Batt O'Keeffe
Question:11 Mr. B. O'Keeffe asked the Minister for Finance if he intends to allow health boards to register for VAT.
Ceisteanna—Questions. Oral Answers. - VAT Registration by Health Boards.
I am precluded by EC law from allowing health boards to register for VAT. Under the EC Sixth VAT Directive, the activities carried out by health boards are either non-taxable or exempt for VAT purposes. This means that health boards have the advantage of not having to charge VAT on the goods and services that they supply, but by the same token, they are not entitled to recover the VAT borne on the goods and services they purchase. I should add that this fact is taken into account in the level of Exchequer funding provided. Generally speaking, VAT is only recoverable by registered businesses.
Jim Higgins
Question:12 Mr. J. Higgins asked the Minister for Finance if he will grant tax-free allowances to the parents of students who cannot qualify for higher education grants; and if he will make a statement on the matter.
I do not intend to introduce a tax free allowance of the kind proposed by the Deputy. My reluctance to introduce such an allowance springs not simply from the cost of implementing such a proposal, which would be quite substantial, but also because it would be bound to generate many cognate claims from other taxpayers arising out of their various personal and domestic circumstances.
I would point out that tax relief is available on income covenanted to children aged 18 years or over. This enables a parent to obtain tax relief on part of his or her income convenanted in favour of a child or children 18 years or over subject to an overall limit of 5 per cent of the convenantor's income. Since the lowering of the age of majority in 1985 from 21 to 18 the cost to the Exchequer of tax relief on covenants has risen from less than £4 million pounds to over £30 million pounds a year.
In view of the fact that 80 per cent of the entire tax take comes from the PAYE sector which gets nothing in return, no medical cards and no grants, will the Minister agree it is disproportionate and unfair that that sector receives only 30 per cent of the higher education grants? Will the Minister also agree that he confirmed in the House today, for example, that £30 million is the figure in terms of tax relief from convenants — in fact the figure is actually £33 million? On the same day the Minister gave that figure the Minister for Education, Deputy Bhreathnach, stated; "Free third level education for all would cost the Exchequer £45 million". Therefore, we are only talking about a differential of £15 million.
As Deputy Higgins is aware, an expert advisory group set up by the Minister is currently examining the terms of eligibility for higher education grants to recommend the appropriate criteria. I believe a previous report on that was published some years ago which stated that wealth — not just income — should be taken into account. The recommendation did not change in that case but these issues are being examined again.
The other point that should be taken into account is that State expenditure on third level education, apart from the tax purpose, is quite high. Deputies will accept that the figures of £33 million is an indication that most people are operating the system. The figure was previously £22 million and it has increased by £11 million in a very short period. The gross expenditure on the third level sector has increased from £238 million in 1989 to £356 million this year. Already the Exchequer funds 65 per cent of the expenditure of the higher education colleges and 95 per cent of the expenditure of the regional technical colleges. Therefore, every student attending third level, regardless of whether they are eligible for a grant, is receiving a significant subsidy from the State.
Nothwithstanding what the Minister says, does he not feel any sense of obligation in this regard? Does he not recall that this time last year his colleague, the then Minister for Education, Deputy Séamus Brennan, promised explicity that as and from 1994 Fianna Fáil in office in Coalition would offer free third level education? Indeed, not to be outdone, its Labour bedfellows promised that higher education grants would be based on net rather than gross income. Does the Minister not realise that for thousands of middle income families the task of putting their children through third level education is a savage imposition and that some gesture should be made in terms of giving interim relief by way of tax free allowances? The study group to which the Minister referred is the same study group set up by previous Ministers for Education, Deputies Séamus Brennan, O'Rourke and Davern except that it now has a different name.
It is a different group. There has been only one other group and I think the 1989 election prevented it dealing with the points made in the report. The Deputy is probably saying that if we did away with the convenanted money and introduced the scheme the other way, it would resolve the problem but many families have two or three children in third level education. For example, if a family has two children in third level education the covenant system works extremely well.
If you had the money.
Apart from scholarships, remittance, maintenance, minor scholarship schemes and grant schemes, an additional £50 million — apart from the other moneys I have already mentioned — has been allocated to that category. Therefore, it does not need the tax benefits. A total of £50 million is being allocated in direct grants, a sum of £33 million, increasing every year, is going into covenants in addition to the £356 million allocated in direct aid. I realise the numbers seeking third level education are increasing but the State's expenditure on education is also increasing dramatically.
(Carlow-Kilkenny): The Minister quoted millions of pounds in figures and they are very impressive.
Facts.
(Carlow-Kilkenny): I accept the figures but this issue boils down to the fact that an individual family may be £500 or £1,000 over the limit and my have to struggle to pay for third level education. Will the Minister agree that Cothrom na Féine would be much better administered if it was given some reward for the taxes it paid to the State? Justice demands that those who are struggling to pay for their third level education should be given a break.
Perhaps Deputy Browne's argument is valid but I would like to see this report completed because, within the £50 million already allocated, there may be areas where moneys could be used to help the very people to whom Deputy Browne referred. I am sure that successive Governments over the past five or six years who talked about setting up this commission did so for a very good reason. We must wait and see whether some of the £50 million in grants can be reallocated. The point I would make is that there is a great deal of money allocated for this purpose. Others might argue that we should do away with covenanted income but I have not done that in the past few years.
I want to add my voice to this plea. Deputy Boylan said there were some people perhaps just £1,000 above the eligibility limit. For example, one of my neighbours was £26 only above the limit and was not considered under any circumstances with the result that he and his family are under enormous pressure to maintain their two sons in college. This cannot be allowed to continue indefinitely. There is now a new category of poor in our society. Those on social welfare can obtain some benefits, they may be able to use the system better than those on PAYE, while the latter category cannot avoid the relevant bands in any circumstances. There should be some flexibility. Would the Minister agree that one effective way of doing this would be through the provision of tax benefits?
Everybody, including Deputy Crawford, talks about those who are hard pressed. In the full financial year of 1992 we widened the net substantially when it rose by 40 per cent in the case of low and middle-income families. Members will agree that a rise of 40 per cent in the income threshold for Higher Education Authority grants was very significant. I do not know what categories gained but certainly that must have helped many people. We should await the outcome of the deliberations of this review body and then we should be in a position to ascertain whether the moneys being spent on direct aid are fair and also whether moneys being spent on covenanted income is fair. I remind the House that, between the two, almost £85 million, which is a great deal of money, is being expended on third-level education.
When comparing covenanted income and the cost of that concession to the Exchequer, in expenditure on higher education and on fees, will the Minister indicate what percentage of covenanted income goes to third-level students because I think a considerable proportion goes to dependent relatives and the like who do not fall into this category? Would he also agree that, when I was last acquainted with the relevant figures, approximately 2 per cent or less of university places in higher education went to children of working class families in our society? Will the Minister bear in mind that a proposal to narrow the tax base, which is suggested here, may not work out in favour of those who most need help in gaining access to higher education?
I agree wholeheartedly with the point Deputy McDowell has made on the last issue, that one must await assessment of who is gaining and benefiting. I have not got the relevant figures with me but they were given recently in reply to a parliamentary question. When the figure of £4 million obtained, much of it went to dependent relatives and that has remained fairly static. However, in recent years all of the increased expenditure has been accounted for by covenanted educational expenditure. I have not the relevant breakdown; if the Deputy needs it I will have it supplied to him, but I can assure him that it is expended mostly for educational purposes. I suggest that we await the outcome of the report initiated by the Minister for Education. With regard to what the Deputy said about people in working class areas, I might reminded him that I introduced the 40 per cent income threshold in an effort to redress that balance. However, on the basis of recent statistics, I am not so sure it has altered that balance very much.
Would the Minister agree that the category of people with which we are most concerned are those whose income is just barely above the eligibility threshold, yet is not sufficient to allow them pay £3,000 or £4,000 annually to fund students at college? Would the Minister agree that covenanted income is of much greater benefit to those on higher incomes than those in receipt of incomes just barely above the threshold which means that the people whose need is greatest benefit least from the scheme the Minister introduced? Will he accept that what is proposed in this question would be of much greater benefit to those whose need is greatest?
If that were the case the figures would not add up because £50 million was expended on direct grants and the maintenance subsidy. The overall scheme should cost between £40 million and £45 million. I will endeavour to verify the covenanted figure but I think it is of the order of £30 million. We should first address the criteria and there may then be avenues open to us to target what we are losing on the covenanted income aspect. I do not argue against those people who say that, perhaps, covenanted income constitutes absolutely the wrong way of doing this, that it should be scrapped. We must remember that there may be families who will have two students in higher level education, costing £7,000 for a full year in some cases, for example in the case of a student in the veterinary or pharmacy faculties. I am not too sure that covenanted income constitutes the best or fairest method of assisting them. I have an open mind; we are expending the money. I agree with Members generally that we should target that expenditure at those in genuine need.