Finance Bill, 1981: Report Stage (Resumed) and Final Stage.

Debate resumed on amendment No. 16:
In pages 30 and 31 to delete lines 31 to 47 and 1 to 21 respectively.—(Deputy Bruton).

This amendment is designed to remove from the Finance Bill the authorisation for an increase in the so-called motor registration fee, which is in fact motor taxation. Normally the process is that a fee charged by the State covers the cost of administration of a particular service provided by the scheme. If that were the position in respect of motor registration one could accept that it be regarded as a fee, but in this case the revenue to be derived from this so-called fee is £13 million whereas the cost of administering motor registration amounts to no more than £2 million, thereby giving the State a profit of £11 million or more than five times the cost of the service. Therefore, what we are talking about is motor taxation and not a fee. The Government were elected to office in 1977 on the basis of a number of promises and now that this Dáil is meeting this afternoon for what may be the last time——

We have heard that before.

——we can say that one of the most notorious of these promises was the one to abolish motor tax. It is to expose the fraud that lies at the heart of the strategy which resulted in Fianna Fáil's majority in 1977 that I am putting forward this amendment. I wish to demonstrate that what we have here is motor taxation that was introduced by a Fianna Fáil Minister for Finance who is sitting in his seat on the basis of a promise made by his party to abolish such taxation. This taxation is imposed on the motorists about whom Fianna Fáil were so concerned in 1977 and when, in the same Finance Bill, they were increasing dramatically the price of petrol, a commodity that is a necessity for anyone who has a car. The truth must be told about what is really happening and it is to expose that truth that I have moved the amendment.

I wish to endorse what has been said by Deputy Bruton and to say that the crawling back by the Government on the promise to abolish motor taxation should be exposed for what it is. It is nothing short of reprehensible. To refer to the tax being imposed as a registration fee is to treat the people with contempt, to have no regard for their intelligence. What we are talking about is a tax imposition with a net gain to the Exchequer of £11 million out of a total income of £13 million. This point has not been lost on the electorate. That is why there is so much dithering on the part of the Taoiseach and his Government about when they should go to the country.

I recall distinctly that on the night of the budget, when the Minister went on television to justify his actions, the Taoiseach was in this House dealing with the duty imposition on oil. In regard to this taxation on cars he said that the amount that would accrue to the Exchequer would be £13 million gross. He made the point that, had the old taxation system in existence until 1977 been allowed to continue, motorists would be paying in the region of £57 million, not £13 million. However, the Taoiseach did not point out that since 1977 the imposition of oil duty on motorists has come to a massive £50 million. When that is added to the £13 million the total is £63 million, which is the amount motorists have to pay, not £57 million which would have been the amount had the tax been left as it was. Motorists are worse off now than they were in 1977 and they know it.

There is no point in the Minister or the Government saying that the abolition of road tax was carried out in order to help motorists. The burden has been put on them to an even greater extent and it has been done in a most furtive way. However, motorists are well aware of what has happened. The call by Deputy Bruton to delete this provision is merely asking the Government to do what they promised in 1977. Incidentally, that promise gained for them many thousands of votes. However, the people are waiting to give their verdict and they will give it with a vengeance. I am not the only one saying this. Polls have been carried out by independent agencies and this fact has emerged. This promise made by Fianna Fáil is being treated with cynicism by those to whom it was directed. They have been fooled, and they know it. Even though there may be delay in decision-making upstairs, the people's minds will not be changed on this matter. They are waiting for the opportunity to give their verdict and this is one of the factors on which they will make their decision when the time comes.

There is no difference in the arguments put forward now by Deputies opposite than those put forward on Committee Stage. They are trying to create a false impression that this is anything other than an increase in the registration fee. It is an increase in the registration fee. I endorse what the Taoiseach said when the budget was introduced, that the income will be in the region of £13 million. In addition, I wish to state that, if the same rate of tax existed now as was the case until 1977, they would bring in approximately £40 million and, if the rates were increased in line with the figures suggested by Deputy O'Toole, the amount would be greater. He said the amount would be £57 million, but my figure is approximately £65 million. Despite the efforts of the Opposition to put a different construction on this matter, the people are well aware of the situation.

The Taoiseach said £57 million.

I know what the people will decide if and when the time comes.

Did the Minister use the word "if"?

The only people talking about an election are the Deputies opposite.

Are Fianna Fáil going to abolish elections also?

We have had enough talk about an election. We are dealing with the Finance Bill, not a possible election.

I was interested in Deputy O'Toole's enthusiasm for a majority. He knows full well that for many moons he will enjoy that lone seat in Mayo East and he has it so arranged.

Deputy O'Toole should not try to distort what is being proposed by the Government. From listening to his contribution it appears he would like motorists to be liable for a further £44 million——

I do not know how the Deputy can interpret that from my speech. It is a typical Fianna Fáil effort to twist what has been said.

That was the implication in what the Deputy said.

My point is that the cost of motor registration is £2 million and the fee is £13 million, a difference of £11 million. That is £11 million of motor taxation. Fianna Fáil promised to abolish motor taxation but they are reintroducing it. The Minister in his contribution did not deny any of the basic facts I put forward. He did not say anything that deserves a reply.

Amendment put and declared lost.

I move amendment No. 17:

In page 31, between lines 25 and 26, to insert the following:

"40.—Value-Added Tax shall be charged, levied and paid on furniture and carpets, manufactured in the State, as if these goods were imported goods to which section 15 of the Value-Added Tax Act, 1972 applies".

This concerns a problem that is particularly serious in my constituency. Apart from the income derived from mining, the town of Navan gets much of its economic sustenance from the furniture and carpet industries, what might broadly be described as the furnishings industry. The goods in these categories are very expensive and they tend to remain in stock for quite some time in retail outlets before they are sold. A difference in the method of calculating value-added tax — for instance, with regard to the collection date — between imported goods in this category and domestically-produced goods means that the latter are at a disadvantage. As I understand it, the position is that in respect of imported furniture and carpets VAT is not charged and due to be paid until the goods are sold at retail level to the consumer.

On the other hand, in the case of Irish produced carpets and furniture, value-added tax falls due at the time they leave the factory to go to the shops. As I have indicated, the delay between the time an item of furniture goes to the shop and when it is actually sold to the consumer could be anything up to five or six months because, being a high value product, it tends to remain in stock for quite some time.

The traders who are selling these goods to the consumer usually hold their stocks on the basis of borrowed money upon which they are paying interest. It is borrowed money which enables them to finance the holding of stock from the time it arrives at the shop until it is sold to the consumer. In the case of furniture and furnishings that may be six months. Interest rates being what they are, the cost involved could be anything up to 7 or 8 per cent of the cost of the item, that is, the interest alone involved in simply holding the item in stock for half a year.

If they have to pay value-added tax on imported goods but not until the item is sold to the consumer, they make a considerable saving because that money does not fall due until much later, and no money has to be borrowed to finance the VAT payment until after the item is sold. Conversely, an item sold to them by an Irish manufacturer includes VAT and, therefore, at the time the item comes into their shop they have to borrow money to pay the VAT straight away. There can be a difference of up to six months in the payment date for value-added tax between imported and domestically produced products to the disadvantage of domestically produced products.

This might not be a very significant matter if furniture and furnishing bore a relatively low level of VAT, or even a modest level of VAT such as the 10 per cent rate. The amount of additional money which would have to be borrowed for six months would constitute only 10 per cent of the value of the product. Furniture and furnishings bear the maximum 25 per cent of the value of the product rate of value-added tax. In the case of Irish produced products, retailers have to borrow money to the extent of 25 per cent of the value of the product for six months, assuming there is a delay of six months between arrival at the retail outlet and sale. That may not always be the case. The average period may be less than that. That is an extreme situation which can occur.

The argument has been put very strongly to me by people in the furniture industry in particular and the carpet industry in Meath. They feel that, because of the way the tax code operates at the moment, it puts them at a disadvantage as against foreign competition in imported furniture and furnishings. As the Minister is aware, we are having increasing problems with the penetration of our market by imported furniture and furnishings. The furniture manufacturers in Navan and elsewhere in Meath have asked me to raise this matter in the Dáil, which I am now doing.

I hope the Minister will see his way to making some concession on this issue. The amendment I am proposing is to the effect that VAT will not fall to be paid on furniture and furnishings until such time as the items are actually sold to the consumer in all cases, both in the case of domestically produced furniture and furnishings and imported furniture and furnishings, so that there will be no disadvantage resting upon Irish producers of carpets and furniture. I hope the Minister will be able to accept this amendment.

With regard to what Deputy Bruton had to say on this amendment and on Committee Stage when he introduced this subject, my preference, which is well known, would be to ensure that the domestically manufactured product is favoured in every possible way. Here we are dealing with the choice which is open to a person between importing and purchasing from a domestic manufacturer and whether or not the VAT system favours one above the other.

In either event VAT on the eventual retail sale will arise and be paid at precisely the same time, namely, at the end of the accounting period during which the sale occurred. I accept that is not Deputy Bruton's point but I want to start from that base. Regarding VAT on purchases by retailers in the case of imports, in practice the retailer pays and reclaims VAT simultaneously at the end of the accounting period in which the import is made. In the case of domestic purchases the retailer claims a VAT refund also at the end of the accounting period in which the goods are invoiced to him, and pays VAT to the manufacturer or wholesaler when the invoice falls due.

Thus the question of a VAT incentive or disincentive to purchase domestically hinges on whether the period of trade credit offered by the domestic manufacturer or wholesaler exceeds the 50 days average time lag between invoice and receipt of VAT credit from the Revenue authorities. In practice, it appears that the relevant period of credit in general is more than 50 days, thus implying that there would be a marginal VAT advantage from the domestic purchase. In other words, the indications we have are that the margin would be in favour of the domestic purchaser rather than what is being alleged by Deputy Bruton. I say "marginal" because we are talking about a very marginal situation. In all the circumstances I am satisfied from an examination of the matter that the present arrangements remain appropriate and accordingly I do not believe the amendment proposed by Deputy Bruton is necessary.

I am sorry that because of the structure of this debate it is not possible for me to question the Minister about some of the things he said. It is only by questioning him that one could arrive at a true understanding of the position. I understand the Minister said that the money must be paid at a date following the end of the accounting period during which the sale was made. The relevant question is: which sale? Is it the sale to the retailer or the sale by the retailer? My understanding from the manufacturers to whom I have spoken is that, in the case of imported furniture, the relevant date of sale is the date of sale of the item to the consumer, whereas in the case of domestic producers the relevant date of sale is the date of sale to the retailer. That is my understanding. I do not know if the Minister will contradict that. Perhaps he will.

Therefore the position is that it is possible that in respect of two consignments of furniture, both arriving on the same day in a retailer's store, both of them sold six months later — in view of the fact that the accounting period for value-added tax is a two month period — the payment on the domestically-produced furniture would fall due in the first two-month period whereas the payment on the imported item would not fall due until the next payment period but one. That is my understanding of the position. Although the Minister did not specifically deny what I have said he seemed to suggest that I was interpreting the results incorrectly. Unfortunately I cannot question him on that to establish exactly what he meant by what he said. But that is my understanding of the situation and I am putting it on the record.

Secondly, there is the fact that in order to obtain what the Minister describes as a marginal advantage to the domestic producer as far as value-added tax is concerned, the domestic producer has to give a credit period of more than 50 days. I am not aware of what is the normal credit period in this situation. But if, in order to prevent themselves being placed at a disadvantage as far as the retailer is concerned domestic producers of furniture have to give longer credit periods than they would otherwise give, or than competing imported producers have to give to put themselves in the same position, then that is just as much a disadvantage to the domestic producer. If the domestic producer, as a continuing practice, has to give a longer credit period than the importer — by virtue of the operation of the value-added tax system — then, of course, that additional interest payment which has to be met by the domestic producer will be reflected in the price of his product because he must build the extra interest into the price he charges. Consequently his product will be artificially dearer than the imported one by virtue of the operation of the value-added system if value-added tax forces him into giving a longer credit period — in order to attain the situation the Minister says is advantageous — than he would otherwise give or than an importer would give.

Unfortunately I am unable to question the Minister about the situation. It is a pity I am not able to do so because we would perhaps be able to tease this out and reach a better understanding on both sides of the House of what is exactly the situation. That is not possible at this stage but I have availed of the opportunity to make the case on behalf of the manufacturers in my constituency. I hope an opportunity will present itself in the not too distant future to put this matter right.

May I make a point, Sir?

No, Minister, if I let you make a point we will get into a debate on it. The discussion has been concluded.

Of course, had the Deputy put down an amendment on Committee Stage he would have had no problem with this, but this belated——

I raised the matter on Committee Stage but the Minister was unable to answer me.

The Deputy should have put down an amendment.

That does not matter. The Minister should be sufficiently familiar with the legislation without an amendment being put down.

In fact the Deputy is all wrong because in any legislation——

Both the Minister and the Deputy are wrong at present because they are entering into a debate on something that has been concluded. Is the amendment withdrawn?

No, Sir.

Amendment put and declared lost.

I move amendment No. 18:

In page 32, between lines 26 and 27, to insert the following:

"43. —The Second Schedule to the Principal Act is hereby amended by the insertion of a new paragraph as follows:

`(xxi) hay and silage making'.".

This amendment is concerned with the position of farmers who are unable to get contracting services. Since the making of silage has become common it has become very necessary to be able to obtain the services of a contractor exactly at the right time that the grass is ready so that good silage will be made. If, at the time that the grass is just turning and starting to run into seed, one is not able to get the contractor, a week or two passes and the silage is not cut, a lot of the goodness in the grass goes up into the seed and the silage subsequently made is not as nutritious or digestible for the animals. This timing in regard to the making of silage, getting it cut at the right time, can make all the difference between a profitable and unprofitable season for the farmer. All of the advice being given at present suggests that this is so.

Therefore the position is quite serious if there is any evidence that the availability of contracting services to farmers at the right time, in sufficient quantity, is in any sense diminished. Suggestions have been made to me that because of the operation of the 10 per cent value-added tax on the services provided by contractors, and the serious bookkeeping requirements this imposes on them, many people who were in the business of providing contracting services to neighbouring farmers have ceased to do so. This has meant that many farmers simply cannot get their silage or hay cut at the time they want it. It has been suggested to me that one way of alleviating this situation would be to provide that hay and silage contracting services should bear the lower 3 per cent rate of value-added tax which already applies to the building and construction industry and the services provided in that industry.

That is the purpose of my amendment. I hope that, as a result of doing so, the serious problem of the availability of contracting services will be sympathetically investigated by the Minister, that he will see his way either to accepting this amendment or making some similar provision that will assist in the maintenance and increased provision of contracting services in rural Ireland.

Hay and silage-making services provided by agricultural contractors who are registered for value-added tax purposes are liable at the lower rate of VAT, namely, 10 per cent. However, any such VAT paid by unregistered farmers is covered by the flat rate VAT rebate of 1 per cent while registered farmers may reclaim such VAT in the normal way as VAT paid on the service required as part of their business. Furthermore, hay and silage-making services provided by very small contractors, or by farmers using their own machinery, who do not have to register for VAT purposes, are of course VAT-free. I should say — and the Deputy well knows — that hay and silage making is just one of the many services now provided by agricultural contractors.

In addition to the quite favourable VAT position I have just outlined, building, drainage and reclamation services provided by registered contractors are all regarded as being liable to the special low building rate of VAT, that is 3 per cent, and any such VAT paid on grant-aided work can be reclaimed directly even by unregistered farmers.

All in all the Deputy must accept that any further reliefs in this area — even were such possible given the constraints of EEC membership obligations — would be difficult to justify to the rest of the Community or indeed on the merits of the case. Therefore, I cannot accept the amendment.

Amendment, by leave, withdrawn.
Bill, as amended, received for final consideration and passed.

This Bill is certified a Money Bill in accordance with Article 22 of the Constitution.