribunals, third party legal fees came to four times the cost of the State's legal fees. I know that past performance is no indication of future costs and but worry that the ratio will be much worse for the taxpayer. One only has to see the number represented or seeking representation at the various tribunals.

We have been given a conservative estimate of €300 million in contingent liability to the State, if I can use that term. There is a liability and it has not yet been confirmed whether the taxpayer will have to pick it up but as sure as night follows day, bar exceptional circumstances in which the chairman refuses to make particular awards of costs, in the majority of cases in which people co-operate with the tribunals, under natural justice, they will tend to have their costs awarded. I am worried that some of the tribunals which have been in place for several years are not even halfway through their work. From what we have heard today, we could be talking about a figure of €1 billion by the time they have finished their work.

As part of his work in reviewing the 2003 accounts for various Departments, the Comptroller and Auditor General should look at the question of contingent liability in order to reach an estimate. I stress the words "estimate" and "contingent". When we discussed the redress board last year, the Comptroller and Auditor General gave us an estimate, about which we can argue, as at that stage only 1% to 2% of cases had been dealt with. The amounts of money involved — some of the tribunals are nearer to completion than others — mean he would be able to give a better estimate in respect of contingent liability than he could last year in the case of the redress board.

We have gone through this process for a number of years and extrapolating from the figures we have heard today, I would be surprised if the costs of sitting tribunals will come in at less than €1 billion by the time they are completed. I know Mr. Considine cannot comment on this and that we do not know how they will pan out but the public has its own views on how long they are likely to continue. We hear of hundreds of witnesses still to come — potentially a shocking burden for the taxpayer. I would like to receive some estimate of the potential liability.

All of the tribunals were set up by the Oireachtas and if it made a mistake in so doing it was in not asking their chairmen to come back within a certain period with an estimated timescale and budget. They were set up open-ended in terms of cost and time but we should be given an estimate. The Comptroller and Auditor General may want to reflect on this but the committee needs a figure because this is a matter of phenomenal importance.

We may have to go into the details of that proposal in private with the Comptroller and Auditor General. I was glad to hear Mr. Considine refer to the possibility that new procedures will be implemented.

Mr. Purcell

I will come back to the committee in private session to tease out the feasibility of coming up with estimates and on how guarded they may be in order that we are absolutely clear on what we are talking about. I heard Deputy Fleming use the terrible figure of €1 billion.

Mr. Purcell

I am loath to get drawn into the web again without knowing exactly what the committee has in mind. It should be dealt with in private session.

We will deal with the matter in private session in order to seek the clarification needed from the Comptroller and Auditor General to pursue the matter. The information we have received today is very beneficial.

Mr. Considine

The word "information" may be a little strong. To repeat what Deputy Fleming said, this is multiplying by four the State's costs. I am doing this solely on the basis of the ratio applied to the three completed tribunals and nothing else.

I am curious about the situation in regard to superannuation. Subhead H of Vote 7 relates to pensions paid to resigned and dismissed members of the Royal Irish Constabulary, including widows. Given that the force was stood down in 1921, I wonder how many are involved. The outturn was €2,000 more than estimated. There is a €1,000 compensation allowance under Article 10 of the treaty of December 1921. Should these headings be made obsolete?

Mr. Purcell

I can help the Deputy on subhead E and the figure of €1,000. This is the last time the Deputy will see it. It was included under what is called the Wigg Cochrane arrangement. Sadly, from now on we will not have to audit the account. I will let the Accounting Officer deal with subhead H.

Mr. Considine

Can I send the information to the Deputy because I cannot find it?

Some of the people concerned must be 103 years old.

Are Votes 1, 6, 7, 12 and chapter 1.1 agreed to? Agreed.

The witnesses withdrew.

The committee adjourned at 3.05 p.m. until11 a.m. on Thursday, 29 April 2004.