Finance Bill, 1988: Committee Stage (Resumed).


(Limerick East): I move amendment No. 37:

In page 30, subsection (1), between lines 6 and 7, to insert the following:

"(c) in the definition of `house' in the said subsection (1) (a) `and in particular includes on-campus hostel accommodation for third level educational establishments' were inserted.".

Section 24 re-introduces what used to be known as section 23 in its old and widest form. Briefly, for the benefit of the House, I should say that section 23 allows the cost of apartments or houses to be written off against the rental income accruing from those apartments or houses with certain limitations as to size. In its widest form it also extends to the rental income of any property held by the owner of a section 23 dwelling. This means that somebody who would purchase a section 23 dwelling could write off the rent of existing rented property against the acquisition costs of the new dwelling.

I am seeking, in this amendment, to ensure that the provisions of section 23 would apply to on-campus accommodation for university students. There is a variety of reasons for having on-campus accommodation available in our universities. Traditionally, such on-campus accommodation has been available in Trinity College, Dublin. It is the intention of the authorities of University College, Dublin to construct on-campus accommodation at Belfield. Certainly they have plenty of room in which to provide such accommodation. It is a beautifully landscaped campus. The inclusion of apartment-type accommodation, on-campus, for students would be of great benefit to them and to the university itself. It improves the atmosphere of a campus when the students who study there also live on-campus. The same applies to the National Institute for Higher Education in Limerick. They are at present constructing student accommodation immediately outside the main gate of their premises which, effectively, is the equivalent of on-campus accommodation. Perhaps the Minister and his officials consider that the definition of "house" is wide enough already to include this type of accommodation but I think it is important to put the matter beyond doubt and that is the purpose of this amendment.

The purpose of the amendment is to add some additional wording to the definition of "house" for the purpose of the section 23 relief. It appears its intention is to include, for the purposes of relief, properties which might not otherwise qualify. If this is the case the proposed amendment would not add anything to the existing definition of "house" in section 23 of the Finance Act, 1981, and accordingly would not extend the range of the relief. The word "house" is defined in section 23 as follows:

"house" includes any building or part of a building used or suitable for us as a dwelling and any out-office, yard, garden or other land appurtenant thereto or usually enjoyed therewith;

This definition is broad enough to include any property used as a dwelling. However, to qualify as a section 23 property a house must have an internal floor area of between 30 square metres and 90 square metres, previously 73 square metres, in the case of a self-contained flat or maisonette, and between 35 square metres, and 125 square metres in any other case. It must also meet certain standards in relation to construction, water, sewerage and other services laid down by the Minister for the Environment and be the subject of a certificate of reasonable cost if it is to be rented out directly by a builder or by the person who commissioned the building. The property must be let under a qualified lease or leases for a period of ten years to qualify for the relief.

Any on-campus accommodation for third level educational establishments which meets the above criteria would qualify for section 23 relief and, therefore, there is no specific need to extend the definition of "house" in the manner proposed. I am advised in this regard by the Revenue Commissioners that they have approved, in principle, under the existing legislation, a housing scheme adjacent to a third level campus which appears to be directed towards student occupation. For that reason I do not think there is a necessity for the amendment.

(Limerick East): Does that decision apply to NIHE Limerick?

(Limerick East): That seems to be satisfactory. I am sure the authorities in Belfield will await with interest the Minister's reply and organise their plans to come within the restrictions of section 23, or as it will be called in the future, section 24, and consequently benefit from it. I thank the Minister for his courteous reply and I withdraw my amendment.

Amendment, by leave, withdrawn.
Question proposed: "That section 24 stand part of the Bill".

This time last year Deputy McDowell and I put down an amendment to reintroduce section 23. I pushed it fairly strongly and I was told it could not be contemplated. Suddenly it has appeared this year and it does not cost the Exchequer anything. It would not have cost the Exchequer anything last year. There is a need for it this year but there was at least an equal need for it last year. I wonder why all the arguments that were put forward against it by the Minister for Finance last year no longer suddenly apply. I suppose this is one of the mysteries of political life one has to live with.

I am glad that this has been introduced but it is a pity it was done last year, as I tried and suggested at the time. I hope it will be retained for a reasonable length of time. It is to operate for a period of three years but if it works as well as it did in the past I do not see any reason why it should not be extended eventually beyond that period because it is a perfectly sensible provision.

(Limerick East): I am not going to oppose the section but I have doubts about whether it will be of much benefit. When the tax avoidance scheme being reintroduced in the section was first put in place it was reputed to have had certain benefits but I think these benefits were always questionable. As I remarked in another context this morning, if one can transfer residual income into assets that will create wealth. Section 23 was, and will again be, a mechanism whereby the people who were the beneficiaries of rental income did not pay tax on their rental income and the tax foregone was translated into the asset value of the apartment or house. That is the way it works. People do not pay the tax and even though this does not increase their income it does increase their assets.

Obviously well targeted tax avoidance schemes can benefit an economy but I wonder if this one does. One would think in the first instance that a tax avoidance scheme in the housing area would be directed towards the provision of housing and increasing the housing stock but that does not seem to be the purpose of section 23, reintroduced as section 24, and I do not think that was ever the purpose of it. I do not think there was ever any suggestion that the original section 23 was in ease of the homeless. I do not think there was ever any suggestion that it was directed to improve the stock of dwellings.

The Minister probably has more accurate information than I have but I understand that during its brief existence approximately 500 or 600 dwellings, to a large extent apartments, were built under section 23. The Minister can confirm the figures. I may be overlapping between houses and apartments but between 500 and 600——

I am sorry to interrupt the Deputy but there does seem to be overlapping in respect of section 23 and section 24. Section 23 has been disposed of and we are now dealing with section 24. I appreciate the connection.

(Limerick East): With respect, a Cheann Comhairle, the misunderstanding is on your side. Section 24 reintroduces what is colloquially known as section 23——

I appreciate the connection.

(Limerick East):——which existed in the early eighties, I am calling it by its familiar name rather than its new name.

(Limerick East): I am not discussing section 23 of this Finance Bill which you a Cheann Comhairle rightly pointed out has already been dealt with. I was developing the point that during the previous duration of section 23 between 500 and 600 apartments were built. I understand that about half of those were built in the Dublin 4 area. That does not seem to be the area where there are the greatest number of homeless people or where there are the least numbers of undeveloped or uncomfortable dwelling houses. From past experience, I do not think it is arguable that section 23, now section 24, is being introduced to provide a boost to the stock of dwellings. Obviously it is not being brought in to ease the plight of the homeless or to provide better houses for those who are inadequately housed. It is being brought in as a measure to boost an ailing building industry. The building industry is on its uppers. Many of the main practitioners of the building industry are no longer in the country. The contractors are in the south-east of England and in various far foreign fields from Dunkirk to Belgrade and beyond the Persian Gulf in Bahrain and Kuwait and various places like that.

We must measure the re-introduction of this section to stimulate the building industry against the record of the Minister's Government since they came into office vis-á-vis the building industry. First there have been constant press reports that prior to the election a commitment was made to the building industry that a sum of £200 million of capital expenditure would be injected into that industry when the Minister's party returned to office. Second, there have been constant and continuing reports in the media that the 10 per cent VAT rate which applies to the building industry would be reduced to 5 per cent. These reports have never been denied by the Minister or his party or the Taoiseach as being inaccurate. Not only was there not an injection of capital funds along the lines promised, not only was there no reduction in the VAT rates applying to the building industry, but the exact opposite was done. In the Book of Estimates last autumn the capital budget was devastated; it was cut down to the point where, in effect, only ongoing contractual obligations were maintained. Are we now seriously to accept that the re-introduction of section 23, now 24, is going to act as a counter-stimulous to all the negative stimuli that have been the result of Government decisions over the last 12 months?

Another question also arises, and it is this: when section 23 was introduced originally in 1981 it was one of the few tax avoidance schemes readily available to the ordinary taxpayer on high marginal rates. But since then there is a multiplicity of them.

We were talking this morning about designated areas in our cities; they were to be Dublin, Cork, Galway, Waterford and Limerick. Now, as a result of the lobbying of some of the Minister's party, it is to be extended right across the country, and now the inner area of any larger town is to benefit from a whole package of incentives which would make advocates of section 23 blush.

As well as that we have the business expansion scheme. The business expansion scheme was put in the first instance so that people would use a tax avoidance scheme to invest in manufacturing industry and as a result risk a certain amount of income. Now that has been extended as well. There is a further extension of it here in the first chapter of this Finance Bill. It was extended last year to the tourist industry and in extending it to the tourist industry it is very hard, as the Minister knows, to put the ring fence around that. I have had examples brought to my attention of people acquiring holiday homes for sums of £7,000 and £8,000 net because the business expansion scheme was to take up over 58 per cent of it.

I am not, for the moment, opposing the extension of the business expansion scheme. I am not opposing the package of incentives in the cities or in the towns. What I wonder is where is the market now for a further tax avoidance scheme when there are so many available right around the country? We have financial institutions and financial organisations actively packaging taxpayers up to the level of £25,000 apiece and directing the composite amounts towards investment in manufacturing industry and tourism and in the particular areas to which it is now extended in this Act.

The question I am raising is, in the re-introduction of section 23 and its associated sections 24, 25 and 26, merely cosmetic? Is it simply providing the Minister and the Government with an alibi when they meet representatives of the building industry so that they will be able to say they could not, due to adverse financial circumstances, fulfil the promises made prior to the election but have brought back section 23 and they can go off and build apartments all over the city and it will be great?

I am not so sure if it will work this time because there are too many other tax avoidance outlets. Let us call things by their proper names. There are too many other tax avoidance outlets directed in other areas where the capital gains are more and the residual risk is probably less. Even if it works it will not be of benefit to everybody in the building industry because there are people who, in the absence of section 23, constructed blocks of apartments or small houses and the effect of now reintroducing section 23 is to make it impossible for people who have either constructed or who are in the process of constructing apartments to rent them if they cannot benefit from section 23. There are specific examples of buildings now which are, in effect, being sterilised because the rent will not be tax deductible against the acquisition cost. I do not know whether the Minister is aware of this or whether he has any plans to deal with it, but I can see a limited number of apartment blocks and houses that have been constructed for rental purposes remaining idle into the foreseeable future because there is no provision under these sections. I am not opposing it, but I believe in calling things by their right names and I believe in evaluating the merits of the sections. I do not think the reintroduction of section 23 in its widest form, as section 24 here, or the further incentives for the building industry in sections 25 and 26, will work on this occasion. There are too many other gaps now available to people under the best accountancy advice in the town and I do not think they will go through this particular gap.

On the section, I agree basically with the points made by Deputy Noonan. It creates more opportunities for evasion and more complications in the taxation system. Basically we would be opposed to the widening of the system of tax reliefs. It is our belief that assistance from the State should be by way of grants and subsidies direct, so that it is out in the open and everybody sees how much everybody is getting for what, and we know what we are assisting and why we are assisting it. This system of tax relief or tax foregone by the State works to the detriment of somebody else because there is less money coming into the Exchequer, and of course that money has to be found elsewhere or State expenditure has to be cut back. It is much clearer if assistance is by way of direct grants and subsidies.

In this case it is a hidden subsidy to landlords and potential landlords — we do not know how much the total is. The obvious purpose would appear to be to assist the construction industry; it is another sort of a relief scheme. We used to have relief schemes in famine days when people built jails and follies in different parts of the country, some of which are still standing; some landlords erected a folly to keep people at work and to give them some assistance. We used to have relief schemes 30 or 40 years ago. This is a type of relief scheme which, as Deputy Noonan says, could very well leave a number of follies behind in the form of refurbished dwellings with nobody necessarily availing of them. It is my belief that, far from getting tax relief, there should be some method of identifying landlords to ensure that they are taxed. There is nothing in sections 24 to 26 to indicate — having refurbished dwellings, got the tax relief and the rental income — that they are identified for tax purposes or that there is any rent control. I am sure the Minister is aware as well as everybody else in this House of young people who are paying outrageous rents for tiny premises. There is no system of rent control nor is there a system of ensuring minimum size of rooms or the number of people to one bedsit. There are no regulations of that kind and neither is there compulsory registration of landlords.

Local authorities have a system for registration but only those who offer themselves for registration are registered. There is no mechanism for going out, identifying them and putting them down on the register and having the complete register of landlords even in this city where the numbers in rented accommodation has grown rapidly in recent years.

The idea of assisting the construction industry by assisting landlords does not seem to make any sense. It will not necessarily assist those requiring the accommodation. It will assist one area of the construction industry namely, those in the refurbishing end of the business who, generally, are small, and fly-by-night firms many of whom may not be registered for tax. The whole business of assisting the construction industry by this method seems to be the most roundabout and least effective way of doing it.

The construction industry certainly requires assistance, a boost and a start-off and many people are hoping that the famous Custom House Docks site will give them that start-off. It requires assistance in many ways particularly since the local authorities have decided not to construct any more houses. It is almost two years since they built houses of any consequence in this city and construction has ceased except to a minimal extent. In that area the construction industry requires help and assistance. Local authorities are endeavouring to get refurbishment schemes going for local authority flats etc. Incidentally, I do not know whether they would be entitled to claim reliefs under this or any other scheme for the job they do. It is my belief that if assistance is required in that area it can be decided very clearly and definitely by a system of grants and subsidies for specific jobs where we know what they are doing, we know the type of accommodation being created, who is creating the accommodation, how much assistance is required, and we give them that assistance.

This spreads to an area of development which might lead anywhere and there is thus a wider area for tax evasion which should be narrowed down. The Commission on Taxation also recommended that the whole area of tax reliefs be gradually eliminated. The mixture of tax credits — instead of tax reliefs — and grants and subsidies in this area are the way in which to do this, where the Exchequer has a clear knowledge of how much assistance is being given in each case and what the purpose of that assistance is, and the public has similar knowledge. Currently the public have no knowledge of the extent of taxes foregone by the State. Figures have been given here at different times over the last few days. The total figure for tax foregone was given as being in the region of £2 billion between PAYE workers, the self-employed, farmers, businesses and the whole private sector area. That is never taken into consideration in discussions of public expenditure by the State. It is not seen in those terms at all whereas if instead of that there was a system of subsidies, grants, tax credits, it would be clearly seen what the total State expenditure actually was. That is why I say these are hidden subsidies because they are not open to us for scrutiny and discussion in the same way as the grant and subsidy system. The main beneficiaries will be landlords, only a small proportion of whom are registered for tax purposes. I hope that the Minister can say — I cannot find it in the Bill — that anyone who avails of this will have to be registered for tax and will have to be up to date in their tax repayments etc. before they will be able to avail of section 23 allowances.

I would like to answer the last point raised by Deputy Mac Giolla. Anybody claiming relief would obviously have to be registered for tax purposes. There is no question or doubt about that. I do not accept what the Deputy said that it was initiated and introduced mainly for the purpose of giving a subsidy to landlords. It is, as other Deputies have said, being introduced to give an impetus to the construction industry and nobody is denying that. So far as the points made by Deputy Noonan are concerned, I would like to say that the number of claims for individuals was 541 and for companies 144 in the previous period of its existence.

(Limerick East): What is the total figure?

The total figure is 685 and, roughly, tax relief of £10 million would have been allowed in those 685 cases.

(Limerick East): Has the Minister got the geographic spread of those? Were not half of those in the Dublin 4 area?

Not necessarily, but I imagine that much of it was. Like everything else a lot of what is happening is in Dublin. I would like to refer to the points made by Deputy Noonan relating to the construction industry and particularly the political comments he made vis-á-vis promises and the £200 million of an injection into the construction industry. It is about time to put the record straight regarding that accusation that has been around now for the past couple of years, even before the last election. It was made by our party to give an impetus to the construction industry at the time and, in fact, was taken up by the Coalition Government as was the £5,000 local authority grant. All of those cost much more than £200 million. By the time we are finished paying for them it will be some years hence and they will be running into hundreds of millions of pounds. The reconstruction grants last year had to be discontinued because already we were facing potential bills of £200 million to £300 million in grants under one heading alone. It was an enormous amount of money.

(Limerick East): A great injection for building.

What was proposed by us at the time was introduced by the Coalition but, unfortunately, cost a great deal more than it would have cost had we been there but we are still having to pay.

In regard to capital budget cuts as referred to by Deputy Noonan, almost all parties in this House agree we had to get out borrowing down. I listened to criticisms of cuts in the capital budget, cuts in the area of current expenditure, health, education in staff numbers and so on. These cuts are all for one purpose, to reduce the borrowing requirement and the national debt that has been run up in the past ten or 12 years. If Deputies know another way of reducing the national debt I would love to hear about it. God knows, they would go down in the history if they could find it, but there is no way other than cutting expenditure and increasing activity in the economy so that we can get extra taxes and get more people to work rather than having huge costs in health, social welfare or whatever.

In relation to this Government's activity, as well as making savings in current or capital expenditure areas we have introduced a number of schemes, including those we are talking about now under sections 24, 25 and 26, in the designated areas, the decentralisation scheme and the Custom House Docks site, all of which are bringing about activity in the economy with no capital expenditure for the Exchequer. We should all be grateful it is going to do that. That is the purpose of the exercise. It is not, as Deputy Mac Giolla suggested, to hand out subsidies to anybody. If we come to the stage of having this as successful as we want it to be, it will cost money but at the same time I am sure the benefits to the overall economy generally in relation to increased employment will be enormous.

Costs were mentioned. The previous scheme would cost around £10 million over the years. As introduced now, if the take-up is as we expect we see no great cost in 1988 but as it progresses and is taken up and put into operation the costs of 24, 25 and 26 could run to the order of £9 million in tax foregone on an annual basis. Therefore, it will be well worthwhile and if it reaches that sort of level it will have been successful. That was the reason for introducing it in the first place.

In the current economic situation with very scarce resources available to the Minister for relief, I question whether the relief offered is being geared in the right direction. That is my essential criticism. There is no doubt that the construction industry on the ground is in a very dire state. If one wants to maintain an industry and to maintain employment to some degree in the industry where employment has been decimated, if we want to retain what we have, this is not the right way to go about it. I would have preferred to use a straight £9 million of Exchequer subsidy on, for example, bringing forward some of the road network proposals which are proliferating on the capital projects side of the Department of the Environment. The economic spinoff would be far greater. There is an interesting paper in the Department of Finance which I am sure the Minister has seen and which shows that investment in roads has a factor of five in follow-through productivity.

Send me a copy of that.

I get burdened at times reading back through the papers they have prepared for us.

(Limerick East): The Deputy must have a second garage full of Government documents.

One question we posed was, "If you have relief money to give, where do you give it?" The Department of Finance since 1981 have come back to us and said time and time again that we should forget about this preoccupation with housing, that we are the best housed, best housing stocked country in the western democracies. People do not believe that. We still have homelessness due to political incompetence. The stock of Irish housing represents enormous wealth and benefit and now with emigration the demand for new house starts is relatively low.

Take an industrialist coming into this country and draw a line from, say Manor-hamilton down to Macroom, go west of it and I would not bring him anywhere other than by helicopter because there is no way he would put a plant, particularly heavy plant, west of that line. He would not know where to turn if he had an executive car or heavy duty lorry; the axle would break from the condition of Irish roads in those areas.

(Limerick East): The Minister for Defence feels the same way about that.

For example, the Government are anxious to put, say, heavy chemical industry into Cork and we are now handling out £9 million in section 23 to fellows, some of whom I know would not pay income tax, capital gains tax, property tax, residential tax or wealth tax; they pay nothing. They are fly-by-nights. Many of them availed of section 23 and some of them are now living it up on section 23 reliefs in London working in the construction industry there where with the explosion of property values they are now making their money, having made it here in the mid-seventies and early eighties from reliefs of this nature. That £9 million creating an infrastructure in parts of Cork for a chemical industry would be gold dust. However, the Department and Minister for Finance think in strait-jacket terms: the Finance Bill, concessions, taxation, section 23; the Custom House Dock is one of those remote places where they do other things and we have no integration by way of tax relief and tax incentives for the construction industry.

I do not particularly blame the Minister for Finance. He is besieged. His job is to keep the lunatic fringe away from the Department of Finance and from making representations to him for everybody wanting every kind of relief. He is subjected to enormous pressures, not least around the Cabinet table. Had he said to those within the Department that there was £8 million or £9 million relief for the construction industry and asked where that money should be spent, he would have been told to put it into fundamental road development that is urgently needed in many parts of the country, not least in his own country. The lack of such development is a huge impediment to industrial development. I remember as a trade union official having to drive to Sligo week after week to the textile plants when they were flourising there and having to tell the industrialists concerned — many of them came over the country — not to have a heavy meal because after a few pints in Ballyshannon they would be unable to travel any longer, such was the condition of the roads.

The Deputy has not been up there for a while. Things are moving up there now.

That was Irish industrial development. We have received representations from the construction industry and the spokespersons for that industry at the moment give me a slightly ill feeling. Go back through the capital programme. In 1984, 1985, 1986 and 1987 we had increments of reasonable growth in the capital programme, we maintained economic development and in 1987 £625 million was provided for productive infrastructure. What did the Minister spend? It was £587 million. He did not even spend what was provided for productive infrastructure in the capital programme for 1987. Of course, the Department of Finance got their hands on it and they cut it back and back and that was the name of the game, even though we knocked the bottom out of the construction industry. The provision for this year, 1988, is £587 million but that is well below what was provided in the 1987 budget. We are knocking the bottom out of the industry and there is not a cheep from the Fianna Fáil construction industry members. It is bitterly disappointing to the industry which was promised £200 million and a VAT rate of 5 per cent. When these benefits did not materialise there was no criticism because the party comes first in the construction industry. I learned that as a member of Dublin County Council from 1974 to 1982 and I learned it again in Government. There has not been a word of criticism when people have had to emigrate because of serious unemployment arising from the policies of Fianna Fáil.

There is very little money to provide incentives to the productive sectors but we are not spending the money available wisely. I was horrified to learn that there are a couple of million square feet of empty office blocks in Dublin and that we are spending the best part of £20 million in the Minister's home town building another public office block for civil servants who will be brought to Sligo. Whoever builds this office will probably get tax relief, all because of transient political gain because a couple of dozen civil servants have to travel by coach from Dublin to Sligo every weekend to see their mothers and fathers, boyfriends and lovers. It is a waste of public money and if the Minister wants to spend the best part of £20 million in Sligo it should be spent on the roads there.

We are doing that too.

When the roads are finished, the money remaining can be spent on industry. Public money should not be wasted. If the Minister goes to Europe he will not have to worry about it.

Every time there is a debate in the House on financial matters I listen to the raving and ranting of Deputy Desmond. One wonders where he has been for the last five or six years. He was in Government from 1982 to 1987——

I was working hard, controlling public expenditure.

Deputy Desmond was in Government when unemployment figures increased by 70,000, emigration increased by 100,000 and the national debt doubled. He has a cheek to talk here in such nonsensical terms about what happened in the last four years. He does not know what he is talking about and too many of his accusations have gone unchallenged. We will not let him away with it any more. The decentralised offices being built will not cost one shilling of capital expenditure this or next year. Until such time as staff are installed in them, the State will not pay rent. When it does pay rent the amount per square foot will be 50p less than is being paid at present. The Deputy can put that in his pipe and smoke it because they are the facts.

This section has nothing to do with decentralisation. It deals with tax relief for refurbishment of dwellings, etc. Before Deputy Desmond spoke, the Minister bore out my point in regard to giving tax reliefs. I said that they are never regarded as expenditure by the Government whereas, if you did not give tax relief but gave direct subsidies and grants, they would be shown as capital expenditure. The Minister said that the Custom House Docks site will give a tremendous boost to the construction industry without one penny of capital expenditure being spent. What about the tax reliefs? That is tax foregone by the State, yet the Minister does not regard it as capital expenditure. That is why we oppose hidden tax reliefs. We do not know the total amount in this regard, the Minister estimated that this tax relief will cost £9 million in taxes foregone. It would be very interesting to know the total tax reliefs foregone over the ten year period — or whatever it is — of the Custom House Docks site——

(Limerick East): The figure is £34 million.

The Deputy spoke about tax relief and tax foregone and mentioned a potential sum of £9 million on an annual basis. I have here the income tax and corporation tax cost of allowances and reliefs for the year 1984-85. When Deputy Desmond, Deputy Noonan and Deputy Mac Giolla talk about a sum of £2,000 million they should remind themselves and the public of the facts. I am looking at figures now for the year to which I referred and I know they will be much higher for 1988-89. In 1984-85, the married man's allowance for income tax purposes cost £673 million; the single person's allowance for the same year cost £389 million and the mortgage interest relief — which I know is costing £160 million this year — cost £117 million. One would imagine from the remarks these Deputies made that the relief was confined to a little pocket of the community. However, it benefits the 900,000 PAYE taxpayers. I will not go through all these figures but they are updated on a regular basis by the Revenue Commissioners.

The Minister is proving the point I made.

I am introducing a tax allowance.

Tax reliefs of this nature in regard to personal taxation should be changed to tax credits, which we have always advocated, for mortgage interest relief, etc. A person is allowed to earn £55 per week, barely enough to feed himself, before tax and the tax applies to every pound earned in excess of that. The Minister considers that to be a tax relief in the same way as reliefs are given under section 23 to landlords to construct or convert flats. The Minister told us that the decision to increase personal allowances to £55 per week was part of the tax reliefs costing £673 million.

That is what it is.

It is an allowance to permit people to live and that is not much of an allowance when one considers the other tax reliefs.

It was the Deputy who raised the £2 billion and that is included in that figure.

All the tax reliefs the Minister is giving, like the one before us, or hidden reliefs are taxes foregone so much so that he is able to tell us that the Custom House Docks site will not cost the State one penny. It is costing the State money in taxes foregone.

I should like to suggest that we get on to section 29 about which there are major problems. There may be ideological problems about this and succeeding sections but there are no amendments to them. I presume that they will go through but there are severe problems in relation to section 29 so much so that the Minister for Finance has no less than 19 amendments to it, plus an amendment to Part II of the Second Schedule which also relates to it. It is causing huge problems and needs to be sorted out. The time between now and 5 p.m. might be more usefully spent on inviting the Minister to explain what he has in mind in regard to section 29, why he has found it necessary to propose 20 amendments, an enormous number of amendments to one section, and whether the section should be withdrawn in its entirety and looked at again. Apparently, the effect of many of the amendments is to postpone the matter for one year. If it is found necessary to postpone it for one year perhaps we should take that amount of time to think about it because of the severe damage it is going to do. Will the Minister give us his thinking on the section because it is of great concern to many people?

Do we have to dispose of section 29 today?

Question put and agreed to.
Sections 25 and 26 agreed to.
Question proposed: "That section 27 stand part of the Bill."

(Limerick East): Will the Minister say if this contrasts with a later section where he is imposing a levy on pension funds? Will the Minister explain the section for the benefit of the House?

The section extends the scope of all tax exemptions available to pension funds so as to enable them to invest in financial futures and options. The purpose of the relief being provided by the section is to encourage the growth of financial future exchanges in the State. While not directly related to the Custom House Docks site the section can be seen as another move in the direction of promoting Ireland as a base for dealing in international financial transactions. The benefits of such a policy for employment growth needs no elaboration. I could go on but I believe it is only necessary to state that the section extends to pension funds the concessions they have for gilt trading into futures and options.

Question put and agreed to.
Question proposed: "That section 28 stand part of the Bill."

(Limerick East): If the Minister has a short summary on this provision it would be of benefit for the record.

This section, in Part I of the Second Schedule, amends the provisions in relation to tax credit carried by distributions made by companies out of profits chargeable at standard rates of corporation tax. They do not affect distributions out of profits chargeable at the 10 per cent manufacturing rate. The amendments are consequent on the reductions in the rates of corporation tax made in section 30.

Question put and agreed.

I move amendment No. 37a:

In page 31, subsection (1), line 25, to delete "1988" and substitute "1989".

I should like to make a short statement about this section which was referred to earlier by Deputy O'Malley. I am delighted that we have some time to debate this complex section. I have decided to put forward a number of amendments to this section. Section 29 is concerned with the rules for the distribution by companies of dividends to shareholders. While the section is extremely complex, its basic purpose is to discontinue the primary fund arrangement and to provide instead for a new arrangement based on proportionality. The primary fund has applied since 1980 to dividend distributions by companies. Under that arrangement a company would have to distribute all its dividends from its 10 per cent profits before it distributed any dividends from its 47 per cent profits. This in turn, would determine the tax credits applying to the dividends. The tax credit on 10 per cent profits is 5.5 per cent and the credit on 47 per cent profits is 47 per cent.

The primary fund no longer serves its original purpose now that full advance corporation tax is in operation. Section 29, therefore, substitutes for the primary fund a new arrangement for distributions which is in line with the thinking of the Commission on Taxation. Under the arrangement now proposed, dividends are treated as coming proportionately from the mix of profits in the preceding year. There is a corresponding mix of tax credits.

Section 29 as it stands in the Bill has recently given rise to a considerable volume of representations from companies and other interests. Some of those representations have sought full flexilibity for companies to determine their mix of distributions and credits, but this would have an adverse impact on the Exchequer. Others have sought solutions for particular problems they perceive in the section.

The essential rule in section 29, of proportionality based on the previous year's mix of profits, is logical and fair. Nevertheless, in view of the representations made to me, I have provided in the amendments for a number of changes as follows:

General application of the sections will be postponed until 6 April 1989. This will allow more time for companies to plan for the operation of the new arrangements. I will also consider in the meantime whether the detailed arrangements can be further simplified or improved.

If, however, a company wishes to start applying the new rules now, it will have the option to do so.

To take care of specific difficulties, interim dividends or distributions relating to interest payments on section 84 loans may continue to be paid out of profits of the current year rather than the previous year.

Finally, there are a number of tidying-up amendments of a technical or drafting nature.

That is all I would like to say at this stage because I want to give the opportunity to other Members to make their points about this.

(Limerick East): I should like to thank the Minister for his detailed explanation and for introducing the amendments before us. It is the kind of section in a Finance Bill which by its very complexity puts the ordinary politician who is a general practitioner rather than a specialist off discussing it. One works on the basis that highly complex sections like this have been agreed between the Revenue officials, officials of the Minister's Department and the interests involved. When I first saw this I thought the intention was in ease of companies who had a mix of business which attracted a mix of corporation tax. It seems, following subsequent examination of it, by the type of conglomerates company which would be involved in the mix of business and would in one area attract the 10 per cent rate and in another the 47 per cent rate, that what was purported to be in ease of the conglomerates would work adversely. I am sure the Minister has had the type of representation we have all received. Consequently these amendments have been put down. I do not fully understand the section and I doubt if many political people in the House understand its full ramifications. If one moves to proportionality and to discontinue the primary fund arrangement, a consequence is to force a conglomorate type of business to draw dividends from an area of activity which on the face of it would favour the company but which, because of the implementation of full advance corporation tax, would result in the reduction of the tax credit available. The difficulty arises when one translates the rates into the tax credit.

The Minister's amendments are quite complex. The first group of amendments have the effect of postponing the general operation of the section until 6 April 1989. That is very welcome. Another amendment gives an option to another company who so wish to apply the new arrangements with effect from 6 April 1988. Then there is the amendment which I do not understand relating to interest on section 84 loans. For the record of the House and the benefit of the professionals who will have to operate it, I should like an explanation. The final group of amendments are technical in nature.

I share Deputy O'Malley's view that we should give this matter some time because it is so complex. It did not arise on Second Stage and we were well into Committee Stage before difficulties arose. Is it prudent to seek to remediate the section in such a short time? Perhaps our very haste in moving towards solving the problem is creating further difficulty. There is great merit in suspending it completely until next year. Probably a better suggestion and one which would be welcomed by the interests involved would be to give the company an option. If an amendment allowing a company to opt for the primary fund arrangement or to move to the proportionality arrangement could make this a permanent rather than a one-year option it would solve the problems of companies affected by the change. I advocate that the Minister should do this. I understand this provision was introduced to ease difficulties being experienced by companies. That being the case, let those companies in whose ease it operates benefit but let those companies against whose interests it operates be allowed to operate the primary fund arrangement.

The Minister has been very co-operative and open in his explanations. Perhaps he would take up these points. I will not oppose his amendments or the section but there is time for reflection between now and next Thursday and we should seriously consider either dropping it completely or leaving the double option for everybody, especially if this is intended to be in ease of companies rather than to penalise them.

The concern felt is well founded since the Minister found it necessary last night to put down 20 amendments. I have been here all day but have had no chance to study them. That might not have been very fruitful anyway since I should need somebody to advise me as to their effect.

It is clear from a cursory look at the amendments and from what the Minister has said that companies are given the option of postponement for a year. Some fundamental questions have to be asked. What was wrong with the primary fund system of 1980, particularly since the introduction of advance corporation tax? The Exchequer cannot have been at any loss. This is a question of the method of distribution of fully taxed profits. Surely it is a matter for a company and its shareholders alone to decide how these fully taxed profits are distributed. It should be of no concern to the Revenue or to the Department of Finance who do not stand to gain or lose anything by it. The profits out of which the distribution is made have already borne tax in full. An argument might have been made a few years ago before the introduction of advance corporation tax that some distributions carried tax credits which the Revenue would have had to honour in the hands of the recipients. That is no longer the case. The tax is paid in full in advance. Therefore, the Revenue cannot either gain or lose. Why not let the companies go on as they wish in relation to the distribution of their fully taxed profits? Is this not an unnecessary bureaucratic interference?

It is a matter of concern that in recent years the number of private shareholders in public companies has dropped enormously. The proportion has about halved. The size and power of the institutional shareholdings has become very much bigger. One of the reasons is the unattractiveness of the tax credits in many cases. When companies were able to evolve more than one fund out of which to pay their dividends in a manner which suited the often conflicting interests of their different classes of shareholders and when they could get the approval of all the necessary authorities to do that, it did not cost the Exchequer anything and did not damage the public interest. It suited the different types of shareholders and encouraged people to invest in Irish industry. Therefore it cannot but have been beneficial from all points of view. Why not allow them to continue? Since the Exchequer will not raise more tax by changing the primary fund arrangement of 1980, why are they going on with section 29, even in its very heavily amended form? If they cannot benefit except in a theoretical way in that way that they have more control over the form of distribution, why go on with it? Why do they need that power to control the method of distribution when it is immaterial to them since it is being made out of taxed profits?

Deputy O'Malley referred to the number of amendments. Some seven or eight of them simply involve changing the year from 1988 to 1989. They are not of great substance. I have stated quite clearly what the amendments are designed to do and I think Deputy Noonan has accepted it. I repeat that the general application of the section will be postponed until 6 April 1989. This will allow more time for companies to plan for the operation of the new arrangements. I will also consider in the meantime whether any detailed arrangements can be further simplified or improved. If a company wish to start applying the new rules now they will have the option to do so. There is nothing sinister about what is being done.

Deputy Noonan raised a question about section 84 loan interest. Section 29 as it stands provides that all of a company's dividends and distributions must be attributed to the accounting period preceding that in which the dividends are paid or the distributions are made. Thus the ratio of relieved manufacturing profits of that period to the total profits of the period will determine the proportion of a dividend to be treated as a manufacturing dividend. While this rule is perfectly reasonable as it affects final dividends, it is somewhat artificial with respect to interim dividends which are paid out of profits of the accounting period during which they are paid and to section 84 loan interest, which is an expense of the accounting period for which it is paid. The preceding accounting period rule has the value of certainty the ratio of manufacturing income to total income after the end of the period, whereas when an interim dividend or section 84 loan interest is paid during an accounting period, the company may have to estimate the ratio for that period. However, the weight of the problems created by the preceding accounting period rule seem to outweigh the problem of estimation in so far as interim dividends and section 84 loan interest are concerned. Therefore, an amendment is proposed which provides that interim dividends and section 84 loan interest will be treated, for the purpose of section 29, as distributions of the accounting period for which they are paid or made.

I am sorry to interrupt the Minister. As it is now 5 o'clock, I am required to put the following question in accordance with the order of the Dáil of 3 May last. The Question is: "That the amendments set down by the Minister for Finance to section 29 of the Bill and not disposed of are hereby made to the Bill and that section 29, as amended, be hereby agreed to."

(Limerick East): I want to reserve the right to re-enter on Report Stage.

We will need to put down amendments on Report Stage.

(Limerick East): Along the lines suggested — I am sure that this is in order.

That is understandable.

Question put and agreed to.