Committee on Budgetary Oversight debate -
Tuesday, 22 Jan 2019

Scrutiny of Tax Expenditures: Discussion

Chairman

The purpose of our session is to follow up on a good briefing the committee had from the Parliamentary Budget Office, PBO, on its paper on tax expenditures.

I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded 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.

I wish to thank the witnesses again for attending here today. The witnesses have combined their opening statement and I appreciate that.

Deputy Jonathan O'Brien

Can I suggest, if the members are agreeable, that we take the opening statements as read because I have to be in the Chamber shortly?

Chairman

Members are sometimes reticent about that. I appreciate the Deputy's offer but I will proceed and ask witnesses to make their opening statements. The witnesses are asked to keep their statements as tight as possible. I will then come to Deputy O'Brien, first of all.

Deputy Jonathan O'Brien

I will be be leaving at 5 p.m. but will be back at approximately at 5.25 p.m.

Chairman

We will see how matters proceed then on that basis.

Mr. Joe Cullen

I am a principal officer in the tax division of the Department of Finance. I head up the income tax policy section. I am joined this afternoon by my colleagues: Ms Deirdre Donaghy, principal officer, who leads one of the two corporation tax sections in the division; by Mr. Pat Leahy, principal officer, who heads up the capital taxes section of the division; and my colleague Mr. Keith Walsh, principal officer, who heads up the statistics and economics research branch of the Revenue Commissioners.

On behalf of the Department of Finance and the Revenue Commissioners I would like to thank the committee for its invitation to discuss the Department's report on tax expenditures, which was published as part of the documentation for budget 2019, as well as the paper prepared by the Parliamentary Budget Office, PBO, entitled: Tax Expenditures in Ireland: Key Issues for Consideration, which was published in September of last year.

In 2008 and 2009, I was part of the secretariat which supported the Commission on Taxation, which reported to Government in 2009. More specifically, I acted as secretary to the working group within the commission that examined the question of tax expenditures. With other colleagues in the commission secretariat, I was directly involved in providing research and drafting support to the group and the commission.

As to an approach that might assist towards having a fruitful discussion this afternoon, and with the permission of the Chairman, I will focus in my remarks on the main conclusions and findings of the PBO paper. Broadly speaking, we would support the perspective and views put forward by the PBO that tax expenditures represent a significant and non-trivial annual cost the Exchequer. We also hold the view that, in general, the direct spending route should be the first port of call where the State wishes to support a particular activity and that tax expenditures should be seen as equivalent to direct public spending. It follows from that then, that the processes related to accounting and accountability for tax expenditures might benefit from being more closely aligned with those on the direct spending side.

We also support, in principle, the view that there is scope for a more in-depth consideration of tax expenditures as part of the wider budget scrutiny process. This point speaks to key messages 2, 3, and 4 put forward by the PBO in its paper.

Taking those messages in turn, on key message 2, costing of tax expenditures, the Department has no difficulty with the proposition that consideration might be given to alternative methods of estimating the cost of tax expenditures. However, it should be noted that the OECD 2010 report, referenced by the PBO paper, notes in the context of its review of ten countries which did not include Ireland, that every country examined here has chosen the revenue foregone method, despite all its flaws.

The reason for this is almost certainly that the final revenue loss method is totally impractical. The European Commission document, Tax expenditures in direct taxation in EU Member States, observes that member states most often use the revenue foregone method in their regular tax expenditure reporting. Indeed, the PBO's own paper acknowledges the complexity of alternative approaches. Limitations in the data may also prove an inhibitory factor in taking a revised approach. This is not only because of trade-off considerations between seeking information from beneficiaries and the burden that may place on those beneficiaries, but also because there can be an absence of reliable base data upon which to base cost estimates.

The recent introduction of the key employee engagement programme, KEEP, a new incentive, is an example in this regard, where it was difficult to estimate the likely annual cost in advance. Notwithstanding these points, we would have no difficulty in further examining how tax expenditures are costed.

Similarly, on key message 3, the Department would not disagree with the view that there is room for further improvement in access, availability and transparency of data on tax expenditures. That said, it would be fair to acknowledge the significant progress that has been made in Ireland in this regard if we take as a starting point the work of the Commission on Taxation ten years ago, which sought to identify, codify and cost all the main tax expenditures in existence at the time.

Timing and placement of tax expenditure reports is key to ensuring transparency. The OECD report of 2010 recommends that such reports should be published in the budget documents, which has been our practice to date. The report also recommends that tax expenditures should be reported alongside outlay programmes with the same purpose. A domestic example in this regard is the recent agri-taxation progress update report, which was published with the 2018 tax expenditures report, as part of budget 2019. It specifically set out to map the direct and tax expenditure supports available to the agri-sector and presented both sets of data, from the period 2012 to 2016, alongside each other. As acknowledged by the PBO paper, however, and in my comments earlier, there is a need to strike a balance between data transparency and the administrative burden this may place on taxpayers.

Revenue publishes costs and numbers of tax expenditures as part of its official statistics and open data releases, meaning that the methodologies used are validated against a set of statistical criteria reviewed with the Central Statistics Office and that they are made available in open and accessible formats. Significant efforts have been made by Revenue to provide greater detail on the distribution of certain tax expenditures. For example, it publishes detailed reports on the help-to-buy incentive and the recently discontinued home renovation incentive, giving information on geographical spread, the numbers of individuals availing of different quantums of relief and so on. It also publishes an annual farming profile which analyses the relief availed of by the agri-sector under a number of different tax heads - value added tax, capital acquisitions tax, stamp duty, etc.

On key message 4, systematic review and evaluation, the Department would again have no difficulty in supporting the principle of a systematic approach to the routine review of tax expenditures. Such an approach is set out in the Department’s tax expenditure guidelines, developed and published in 2014. It would be prudent to acknowledge, however, that there can be resource or practical constraints which can limit the amount of review work that may be carried out in any one year. In addition, the desirability of ex-ante review can be overtaken by timing limitations in the context of the budget and finance Bill annual cycle.

Four tax expenditures reports have been published as part of the annual budget process in 2015, 2016, 2017 and 2018. The publication of these annual reports allows us to meet our obligations under Article 14(2) of EU Council Directive 2011/85/EU on requirements for budgetary frameworks of the member states, which states: "Member States shall publish detailed information on the impact of tax expenditures on revenues." Each report has followed the consistent pattern of outlining the fiscal impact of a range of tax expenditures and publishing the results of certain tax expenditure reviews that have been completed since the previous budget. In the 2018 report, we included reviews of the employment and investment incentive, EII, agri-tax and help-to-buy, as well as film relief and start-up relief for businesses. All five were comprehensive reviews.

On the question of periodic re-authorisation, it should be noted that all tax expenditures that commenced post-2014 have been subject to sunset clauses.

Finally, on key message 1, defining the benchmark system, the Department acknowledges the desirability of defining such a system. Both the Department and Revenue recognise that they publish different classifications of tax expenditure measures.

This is not due, however, to differences of opinion arising out of a formal deliberative process. Instead, the approach taken by Revenue is to publish all available information on tax expenditures - broadly defined - and this should be viewed alongside a newer and more formal classification approach adopted by the Department. Development of an agreed approach to classification of tax expenditures is a task that could be built into the work programmes of both organisations in the medium term.

In the international literature, the challenges associated with identifying a benchmark system are acknowledged. While there is significant diversity in working definitions of tax expenditures across countries, a common element is the concept of a departure from a tax system benchmark. The 2010 OECD report profiled and compared the tax expenditure policies of ten OECD countries and concluded: “Some countries have very elaborately specified benchmarks, while others have only implicit definitions of tax expenditures from which their benchmark systems are inferred."

Overall, in the past ten years, significant progress has been made in raising the profile of the issue and the cost of tax expenditures. As noted in the 2017 tax strategy group paper, significant advances have been made in the analysis of tax expenditures and the development of an analytical process for such evaluation, whether they are ex ante or ex post evaluations, which has built on the work of the 2009 Commission on Taxation. There is a comprehensive evaluation structure in place for such reviews, namely, the Department’s 2014 tax expenditure guideline, and the Department seeks to carry out reviews of existing tax expenditures and ex ante evaluations of proposed new tax incentives. I have already mentioned, as examples, the comprehensive reviews of EII and agri-tax carried out last year. Furthermore, two time-limited incentives, namely, the home renovation incentive and the start your own business incentive were reviewed and discontinued last year, both having achieved their original policy objectives.

This is not to say that there is not further work to be done. I hope this presentation will lead towards a conclusion that there is no issue of principle holding back progress. The direction of travel is clear. The only issue is one of prioritisation of the work alongside other important tasks.

Deputy John Lahart

I thank Mr. Cullen for his statement. I have questions on three matters. Members of the committee do not attend as interrogators, and I thank Mr. Cullen for his public service. It is a new area that the Committee on Budgetary Oversight wishes to consider initially before deciding whether it is worthy of deeper inquiry. It is not lost on us that the Department has a wide range of responsibilities and there are a limited number of people working there.

The figures show that tax expenditures account for approximately 10% of total tax expenditure. Will Mr. Cullen elaborate on that? Is it worth benchmarking internationally? Does the Department already do that and, if so, how do we fare compared with other countries? Is it reasonable to benchmark it and what is the purpose of so doing?

We were informed that tax expenditures post 2014 have sunset clauses. Will Mr. Cullen comment on that and, for example, whether there are different sunset clauses for different expenditures and, if so, why? This is a learning exercise. Sunset clauses did not apply before 2014. Are those tax expenditures under review? I doubt Mr. Cullen will have to hand a list of all tax expenditures still in existence that are not subject to a sunset clause, but he might revert to the committee.

In summary, will the Department provide a list of tax expenditures that are subject to sunset clauses, as of 2014; a list of tax expenditures from before 2014 that are not subject to sunset clauses, because I presume there cannot be any from after 2014 that are not subject to sunset clauses; and a briefing note about the lists? That information in due course would be useful but if Mr. Cullen has any brief comment now, it would be useful.

Mr. Joe Cullen

I will take the last question first. There would be no problem providing a list of tax expenditures that do not have a sunset clause. That would be useful to advance the entire process of looking at tax expenditures.

In terms of international comparisons, to be frank we have not as yet looked at how our tax expenditures compare internationally with other countries. However, we have come a long way in the past ten years from a position where, prior to the work of the Commission on Taxation, nobody would have had a decent handle on the extent of tax expenditures, the various areas where tax expenditures occurred and whether some of those could be considered part of the basic tax system or whether they are more discretionary. In short, there is further work to be done in terms of where we stand internationally. There may well be data readily available in other OECD or EU countries. We can have a look at those data and there would be no problem providing them to the committee alongside the other information.

Deputy John Lahart

I have a final question. Again, I do not need the information now but it is for consideration. One of the areas we were briefed on is film tax relief, on which a considerable amount of tax is foregone. I would like to get some sense of the quid pro quo involved. The relief is intended to be a boon to the film industry and if that is the case, that in turn generates other tax income, for example, VAT, income tax and corporation tax. Has any work been done on the benefits of particular tax reliefs? In other words, are these reliefs paying for themselves? On the one hand, the State is foregoing income by giving a relief, while on the other hand there are 1,000 or 1 million people employed who are paying a certain amount of tax, etc.

Mr. Joe Cullen

In general, in terms of tax reliefs, the periodic reviews we do examine whether a tax relief is still justified, the purpose of it and so on. They tend to be comprehensive reviews that would look at the kind of issues the Deputy mentions.

To follow up on the sunset clause issue, the sunset clause lengths would vary depending on the size or likely size of the relief. That would follow on from the kind of guidelines we have set down in our tax expenditure guidelines. The bigger reliefs might have more of a focus and might be reviewed at more regular intervals than some of the smaller ones. The sunset clause period would take a lead from that. Typically, however, three to five years is a normal period for a sunset clause.

Ms Deirdre Donaghy

The Deputy asked about the film tax credit. A cost-benefit analysis of the film credit was done last year in the run-up to the budget. It was due to be reviewed under the tax expenditure guidelines. That review was published with the budget documentation and it looked at issues such as the cost of the tax credit and also the benefits generated, including taxes from employment, VAT, etc. The methodology will have been set out in the paper. It followed the fairly strict cost-benefit analysis guidelines. With that, there is always a level of judgment as to where a relief should be cut off. In this case, it does not examine trickle down benefits into the wider economy, but it is set out in the cost-benefit analysis that was published.

Deputy John Lahart

Does Ms Donaghy recall what was on the balance sheet?

Ms Deirdre Donaghy

In the case of film, the relief was quite narrowly focused and showed an average cost in 2015 and 2016 of in the region of €50 million. I can find the specific-----

Chairman

Are we talking about the-----

Ms Deirdre Donaghy

The film relief.

Deputy John Lahart

Yes.

Ms Deirdre Donaghy

The purpose of film relief is very much around a cultural test. It is to develop a thriving film industry in Ireland. It is also to support the expression of culture. It is an approved state aid for that reason. It also has benefits that are difficult to quantify in terms of its impact on tourism, which is thought to be reasonably significant. When looking at these things the criteria will set out exactly what has and has not been taken into account.

Deputy John Lahart

What was the expenditure?

Ms Deirdre Donaghy

I believe it came out with an average cost of €56 million over 2015 and 2016.

Deputy John Lahart

Is that each year or in total?

Ms Deirdre Donaghy

The average cost each year for the two years. That is a total of €112 million.

Deputy John Lahart

To be clear, is that the total cost after taking into account the income or is that just the cost of the relief?

Ms Deirdre Donaghy

No. It is probably worth looking at the specific criteria because it starts with the cost of the relief in terms of the tax credit itself.

Deputy John Lahart

How much did that cost?

Ms Deirdre Donaghy

In 2015, it was €50 million and in 2016, it was €81 million. Those are figures that move over time because claims come in. The way the film credit works is that the claims can come for a time after the date. What happens then is one takes those figures and one has to increase that cost by the shadow cost of public funds, which effectively multiplies up the cost.

Deputy John Lahart

Can Ms Donaghy explain the shadow cost? I will conclude then.

Chairman

Briefly because we are doing a session on that area as well.

Ms Deirdre Donaghy

In broad terms, if one forgoes €100 in a tax credit, there is a larger cost because of what else it could have been used for. For that reason, one has to multiply up the cost and then assess the various benefits such as employment generated VAT, spending and so on. They will vary from credit to credit.

Deputy John Lahart

Is it a satellite account?

Ms Deirdre Donaghy

I am not sure what-----

Deputy John Lahart

I will come back to that subject again. I thank the Chairman.

Chairman

Before I call Deputy Boyd Barrett, I want to pick up on one point. When was the work carried out on the film tax relief?

Ms Deirdre Donaghy

Just last year.

Chairman

It would have fed directly into the thinking behind that extension.

Ms Deirdre Donaghy

Yes.

Chairman

It is somewhat surprising that the PBO outlined in a statement that it was extended for four years with no real analysis or costing provided for the extension. Effectively, that is the costing as to what the project did and from what Ms Donaghy has outlined, and the additional figures she gave Deputy Harty, it was a detailed analysis.

Ms Deirdre Donaghy

It is. It was published on budget day so I am not sure about the timing of the PBO's publication.

Chairman

I thank Ms Donaghy for clarifying that for us. It is very useful.

Deputy Richard Boyd Barrett

I might pick up on that point first because I have read the analysis. The Deputy rightly posed significant questions about the film relief and put the caveat that while the section 481 relief should be extended for certainty in the industry, it needs to be monitored and scrutinised. It should be monitored and scrutinised closely. He alluded to the need for that to happen.

Mention was rightly made about training. Beyond having a specific minimum number of trainees per production, the relationship between this significant expenditure and the training, accreditation and qualification of trainees is unclear. I put it to Ms Donaghy, and she might give an opinion, that there is no connection at all because there is no accreditation process or qualification process.

There is no tracking of trainees with the result that we do not know whether they progress from one production to another. Perhaps Ms Donaghy can comment on employment in the same regard. Section 481 requires the provision in exchange for this very significant tax relief of quality employment and training but we, again, have no real tracking of the former. A great deal of dispute arises on estimates of how many jobs the relief is responsible for with figures proposed from 17,000 to practically zero. It is a pretty big spectrum of opinion. There is a significant difference between 17,000 jobs and almost none and we need to get to the bottom of that. It is an actual condition of the relief, after all. Can Ms Donaghy confirm the analysis in the report that the Department has made it somewhat a condition of continuing the relief that these things will be looked at? If so, I agree completely. Does she accept that we do not really have a handle on the extent to which it is contributing to meaningful training connected to career pathways and tracking employment? Even the people who receive the relief have been on television to say nobody expects job security in the film industry. They say things like "You are only as good as your last job." That might be fine for them as they are in receipt of the relief, but for those who work for them and who do not have a job when the production is over or any idea of whether they will be employed on the next one, it is not so good. It does not add up to fulfilling the criterion of quality employment when even the people who are getting the relief describe the employment they give as totally precarious.

Chairman

Can we allow for an answer to all of that?

Deputy Richard Boyd Barrett

Yes, but I ask how we are monitoring that stuff and who is monitoring it exactly. There are a number of different groups involved in this in terms of the application of law, including Revenue, the Department of Finance and the Department of Culture, Heritage and the Gaeltacht. Arguably, the Department of Employment Affairs and Social Protection has a role too. I will finish my question on film on the following point. I asked the Minister directly whether the quality employment and training condition require at a minimum the application of employment law and he said "Yes." However, there are allegations that employment law is not being applied and, in fact, there are WRC rulings against some of the production companies which are getting money where they have been found to have breached the rights of their employees. Nevertheless, they are still getting the relief. How do we police that? Is it right that they should continue to get the money when they have been shown by the WRC to have actually breached the rights of some of their workers? In one case, a company has even refused to pay the fine imposed by the WRC.

Chairman

We are not getting into-----

Deputy Richard Boyd Barrett

That is directly related to the relief.

Chairman

I am conscious of the need to allow the Department to reply unless the Deputy wants to use up all his time on the film industry relief alone.

Ms Deirdre Donaghy

I have a long list to go through. Starting from the most recent, the Deputy raised the issues on all Stages as the Finance Act was going through. The Minister is very conscious that these issues have been raised and he has asked us, as we continue to look at the relief this year, working with Revenue on the regulations and guidance notes that accompany it, to take a look at these issues and see what we can do with that. It has to be accepted that the Department of Finance cannot do the only running on this. When it comes to things like training, the Department cannot set out what the training standards are for the film industry. Having said that, we are more than happy to work with representatives of the industry and, to the extent that there can be any common guidelines with the industry, to build those into the criteria of the relief. The relief is administered primarily by Revenue and the Department of Culture, Heritage and the Gaeltacht. One of the things we did in the Finance Act this year was to split the certification process to require that producer companies come in before main production commences to apply for the culture certificate as part of the application for the relief.

That will allow the Department of Culture, Heritage and the Gaeltacht to interact with the producer companies on the training requirements attached to the relief. It ensures the potential exists for early intervention. The other thing happening is the regional uplift introduced this year that is subject to state-aid approval before it commences. That is very specifically tied to qualifying for the relief around training requirements and it applies only to productions in the regions where it can be shown that there are insufficient numbers of skilled crew members available within a certain vicinity of the location in which the production is taking place. The first requirement is to show the shortage of local skills, the second is to show that costs will be incurred in bringing in people from distant areas and the third is to show that local staff have been trained. We are working on the criteria at the moment and will be specific about what the training of local staff will have to entail. The purpose of the uplift, which is there for a short period, is to develop pools of talent outside the existing hubs. That is tied very specifically to training.

I was asked about the numbers employed and that will have come out of the review. The cost-benefit analysis estimates, based on 2016, that there were 2,158 employees directly engaged on productions supported by section 481. The analysis estimates that a further 902 indirect employments are related to those to give a total of 3,060 full-time equivalents associated with section 481 film-relief projects in 2016. That is based on the criteria set out in the cost-benefit analysis so members can see exactly what was taken into account in arriving at those figures. I am aware of larger figures, one from a report done by Olsberg of the audiovisual sector as a whole, which is a wider sector, including radio, for example.

Deputy Richard Boyd Barrett

And RTÉ.

Ms Deirdre Donaghy

That came to 14,370 but it is a different metric taking in a much wider cohort. Regarding projects supported by section 481 specifically in 2016, the cost-benefit analysis showed approximately 3,060 full-time equivalents. I think I dealt with most things there. If I missed anything, the Deputy might say.

Deputy Richard Boyd Barrett

I have a brief supplementary on those. What Ms Donaghy says is important and confirms some of the things I have asked, as have others, on this. Submissions were made to the arts committee at the beginning of last year where the people in receipt of the relief and who are the main beneficiaries and promoters of continuing it gave evidence to the effect that there were 17,000 jobs. We discover now that it is 3,000. The fact that the Department has the figures indicates that it is being taken seriously, but it is a major issue and I hope it is scrutinised seriously. The report confirms that the shadow or full economic cost of the relief was €315 million between 2015 and 2017. That is nearly €80 million a year. The full economic cost is considerably higher than the nominal figure of the relief and the number of jobs generated is far below the number claimed by those in receipt of it.

Ms Deirdre Donaghy

I do not know the figures to which the Deputy refers and can only say that these are the figures we are able to stand over based on Revenue's records. I do not know what the basis was for the other figure.

Deputy Richard Boyd Barrett

Indeed, but it is a serious matter for us as a scrutiny committee and for the Department.

Chairman

The Deputy has 30 seconds left. I want to allow other Deputies in. The Deputy may come back in. There is no problem with that.

Deputy Richard Boyd Barrett

I definitely want to come back in. One issue I asked the PBO officials earlier, which is more general, was about the fact the estimate for tax expenditure was €5 billion. Even under the corporate tax tables produced by Mr. Seamus Coffey - I think they are taken from Revenue - the allowances and deductions for 2015 are multiples of that. In 2015, there was €66 billion of allowances and €30 billion of deductions. That is €96 billion of allowances and deductions, which is a hell of a lot more than €5 billion. Will the witnesses explain that discrepancy because it seems to me there is a lot more than €5 billion worth of stuff to look into?

Ms Deirdre Donaghy

Without seeing the table, I could not say but if the Deputy wants to show it to me, I can certainly go through it. It very much depends on what is being classed as an expenditure because obviously there is a whole range where one goes from turnover through to deducting costs.

Chairman

I suggest, since the Deputy has reached the end of his first round of questions, we pass it over and when we come back for a second round, Ms Donaghy can give her answer at that point. He can get a more comprehensive answer in one go.

Deputy Richard Boyd Barrett

My notes are scrawled all over it.

Chairman

It would facilitate the Deputy. We will pause there. Deputy Breathnach is next.

Deputy Declan Breathnach

I thank Mr. Cullen for his presentation. My question is general. The purpose of this meeting is scrutiny of tax expenditures. I am interested in having a layman's outline of the process. For example, if we take the help-to-buy incentive scheme, which is clearly a tax expenditure, what is the process from when the plan is hatched through to the development and germination of the idea and the scheme? Who decides what the costings are? It is clear that the witnesses know their business. What happens after the germination of a scheme such as the help-to-buy scheme? What should happen? In which way is the scheme not operating in the way it should? It strikes me that lay people watching proceedings would say if they were budgeting in their households the same way as in this particular tax expenditure, it would be clear that somebody would have to pick up the tab at the end of the day. If we take the help-to-buy scheme, it was estimated it would be €50 million in one year and now we are talking about it being more than €180 million when it closes. Will the witnesses take me through the process from the time somebody comes up with a hare-brained idea to where it is costed and we end up with so many mistakes? What should happen to make sure the mistakes of over-expenditure do not happen in any scheme?

Mr. Joe Cullen

I will take the Deputy through the broad outline of the steps that ought to apply. In the first instance, a market defect or need would need to be identified. In the case of the scheme the Deputy mentioned, at the time it was proposed, there was a perceived lack of activity in the building sector. The scheme was put in place to seek to promote activity in the sector by providing tax relief to first-time buyers. Is there a need? What is the need? Can that need be met through other routes? I mentioned the direct expenditure route in my opening statement. From an official perspective, it has advantages in that it is more transparent and it can be more focused. Our first question is always: can this be done through direct spending? The budgetary process around spending is much more developed than on the tax expenditure side.

That is also true internationally.

Moving on from there, if a need is identified, the question is to devise a scheme that addresses the need in a way that has regard to the scarcity of public funds. While there may not be the type of transparency one would like with regard to tax spending, from the point of view of the internal budgetary process, we are obliged to seek to put a number on the cost of a scheme when it is being introduced. That number finds its way into the budgetary arithmetic and calculations on whether the budget will be balanced in the fiscal space and all that stuff. We always seek to put a number on it, accepting that in some cases it may be very difficult.

I mentioned the KEEP scheme in my opening statement. It was a brand new scheme and it was difficult to identify what the cost would be. In that case, we looked at the cost in the nearest jurisdiction, the UK, which has a similar scheme and scaled it down to arrive at an estimate. It is far from perfect but that is the process. In terms of policy development, we seek to put the parameters of the scheme in place and a number of broad policy controls. The Minister of the day would need to approve the scheme. From there it might be announced as part of a budget or if it is a little later than the budget, as part of the finance Bill. Our Revenue colleagues would then draft the legislation in accordance with the broad policy parameters. From there the scheme would find its way, in the Finance Bill, to the Houses of the Oireachtas where it would be debated and modified if necessary and, ultimately, approved as legislation.

A newer feature in recent years is we seek to time limit schemes. The help-to-buy scheme has a time limit on it. It is due to expire at the end of this year. Ideally, as part of the identification of the need for the measure, we might undertake an ex ante evaluation. While desirable, it may not always be possible. In the case of the help-to-buy scheme, two subsequent reviews were carried out shortly after the incentive was put in place. Once the scheme goes into operation, it is closely monitored. In the case of the KEEP scheme, which came into operation on 1 January 2018, we keep our eyes and ears open. Although no formal data are available yet on the operation of the scheme and the number of claimants, the anecdotal evidence, including that coming through representations, is that the uptake has been lower than anticipated. We are fairly responsive to that. Ideally, if we put a scheme in place, we want it to work efficiently and effectively. If that is not the case, we seek to take steps to make it happen. With KEEP, this year, once we get some formal data from our colleagues in Revenue, we will, with the Minister's approval, undertake a consultation process with stakeholders to find out why it is not working as it should. We made some modifications in the Finance Act 2018 to increase the level of relief available and make the scheme more attractive but we intend to take further steps this year following a consultation process. They are the broad steps we take with any relief.

Once a scheme has met its policy purpose, we would recommend to the Minister that it be potentially wound up.

Dr. Keith Walsh

I want to come in on that matter. The Deputy mentioned the help-to-buy scheme. I have some experience in that regarding which might be of interest because I was involved in the costing of it. As my colleague mentioned, when a new scheme is being introduced, it is difficult to estimate the uptake in the absence of data. For the help-to-buy scheme, Revenue would have looked at our stamp duty data in order to get an idea of how many properties have been built in recent years and the value of same and then tried to make some estimates of how many of those properties within the criteria proposed within the help-to-buy scheme might have qualified and used that past behaviour as a measure to project forward. Even in the absence of detailed forecasts, we can still look at some past behaviour and try to get indicators. The other side of that is that we publish detailed statistics on the help-to-buy scheme on a monthly basis, breaking down the number of applications and claims and the cost of same by value and county. We try to provide as much information as we can after the fact.

Deputy Declan Breathnach

When there is a considerable overrun, as I would anticipate there will be in what it was anticipated to cost versus what it eventually will cost by the time it comes to an end in 2019, where is that accounted for or how is that flagged? If there are overruns to the tune of €15 million, where do we get that information? Does it have to be declared in a budget that there is an overrun and is it flagged for that particular scheme?

Mr. Joe Cullen

The costs are available publicly on the Revenue website. We would provide it through the Minister in response to parliamentary questions or representations. In one sense, therefore, the information is readily and publicly available. That leads onto the next steps and if the proposition that tax spending is the equivalent of direct spending is accepted. This would suggest that over time we should look at developing a more elaborate accounting system for tax expenditures whereby, perhaps on an annual basis, the cost would be set out for all tax expenditures in the same way as direct spending is set out. That would seem to us to be a reasonable development.

Deputy Lisa Chambers

I apologise for missing the presentations. I have read the opening statements. Can the Department provide a collated list of all tax expenditures that include dates by which all tax expenditures must be reviewed and then a list of all tax expenditures that have never been reviewed? Is it possible to provide that information?

Mr. Joe Cullen

It is. Deputy Lahart asked earlier for a list of expenditures with and without sunset clauses. As part of our response, we could certainly add that on.

Deputy Lisa Chambers

That is brilliant. The Department of Finance presents the final cost of individual tax expenditures with the budget when it is all done and dusted and the final amount is known. However, the authorities in countries tend to publish advance estimates of what might be expended in a particular budget year. For example, when budget 2019 was announced, could the Department have published figures on what it expected the tax expenditures to be for this year at the same time? Is that information available? It seems to be available in other countries. What would be the limitations on the Department regarding the provision of that information? If it is possible to do it, why has it not been done to date?

Mr. Joe Cullen

There is no issue in principle with going down that road. There are data gaps and we do not always have up-to-date information. For example, the most recent data on the cost of pension relief was published in 2015. Subject to a number of caveats, I would not see any difficulty in principle with this in the context of preparing the Estimates in the future. The difficulty is that once a figure out there, people tend to remember it, regardless of how-----

Deputy Lisa Chambers

Accurate it is.

Mr. Joe Cullen

-----reliable it is.

Provided there were sufficient caveats and that it was generally accepted that there would not be hard, reliable data in every case, we could go down that route.

Chairman

I want to put a supplementary question to that. Surely that figure must be as it stands with the Department every single time?

Mr. Joe Cullen

The figures do not jump wildly around the place from year to year generally speaking. If we are dealing with estimates from year to year, we would have a sense of what the figures would be but there are question marks and health warnings attached to some figures because they are three or four years out of date or because events may change in the meantime. We would have a sense of it but not a very reliable figure in all cases. The question is what use that information would be put to down the road and any Minister would be reluctant to put out a figure that he or she might subsequently have difficulty in trying to defend because it was a bit flaky in the first place. Those are the practical issues that might apply.

Ms Deirdre Donaghy

I can give a bit more of an explanation as to how certain figures come up that might explain some of the difficulty that would arise in trying to do that. Income tax is the easiest context in which to give an example; in order to cost any measure that is proposed for any given year, Revenue does a lot of work to construct a base for it and in general that is based on tax returns, which is the best data that can be had because it is population data for the country. Tax returns are filed after the fact, however, so they are always a year or so behind. For example, for 2019 there will be a 2016 base. That means that data from 2016 will be used to give comparative full population data for 2019 and that data is then grown up to reflect the 2019 tax base by applying macros to account for increases in employment and income and then that is used to try to estimate the cost of measures. The difficulty with that is that a lot of assumptions are being used and that is the only way it can be done because I cannot tell the committee today exactly what will happen tomorrow; I can only estimate it and it takes an awful lot of work to do those estimates. The question is whether that is the best use of time or whether we would be better served doing something like a cost benefit analysis where we can look at what has actually happened, albeit that is what actually happened last year, and then use that to make the policy decisions going forward. That might explain the technical difficulties that would be involved in trying to project what we expect the costs of any particular tax measure for next year to be.

Deputy Jonathan O'Brien

I apologise because I had to step out of the meeting so if I ask a question that has already been asked, please tell me and we will move on and I can get the answer from the transcripts later.

Take me through the process. The witnesses referred to the relief that was introduced this year for landlords - is that classed as a tax expenditure? Take me through how we even come to that stage initially. Who decides that there needs to be a change? What data is used? In the PBO documentation we have a graph that was taken from the Commission on Taxation report 2019 which talks about the pathway to introducing a tax expenditure and states the first step is that a policy analysis is done. Who decides on a tax expenditure being introduced? Is there a group of officials in a bunker somewhere or would a group lobby the Department? How exactly does it work or how is it kicked off?

Mr. Joe Cullen

Deputy Breathnach raised a similar question on that point in terms of identifying the need for a tax expenditure.

There would be some analysis as to whether tax spending is the best way to address a particular problem or whether it could be done through direct spending as an alternative.

The Deputy mentioned the budget measure to accelerate the return to 100% interest relief for landlords in respect of expenses on loans for the purchase and improvement of premises. There would be a question mark over whether that would be regarded as a tax expenditure or part of a benchmark. On the corporation tax side, it would be normal practice when dealing with company expenses.

This comes back to the €66 billion the Deputy mentioned earlier. Individuals or companies often need to spend money to earn a profit or an income. The interest a person would pay on a loan to purchase a property to be rented out as a business could legitimately be seen as a normal part of business expenses. That would have been the case with that particular relief up to the financial crisis. It was scaled back at that point as a revenue-raising measure, but arguably it could be seen as part of the benchmark system. It is a matter for discussion as to how one wants to view it. The policy decision had already been taken to restore the relief to 100%. The only step being taken in budget 2019 was to accelerate that and bring it forward to 2019 rather than 2020-21. As I say, arguably that would be seen as part of expenditure.

Deputy Jonathan O'Brien

Would that have been a decision of the Minister? Does it get recommended to him?

Mr. Joe Cullen

The genesis of that proposal was that it featured as one of ten options in the report of the tax and fiscal treatment of landlords, a report prepared in 2017 by an interdepartmental group chaired by our Department. It set out ten options: five short term, two or three medium term, and two long term. They were presented as options. That was one of the short-term measures that had been identified. That is how that particular-----

Deputy Jonathan O'Brien

It was pitched to us as a measure to try to encourage individual smaller landlords rather than landlords with multiple properties to stay in the market. I presume that would have been the basis of the policy decision at that time. Mr. Cullen said that the Department moved to the initial design, the impact analysis and all that. On that point, was any analysis done on how effective it would be and if it would keep individual landlords in the market?

Mr. Joe Cullen

Those preparing the report I mentioned on the tax and fiscal treatment of landlords would have carried out a certain amount of assessment and analysis in 2017. That would have formed the basis of the analysis for the measure. Arguably it was not a new policy move in 2018; it was simply the acceleration of a policy decision that had been taken earlier to restore it to 100% relief.

Deputy Jonathan O'Brien

Is it considered a tax expenditure or is it considered as part of the tax benchmarking?

Mr. Joe Cullen

I would not personally regard it as a tax expenditure. I would regard it as part of the benchmark system on the basis that it is a legitimate expense associated with earning an income.

Deputy Jonathan O'Brien

Does Revenue share that view?

Dr. Keith Walsh

Revenue does not take a view on whether something is part of the benchmark. We see our role as trying to gather the information, the numbers availing, the implications and the cost. We publish a very broad list of what we call "tax expenditures" but we do not define that relative to a benchmark.

Deputy Richard Boyd Barrett

Is that this list?

Dr. Keith Walsh

Yes.

Deputy Jonathan O'Brien

In relation to various methods, I note that everyone uses the initial revenue foregone method. I will ask a question I put to the Parliamentary Budget Office, PBO, before the witnesses came in. The second method in the PBO paper was the revenue forgone method, which looks at behavioural analysis. There is a difficulty around trying to cost that. The PBO said that other countries look at individual tax expenditures and it could carry out a detailed analysis for an individual tax expenditure. Do we do that for any individual tax expenditures or do we evaluate only the initial revenue forgone? Do we not carry out any further detailed analysis on particular expenditures?

Mr. Joe Cullen

Internationally, we are not unusual in relying almost entirely on the revenue forgone method at the moment. If other countries have developed a methodology that allows them to efficiently take other data on board, that is something we could certainly look at. However, all the evidence so far is that the revenue forgone method is by far the most common method used internationally.

Deputy Jonathan O'Brien

I agree with that, as did the PBO. However, its representatives stated that there may be individual tax expenditures for which the final revenue forgone could be estimated. I was just wondering if we did that with any of our tax expenditures. We do not do so.

Mr. Joe Cullen

No, but again we are always open to new learning on this. We review various measures and as part of those reviews, we engage in consultation with beneficiaries and stakeholders. There is no reason we could not inquire about that particular avenue as well.

Ms Deirdre Donaghy

It is difficult to do ex post analysis beforehand. The reviews that are done during the life of a tax expenditure tend to look at a broader scope. For example, the film relief review which we have already referenced was a cost-benefit analysis. It looked at the wider costs associated with the relief. That is probably closer to that final revenue forgone metric.

When costing a new measure the difference between initial revenue forgone and other metrics is looking at things like behavioural impacts. When bringing in an entirely new measure we have to take into account a certain level of behavioural impact. Otherwise costs will always be nil because the measure did not exist before. One has to assume that whatever the relief or incentive, some people will take it up. Therefore, one has to assume a certain level of behavioural response and try to bring it in.

When it comes to the wider behavioural responses, if we were to start looking at those methods of costing, it would be very important to be clear on how we would go about doing that and what we would take into account. For example, I am reliably informed that every tax relief suggested to me will cost nothing and that whatever we forgo in corporation tax, we will gain in pay as you earn, PAYE, receipts from increased employment or value added tax, VAT, from increased transactions. Incorporating those factors can provide ways of saying that a measure does not have a cost. As such, there are many reasons the initial revenue forgone method has its own benefits. That is the reason it is the most widely used method.

Chairman

May I just ask-----

Deputy Jonathan O'Brien

Yes, of course.

Chairman

Do I take it, from what Ms Donaghy said, that it is like the old argument about GDP, that revenue forgone is the internationally accepted norm and standard and that any other way of doing this then becomes highly subjective as to the information on which one relies to make one's analysis - in other words, that the only real bog-standard, acceptable, across-the-board way to keep the comparison standard between most countries is revenue forgone?

Ms Deirdre Donaghy

I would not be a million miles away from saying that. It is just that if one tries to go down the road of bringing in behavioural impacts, it is very difficult to draw a line as to where one stops, bearing in mind also that they are very difficult to forecast in the first place.

Mr. Joe Cullen

As a general point, the other issue is that the revenue forgone method is, as Ms Donaghy says, a very straightforward method, but oftentimes there can be equity considerations that need to be taken into account as well. This comes back to the idea of whether one would decide to go the direct spending route, which is targeted and transparent, or the tax expenditures route, in respect of which the information may not be as readily available and therefore as transparent. As part of the analysis carried out when putting in place a review, we would certainly take account of equity issues in that if one gives a tax relief to a particular class of taxpayer, it is at the expense of tax being paid by other taxpayers. It may also involve an equity argument in that only those who pay tax may benefit whereas those lower down the income spectrum do not get any benefit. Although these issues may be a little theoretical, they do feature in the kind of analysis we do in putting forward proposals to Ministers.

Chairman

I am sorry for interrupting the Deputy.

Deputy Jonathan O'Brien

I am glad the Chairman made that point because, obviously, if we give a tax expenditure to a certain cohort of people, everyone pays for it. This brings me to the 2016 report by Revenue's statistics and economic research branch. I refer to the analysis in 2016 of high-income individuals' restriction, in which it is explained that measures were introduced to cut back on some of the reliefs and exemptions previously enjoyed by people earning in excess of €250,000. The expenditure measures in 2016 cost €150 million for 1% of the population. Are these the most up-to-date data we have or do we have any further data? I would be interested to know what the figure was for last year, for example.

Dr. Keith Walsh

No, 2016 is the most recent year for which we have the data. It might be useful to explain the timing and why we do not have, say, data for 2017 at present because it does affect a number of other tax expenditures on which we would ideally like to be able to report. Essentially, this comes back to the timing of tax returns and tax payments. Again taking 2017 as an example, businesses registered for income tax would usually pay their tax during 2017 on a preliminary basis for that year but they do not actually file their returns for 2017 until nine or ten months after the year ends. Therefore, the income tax returns for 2017 were being filed in the final quarter of 2018 of last year. We then have to process those data. There can be late returns, people who do not file on time for various reasons and paper filers still, so we must go through quite a process to get those data together. It will therefore probably be the second quarter of this year when we have the data ready and can do the analysis for 2017. Ultimately, however, it comes back to when the tax returns are filed. It is the tax returns that have all the detailed information. Sometimes we will get payments in on a real-time basis during the year but it is only when we get the tax returns in that we are given the details of the incomes, the profits of the business or the individuals and the various reliefs and exemptions they have used and we understand their full positions. That is why we need the full tax return.

Deputy Jonathan O'Brien

I was looking at this report, which gives a list of all the reliefs and the amount for each relief being claimed. By far the biggest one was reference No. 47, carry forward of excess relief.

It was claimed by 346 individuals-----

Chairman

The Deputy has just under a minute left.

Deputy Jonathan O'Brien

-----and, of the €149 million, cost us in excess of €97 million. It seems a pretty high figure. Will the witnesses give me a brief explanation of what is meant by "carry forward of excess relief"? If one does not use up all one's relief in one year, does it carry forward to the next year and can one keep doing so? It is in this report, Analysis of High Income Individuals' Restriction 2016.

Dr. Keith Walsh

Unfortunately, I am not an expert in the high earners' restriction and do not have the report with me at the moment. The high earners' restriction is designed to restrict, as the name suggests, the use of reliefs and in some ways ensure that certain categories of taxpayer pay a certain effective rate. We do give analysis to show how the report is effective. I know there is a mechanism there for carry forward but I am just not familiar with the details of it.

Chairman

Can the witnesses get that additional information for the Deputy and the committee?

Deputy Jonathan O'Brien

Yes, they might get that to me in a note. A total of 665 people are classed as high-income individuals, earning in excess of €250,000. Their total claim in tax expenditure is €150 million. I do not know where the equity is in that when one sees people like nurses or teachers being absolutely screwed, and then they look at this cohort of people being able to claim €150 million in tax expenditures and reliefs. Some of them are mad, like stud fees, greyhound fees, greyhound reliefs. It is crazy stuff.

Chairman

We are reaching the end of the Deputy's time for his first round. Could the witnesses reply to the Deputy, please?

Mr. Joe Cullen

The reliefs the Deputy mentioned just before finishing no longer apply, but the way in which they were designed allowed carry forward from year to year, and there are still legacy costs associated with them. It is from some of the lessons we learned from the experience of some of the reliefs the Deputy mentioned that we now have a set of tax expenditure guidelines with very clear principles and a very clear framework as to the steps and measures that should apply. As we go forward I do not think we will see the type of arrangement that existed ten years ago or more, but there are legacy features of those reliefs which continue to apply even today. This is a learning process and we continue to improve each year as we move forward.

Chairman

We will go back to where we left Deputy Boyd Barrett, at the end of his first set of questions. We will start, if Ms Donaghy is willing, with an answer from her.

Ms Deirdre Donaghy

No problem. The question concerned the deductions taken to arrive at corporation tax that are not part of the tax expenditures total amount. Based on the figures he had, essentially, they are all items that are considered part of the benchmark as opposed to a tax expenditure. To go through them, based on what is here, they include things like capital allowances, trading losses carried forward, group relief and double tax relief for tax paid in other jurisdictions. Then one gets down to what are considered to be tax expenditures. There is the research and development, R&D, tax credit and the film credit. It is just a difference between what is and is not considered to be part of the benchmark. One example, and it is one of the larger ones, is capital allowances.

I will explain the reason they are considered part of the benchmark system as opposed to a tax expenditure. If a farmer buys a tractor, that is for his business. The purchase of a software licence by a small retailer to run his or her stock control is a business expense if it is part of the business. It is not a tax relief; it is merely an expense of doing business. Scaling that up, if one has a massive factory, the fit-out of the plant and machinery, likewise, qualifies for allowances, or if one has a licence for intellectual property, that comes under capital allowances. They are not regarded as a tax expenditure under that definition because they are considered to be a cost of business and part of the benchmark system. The fact that they are not classified as a tax expenditure does not mean we ignore them. We are very much conscious that they are there. It does not mean they get any less attention. We just do not call them a tax.

Deputy Richard Boyd Barrett

There is a disjunction between the way Ms Donaghy's description and the Revenue document, to which I referred, which lists all these various reliefs, expenditures and credits. We all need to sing from the same hymn sheet. If different people are defining items in different ways, it is hard to get a grip on it. I should have said initially that I commend the witnesses on doing all this work. There is significant detail in the analysis they did of the reliefs. Revenue has to do considerable work to compile all this but the witnesses will appreciate it is difficult for us to make head or tail of it if there are different definitions.

Without asking the witnesses to make political judgments on these matters, would it be fair to say that it is open to political discussion as to whether some of these items should be classed as expenditures? For example, I presume a company can write off the cost of purchasing a large number of company cars for its employees but a PAYE worker cannot submit a claim for tax relief on the basis they have bought a car as a means by which to get to work. The owners of that business get a tax benefit that ordinary workers do not get and one could argue that the worker should get that tax relief. There is much to be debated. Is that not a fair comment?

Ms Deirdre Donaghy

It is-----

Chairman

Yes, absolutely. I call the witnesses to reply, and I am sure the Deputy wants them to do so.

Mr. Joe Cullen

I made the point in our opening statement that there are differences the information Revenue presents on its website and that information has been presented over a long number of years in pretty much the same format. It was not intended to be a policy interpretation of whether the particular items are tax expenditures of benchmark items; it is simply a list. There would be benefit in an exercise that would seek to identify and get agreement on what is the benchmark for a period of, say, one year, three years or five years. That could then be reviewed periodically and that may well change as circumstances change. I have no problem with the proposition that there ought to be a benchmark list of expenditures that would be taken for the time being as part of the system.

Deputy Richard Boyd Barrett

Would it be fair to say that under those headings one can have items that might have been considered okay as benchmark items but suddenly they are not considered okay because somebody is doing something under that particular heading? Most notably, I point to intangible assets where suddenly they were purchased by one part of a multinational by another part of its operations and then there was a major ballooning of that tax relief.

Mr. Joe Cullen

Our job is to provide the analysis and then others may decide ultimately on where they get placed if there was to be a formalised benchmark system.

Ms Deirdre Donaghy

It is probably less important that we decide whether we call it benchmark or expenditure and more important that the information be gathered, made available and discussed for policy reasons. One of the improvements made in recent years is that much more information is being published and put into the public domain. It is more important that we keep doing that and that we agree between ourselves, to the extent we can do so, to be more consistent in our terminology but the last thing we want to do is suddenly decide we will only report on some kind of commonly agreed idea of what the benchmark is. It is best we try to keep producing as much as we can and then try to be more consistent on naming among ourselves.

Deputy Richard Boyd Barrett

Regarding a general comment Mr. Cullen made, if I understood him correctly, did he go as far as to say he prefers or that it is easier and more transparent to have direct expenditures rather than tax expenditures, or that at least we need to compare rigorously one versus the other to establish that?

Mr. Joe Cullen

The first question that ought to be asked is: can one do this? Does one need a tax expenditure in the first place or can one do it by other means? That is one of the preliminary questions that ought to be asked and would seem to make common sense.

Deputy Richard Boyd Barrett

Is the tax relief on research and development an example of that? It benefits a small number of large multinational corporations which are making enough money. The comparison would be to ask what would happen if there was not this review and instead we gave the amount to the universities. Is that the type of scenario to which Mr. Cullen is referring?

Mr. Joe Cullen

There may be other issues at play as well. We operate in an internationally competitive environment. If we take the employment investment incentive, EII, scheme, the reality is that most European member states have a similar scheme and internationally other countries outside the EU also have a similar scheme. We need to have a system in place that is at least broadly competitive and comparable with what other countries might be offering.

Deputy Richard Boyd Barrett

To return to the issue of film relief, who exactly is policing compliance with the conditions in section 481 relief in terms of quality employment and training? Given the various issues that have arisen and the analysis and information the Department has gathered, is it a fair comment that the witnesses have concerns about this relief and what it is or is not producing in terms of those criteria which are attached to that relief? Would Mr. Cullen go so far as to say that? I do not know where the line is between policy-----

Chairman

There is a line between policy and analysis.

Deputy Richard Boyd Barrett

I know.

Chairman

It is unfair to push officials into an area on which they cannot give an answer.

Deputy Richard Boyd Barrett

That is why I said that but it seems the analysis is indicating that. Is it now the disposition of the Department that there are big questions in this respect that need to be seriously examined and that there are not even clear criteria as to what is quality employment and training and that needs to be examined? Are the figures we are getting from the beneficiaries of this relief accurate? Is their analysis of the sector and the benefits of this relief accurate, and how do we judge that? Does Mr. Cullen get my point?

Does Mr. Cullen consider it a serious matter? Who would act on it if somebody was breaching employment legislation with this money? Is it fair to say it would be a cut and dried breach of the conditions if somebody had been shown, for example, by the State industrial machinery legislation to have breached a worker's rights?

They clearly have not given him or her quality employment and training. What are the consequences, if any?

Chairman

That is similar to what the Deputy covered earlier. I ask him to conclude now.

Deputy Richard Boyd Barrett

Who decides the consequences?

Ms Deirdre Donaghy

It goes back to some of the points I made earlier. We have to work with the audiovisual industry itself to work through these issues. It is not possible for the Department of Finance to define appropriate training and so on. We need to work with the sector to identify what it can do and then we can build conditions around that.

Any breaches in employment law are a matter for the courts and the Workplace Relations Commission. Who polices the criteria? The Revenue Commissioners are responsible for operating the tax system. It is down to us to give them criteria that they can effectively follow up on. There is no point in us putting something in if it is not operable in practice. That is where we need input from the sector to help us to design something that is operable and capable of being policed and tracked. From our point of view, given that it is a tax credit, the ultimate sanction we have is withdrawal of the credit. The much more important sanctions for anyone breaking employment law would be through the courts and through the appropriate channels for that.

This is something we have to do with those in the sector. We can work with them. As I am sure the Deputy will be aware, with any issue that comes in, we are made aware of issues and then we get information from all sides involved in those issues. We then have to try to pick through it and reach conclusions. With something like this, we have to get constructive involvement from the sector. We are trying to do that through working with Screen Training Ireland, the new training forums that have been set up and through meeting representatives of the sector to hear what people are saying and look at what is being done in other jurisdictions on training, tracking of trainees and so on. We try to learn from those practices to see what we can do to improve the credit and make it more feasible for Revenue to enforce whatever conditions we can attach to it.

Deputy Jonathan O'Brien

I refer back to the landlord relief. It is 100% relief for the purchase or refurbishment of a property.

Mr. Joe Cullen

It is for loans taken out or for expenses in connection with-----

Deputy Jonathan O'Brien

It is only on loans.

Mr. Joe Cullen

Yes. It is the interest on a loan to purchase and improve.

Earlier Deputy Lahart asked for the comparison of tax expenditures in Ireland with other countries. I temper expectations on the information we can provide in that regard. Because different countries use different systems with different benchmarks, it may be difficult to get a meaningful comparable figure for what countries spend on tax expenditures. I am not saying it cannot be done; it may be possible to take a selection of expenditures and compare them internationally. It may not be possible to come with an overall figure that would be meaningful. I put in that caveat at this stage, but we will do our best.

Chairman

We acknowledge that.

I thank all the witnesses for their presentations to the committee and for their answers. I know considerable work went into them, which we appreciate. This is a new area for our committee and we hope to do a lot of work on it.

The select committee adjourned at 6.20 p.m. until 4 p.m. on Tuesday, 5 February 2019.