Finance Bill, 1995: Report Stage (Resumed) and Final Stage.

Debate resumed on amendment No. 58:
In page 103, between lines 25 and 26, to insert the following:
"60.—Section 39 (1A) of the Finance Act, 1980 is hereby amended—
(a) by the insertion of the following:
‘(c) artificial insemination (AI) production,', and
(b) by the insertion of the following:
‘(iii) in relation to artificial insemination as including references to artificial insemination production,'.".

I made my case for this amendment on Committee Stage when the Minister said he would reconsider it, possibly with a view to accepting it. We have quite a few amendments to get through today and I would like to speed up matters in order to deal with the more important amendments. If the Minister has considered the matter, perhaps he will give me his view.

The attitude of myself and the Department has not changed since Committee Stage in relation to this amendment. I am aware that ICOS has made representations claiming that it is qualifying for the 10 per cent corporation profits tax on the basis that the process is a manufacturing one. That is a frail argument as far as we are concerned. The claim was turned down by the Revenue Commissioners, who are the ultimate interpreters in this instance, and it is not possible to acquiesce to the Deputy's request. In the circumstances, I am not prepared to accept the amendment.

Amendment, by leave, withdrawn.

I move amendment No. 59:

In page 103, between lines 28 and 29, to insert the following:

"61.—Section 39 of the Finance Act, 1980 is hereby amended by the insertion of the following:

‘In this subsection "wood pulp substitute" means wood pulp substitute which is produced in the State—

(i) on a commercial basis with a view to the realisation of profit, and

(ii) wholly or principally from a process of decontamination and compaction of recyclable waste.

The following provisions shall apply for the purposes of relief under this Chapter in relation to a company carrying on a trade which consists of or includes the production of wood pulp substitute—

(i) the production of the wood pulp substitute by the company claiming the said relief shall be regarded as the manufacture within the State of goods,

(ii) any amount receivable for the said production shall be regarded as the amount receivable from the sale of goods, and

(iii) subsection (1) (d) shall have effect as respects the company in relation to a claim by it for relief from tax by virtue of this subsection as it has effect as respects a company in relation to a claim by it for relief from tax by virtue of subsection 1 (b) or subsection (1) (c).'.".

This amendment, dealing with wood pulp substitute, was tabled by myself and other Deputies on Committee Stage and the Minister indicated he would prefer — he was obviously correct in this — that the issue be dealt with if possible by way of a Revenue ruling to the effect that the activity in question constituted manufacturing. If that were possible, I would withdraw the amendment but Deputy McGahon has shown me a letter from the company to the effect that Revenue has decided that this does not constitute manufacturing within the law. We are now faced with a problem of whether we classify this particular activity as manufacturing. The implications of this are serious because a new enterprise in a low employment area of Dublin will be threatened if the decision is not made either by legislation or administrative ruling in the Revenue Commissioners. Now that it appears the administrative ruling will not be made in favour of the company, the legislative route would seem to be the only way forward.

In general terms, this company is engaged in a manufacturing process but the Revenue Commissioners interpret the law differently as matters stand. This company needs the assistance of this House in categorising its activities as manufacturing. The enterprise is a good one and its activities are particularly worth while in that they are not merely environmentally desirable but essential. In all the circumstances, the case for this amendment, which the Minister hoped to circumvent by an administrative ruling, has become stronger in the past few days because of the attitude taken by the Revenue Commissioners.

I wish to express grave disappointment at the failure of Revenue to rule in favour of this company. Its ruling affects a Dundalk company. In recent years, there have been some successes in Dundalk but this company has been an outstanding one. In less than a year, 33 young people who were long term unemployed were given employment by this company. Its success augurs well for the future if we can assist it.

The refusal of the Revenue is disappointing, particularly when it draws a fine distinction between what is classified as manufacturing and, as is the case in this company, unprocessed waste paper. In the opinion of Revenue, there is no difference between the waste paper that goes into the presses and the wood pulp substitute that is produced at the end of the process. However, unprocessed waste paper is valueless whereas wood pulp substitute ranges in value from £115 to £400 per tonne. Paper mills pay £400 for one type of wood pulp substitute and £115 for another. This material has undergone substantial change because basic waste paper is virtually valueless.

Mill owners are not philanthropists and for them to pay £400 per tonne for a product, it must have undergone significant change. Being turned down for the 10 per cent corporation profits tax has major implications for this company, for which there are great hopes in Dundalk. The company has opened another depot in East Wall in Dublin and it has further plans to open depots in Cork and Belfast. This company exports approximately 20,000 tonnes of wood pulp substitute. If it were affiliated to the Smurfit group or some other high-flying company would a niche have been found for it? The company provides employment for 33 people for whom the future was very bleak. The Revenue Commissioners are nit picking to such an extent that they are drawing a fine distinction between ordinary waste paper and the finished product, an environmentally friendly wood pulp substitute which exceeds the Government standard for such products. Being turned down for the 10 per cent corporation tax has major implications for the development and further growth of this company. The company's growth is dependent on reinvesting profits as it does not qualify for any State backed assistance, is too big for county enterprise funding and is specifically excluded by the criteria applied by Forbairt. Without manufacturing status the company is not eligible for BES funding. As a direct result of the Revenue Commissioners' decision the company will have to reconsider its planned Dublin expansion at East Wall and the creation of 15 jobs for the long term unemployed. It also places some of the existing 33 jobs in Dundalk in jeopardy. The loss of manufacturing status represents the loss of £60,000 to a company at its very early stages when funding is badly needed.

I lobbied the Minister on behalf of this company and I thank him for the very sympathetic hearing he gave to the company's case. He met with members of this company and went to extraordinary lengths to try to accommodate them. He arranged a meeting with the Revenue Commissioners at very short notice. I know the Minister is sympathetic but I wonder who is running the country — is it Ministers or the Revenue Commissioners?

It is the Minister who is responsible. There should be no reflection on officials.

It is the Minister who is responsible and the Minister knows I am passing no reflection on him. I know he is sympathetic and even if he has to turn down this proposed amendment I know he will continue to help this company. Time is of the essence and the company needs help very soon. I suggest the Revenue Commissioners would lean over backwards to help a Smurfit company and small companies have to——

I have to intervene to say that officials should not be reflected upon. It is the Minister who is responsible.

He is nominally responsible in this case but the Revenue Commissioners turned down the company.

The people to whom the Deputy refers are not here to defend themselves.

This company gave 33 young people hope for the future. It needs help and the Revenue Commissioners are drawing a very fine distinction that I feel is very wrong. I ask the Minister to accept this amendment.

I agree with Deputy McGahon that we had a good Committee Stage discussion on this amendment and it has now been resubmitted by Deputy McDowell. The amendment was carefully crafted by experts in this area who would have advised the company that this was the proper approach. The Minister says he is sympathetic towards the company but I appreciate that he would have difficulty in extending the 10 per cent corporation tax rate.

Before the activities that qualify for corporation tax at the 10 per cent manufacturing rate were redefined, it gave rise to some ridiculous interpretations of manufacturing activity, for example, banana ripening and moving coal around at the port were so classified. I speak as someone who benefited from interpreting the law as it was. I have no quibble with the Minister about bringing in changes in that regard as to deem those activities as manufacturing was a bit extreme. That is the dilemma in which the Minister is now caught. I think there is a case, however, for identifying companies in certain sectors and giving them a low rate of corporation tax. Deputy McGahon outlined the background to this company which is one of the successes of the 12 Government-sponsoredProgramme for Economic and Social Progress areas. This initiative was much derided — in fact, I may have said in Opposition that I did not see how it would work but this company was created under that initiative. The person who runs the company had the guts to go ahead with his idea which has worked successfully and he is employing many people. This company is processing waste in an environmentally friendly way, in line with Government policy on waste.

The case I am making is not that the company should qualify for manufacturing tax relief but that the type of activity it is engaged in should benefit from a lower tax rate. The only device open to the Minister to achieve this is by amending this section, and we all tabled similar amendments on Committee Stage. Will the Minister devise a method whereby a company such as this engaged in environmentally friendly activities will benefit from a lower tax rate? In fairness to the Revenue Commissioners, we should have a lower tax rate for specific activities because we cannot start interpreting the law to suit companies in our own constituencies. Companies deserve to be in a lower tax band on the basis of the type of business they are engaged in. The only device open is to have the amendment written into the section in order that the company will qualify as a manufacturing company.

I join with the two previous speakers in lending support to this unique company, which was one of the successes of the Dundalk employment partnership. Early in the partnership there were not too many successes and people wondered if the initiative would be successful. In the past two to three years there has been a growth of activity in the partnership. When times were tough Secure Shred was started by one person with an idea and he got backing from the employment partnership and a number of business people in the town who were requested to participate.

The company found a niche in the market. We should encourage people to forage for opportunities and give them every assistance. The company has a statable case to make about whether this type of process is "manufacturing", should it wish to go to court. Look at what happened to the ripening of bananas which is close to our hearts in Dundalk. I know that the company was closed but it is a grey area. Secure Shred has shown the way and should be encouraged otherwise it will not grow. It has the potential to grow into a large company and create jobs not only in my constituency but in Dublin.

As my constituency colleague, Deputy Ahern, stated this company grew from an employment partnership arrangement in Dundalk. While the performance of employment partnerships generally has been somewhat erratic this development was worth while. It has changed hands and those involved in its management feel that the tax treatment they seek will be the catalyst for further growth.

This provision in the tax code has played an important role in the development of sectors which might not otherwise have developed. I have in mind the mushroom industry which has grown over the last ten or 12 years. The special tax provision gave it the impetus to grow. Such growth has been concentrated mainly in the north eastern part of the country and is of great importance to the local economy and job creation.

Recently the Small Firms Association made a comparison between a service company here and one in the North. Its conclusions make ominous reading. The indicators are that we might not get the investment we need in Border counties such as Louth which has suffered during the last 25 years through lack of investment. While the position has been turning around in the last four or five years, the reality is that for those with money to invest the determining factor is the amount of profit they make. A reputable accountancy firm was asked to make the calculation. It is freely available and I am sure the Minister and his officials are aware of it. It indicates that underlying costs show a clear advantage in favour of a company establishing in Newry. We must address this if we are to encourage investment in the six Border counties and in the six counties.

This issue is so important that we should mention it at every opportunity particularly when the Minister for Finance is within earshot. I will raise it again when those who are heading off to the investment conference in Washington come home and tell us about the possibilities which they hope will flow from that. I support the Deputies who advocated the cause of Secure Shred in Dundalk. It is a worth while project and if the Minister accedes to our request he will do a good day's work.

There is a serious point of principle involved. While the employment which the company have created is laudable and should be put on record there are umpteen other companies creating employment. That is not to take from the case being made by Deputies Kirk, Ahern and McGahon. This is a new area of development in that the company is involved in an environmental issue. Such issues are coming on the agenda and the Minister must take that on board. Are we committed to the environment? If so, what taxation policy decisions can the Minister take to ensure that companies such as the one in Dundalk will develop?

It is unfair and incorrect to compare the radical transformation which occurs there to ripening bananas and moving coal around. That was a nonsense and when the 10 per cent tax regime was reformed it was rightly done away with. In this case, however, a substantial change occurs and it deserves consideration on that basis and also on an environmental basis.

We are often told by domestic firms that if they were multinational companies doors would open and grants would be pushed their way. If a multinational company came to the Minister with this project I suggest there would not have been any question about the 10 per cent manufacturing rate. Rather all the benefits under various taxation headings would have been available to it. If this could not be done under existing provisions I have no doubt but that we would ensure, under this Bill, that such a development would be granted the 10 per cent manufacturing rate in order to encourage the company into the country.

The Minister has a decision to make which will receive all party support. We must be seen to encourage this kind of development particularly where recycling of waste paper is involved. This project stands on its own merits irrespective of its location and the number of jobs created. The criteria to which the Minister must have regard are whether it undergoes a radical process in the widest definition of manufacturing, which it does; whether this is a new departure, which it is; and whether a new policy is needed in this area, which there is. He is making a fundamental policy decision on these matters and he will be applauded by Members on all sides of the House if he directs revenue towards this area. I ask him to bear in mind the legitimate argument I have put forward. If a multinational company which proposed to set up here put forward this proposal to IDA Ireland we would fall over ourselves to ensure that the 10 per cent manufacturing rate applied to it. If the Minister makes a definitive policy statement in regard to indigenous, innovative, new and export orientated industry it will be supported by all sides of the House.

There are two issues involved here, one of which relates to the company, the merits of which have been put on the record and which I support. We cannot make law for individual companies, and I think everyone knows that. We live in a republic which is ruled by law and where everybody is treated equally before the law and by those people, including the Revenue Commissioners, who are statutorily charged with administering it. Deputy McGahon in his characteristically colourful phraseology said that one might be treated differently from someone else by virtue of who they were. That belonged to the regime which we got rid of in 1921-22.

The 1994 regime.

The Minister should tell that to his erstwhile colleagues on the other side of the House.

This is a different state, and long may it remain so.

As a member of the European Union there are constraints on us in relation to the operation of the internal market, specifically with regard to competition. Deputy Kirk referred to the 10 per cent regime as it applied to the very welcome growth in the mushroom industry in Monaghan and the north east. The competitors in the internal market located in the United Kingdom who took an action through the legal process open to them as fellow citizens of the EU were successful in convincing the authorities that there was unfair competition in treatment under the taxation system. We cannot make a law in this respect without having regard to that reality.

This company has already met with the Revenue Commissioners and it has received a very sympathetic hearing. It would be useful to put on the record some comments on the evaluation of the process. The nub of the issue is whether the activities of the company taken together constitute manufacturing for the purposes of the Act, which ultimately has to be determined by the Revenue Commissioners. The company has not yet made an appeal to the appeals commissioner and it may do so if it wishes. The company did not come through the first round with the Revenue Commissioners for the following reasons:

Basically what is involved is the manual sorting of the waste paper into various grades, the removal of paper clips, binders, contaminants etc. The paper is, then, compressed and baled. The baled secondary fibre must conform to certain standards, for example, a bale of "High Grade" must contain at least 80 per cent of a certain type of fibre and must have no contaminants. However, this standard is achieved by a manual sorting and removal of items as the waste paper passes on a conveyor belt rather than by any process which could be regarded as manufacturing. Before compression the paper passes through a ruffler which basically "whirls" and mixes, to a limited extent, the paper. Thus, at the ruffling stage, any remaining paper of a different grade is mixed with the main grade of paper being worked on. The action of the ruffler also breaks down (i.e. tears) the paper prior to bailing. Nothing is added to the paper in this process.

The waste paper acquired by the company is not suitable for use in paper or plasterboard production. The process adds value by sorting and decontaminating the product. However, at the end of the day, there is no change in the character of the product. In Revenue's view manufacturing relief would be denied by section 39 (5) (IV) of the Finance Act, 1980 introduced in 1990——

I do not propose to give the legal reasons for this. The law was reformed in 1990 by the Fianna Fáil-Progressive Democrats Government following various cases, for example, the infamous banana ripening case, and this had the broad support of everyone. The company did not overcome the hurdle in terms of the definition of that law. In terms of taxation law, the company has the right to take its case to the appeal commissioners, which would seem to be the next logical step.

On the wider issue, for which I have full sympathy, we need to treat waste recycling and that type of industry more favourably than we are doing at present. For example, according to the documentation Deputy McGahon showed me last night for reasons of policy Forbairt has excluded itself from assisting this kind of activity. Next week the Minister for the Environment, Deputy Howlin, will publish the Waste Bill which will attempt to introduce some degree of commerciality into waste activity, reprocessing and recycling.

There is no denying the benefit of the company and the need to do the sort of things to which Deputy Cullen referred. However, changing the law in this section is not the way to do this. For those reasons I cannot accept the amendment. I will continue to give whatever help I can to this company which should avail of the procedures open to it. I formally undertake to raise the matter with the Minister for Enterprise and Employment to see if Forbairt can provide the company with the kind of grant assistance which would otherwise be available to it as an indigenous company.

On the inference that foreigners coming into the country got a better deal in terms of treatment by State agencies——

It was a perception.

It was a perception, however erroneously formed, and it was widespread. However, we have dealt with this by designating the IDA as an international division for inward investment and giving Forbairt responsibility for promoting and facilitating domestic industry. Clearly the waste area should be seen as an indigenous part of industry with considerable potential. Proper supports are not in place at present and I undertake to raise the matter with the Minister for Enterprise and Employment. Regrettably, I cannot accept the amendment.

I am deeply disappointed at the attitude taken by the Minister. If this industry takes off there is nothing to be lost and everything to be gained from the point of view of the Exchequer, the environment and exports. If this company is denied BES status and the lower rate of taxation, all we will do is stunt in its infancy an industry which would be of huge value to the country. We have nothing to lose in this matter, yet despite this the Minister is taking an abdurate stance.

I accept that the Revenue Commissioners behaved impartially and fairly in their approach to this company's activities and, because of that, the amendment was tabled. The reason the Revenue Commissioners rejected the application of this company to be treated as manufacturing, in the absence of this legislation, is not a reason to argue against the legislation. If it was not necessary to amend the legislation I was the first to agree on Committee Stage that it would be preferable to go along that road. We now know that the Revenue Commissioners take the view that this is not manufacturing under the law as it stands, and, therefore, as politicians we have to make a policy decision on whether it should be included in manufacturing by way of a special exception for all the reasons which have been advanced and which I will not repeat because I am merely replying to the debate. Very definitely this activity is one which deserves support.

The Minister said he thinks it appropriate it appeals to the Appeal Commissioners if dissatisfied. With respect, the Minister is effectively saying that if there is something wrong with the reasoning he read out as to why the existing law prohibits the company from being treated as manufacturers it should appeal to the Appeal Commissioners, who might take a different view. In all probability, based on the reasoning we have just heard from the Minister which came from the Revenue, the Appeal Commissioners would take the same view as the Revenue Commissioners. We would then be back to square one and no further progress would be possible.

I am talking about industry which will be established if there is a BES scheme underpinning this particular activity. I can well imagine that not alone would the project in Sheriff Street go ahead but that regional businesses in Cork, Limerick and other places would be established as part of Secure Shred Limited. This is a prime example of taking a stance on principle when the principle is not worth the candle because nothing would be lost by assisting this company. Would there be a revenue loss if this change was made in the law? I suggest there would not.

I make this point as strongly as I can and it is a pity this is not a Committee Stage debate. Deputy McGahon, somewhat colourfully, contrasted the treatment of this company with what other larger companies, by name, might receive. If this activity was carried on as part of the premises of the paper mill company to which he referred, nobody would come from the Revenue and say: "ignore this activity of shredding and baling which you are carrying on here as it is not part of the process". They would say it is a very definite part of the process, it is the preliminary stage in the manufacturing process. Nobody would say this has nothing to do with manufacturing paper. We will discount all that aspect of the plant's activity because it has nothing to do with the final product. What the Minister is saying — and I can see it clearly now — is that if I was like the gentleman named by Deputy McGahon, a large paper producing entrepreneur, I could carry on this activity in my plant, get BES scheme approval for the whole plant and 10 per cent corporation tax rates arising out of the activities of the whole plant and the Revenue Commissioners would come sniffing around and say: "this group of people are merely baling, compacting, sorting, decontaminating and so on". Nobody would dare say they should be excluded from the whole arrangement. The net effect of not acceding to this amendment is that a person can obtain the 10 per cent rate provided they combine this activity with another stage in the manufacturing process, but not if it is kept separate. As Deputy Cullen said, that defies logic.

It fulfils logic.

It does not. It defies logic. In the last analysis where there is a young company which is a preliminary part of the manufacturing process of recycled paper, the Minister is saying that if its activities were carried on in conjunction with others it would attract the 10 per cent rate but because it is not the full manufacturing process, merely a preliminary part of it, it will not attract the 10 per cent rate. I implore the Minister to take the view that this ought to be seen as a manufacturing process by changing the law. I fully respect the ruling of the Revenue Commissioners. It is a political matter now and not one for the Revenue Commissioners. There will not be an Exchequer loss. There is nothing to be lost and everything to be gained by being flexible on this occasion.

Why would this company not locate in Newry now? Why bother remaining in Dundalk? There are no restrictions on movement of the paper north of the Border. Why not go to somewhere north of the Border and carry on the business there where they would get a slightly more sane tax regime in relation to employment taxes and levies? I fully accept the arguments made by the Revenue Commissioners as the law stands. This amendment was tabled because we thought that argument was relevant. I ask the Minister, even at the eleventh hour, to reverse his decision and to allow this company to grow because there is nothing to be lost and everything to be gained.

Amendment put and declared lost.
Bill recommitted in respect of amendment No. 59a.

I move amendment No. 59a.

In page 110, to delete lines 3 to 35, and substitute the following:

"65.—(1) Subject to subsection (2), any restriction or reduction imposed by paragraph (a), (b), (c), (d) or (e) of subsection (1) of section 55 of the Finance Act, 1992, in respect of a chargeable period in the case of a company which fails to deliver a return of income on or before the specified return date for that chargeable period shall apply and have effect subject to—

(a) in the case of the restrictions or reductions imposed by paragraph (a), (b) or (c) of the said subsection, a maximum restriction or reduction, as the case may be, of £125,000 in each case for the chargeable period, and

(b) in the case of the restrictions imposed by paragraph (d) or (e) of the said subsection, a maximum restriction of £50,000 in each case for the chargeable period.

(2) Where in relation to a chargeable period a company, having failed to deliver a return of income on or before the specified return date for that chargeable period, delivers the said return before the expiry of two months from the specified return date, paragraphs (a) to (e) of subsection (1) of section 55 of the Finance Act, 1992, shall apply and have effect—

(a) as if the references therein to ‘50 per cent.' were references to ‘75 per cent.' in the case of paragraph (a), (b), (d) and (e) and ‘25 per cent.' in the case of paragraph (c), and

(b) subject to —

(i) in the case of the restrictions or reductions imposed by paragraph (a), (b) or (c) of the said subsection, a maximum restriction or reduction, as the case may be, of £25,000 in each case for the chargeable period, and

(ii) in the case of the restrictions imposed by paragraph (d) or (e) of the said subsection, a maximum restriction of £10,000 in each case for the chargeable period.

(3) This section shall apply and have effect as respects chargeable periods ending on or after the 6th day of April, 1995.".

The purpose of the provision contained in the Bill is to amend section 55 of the Finance Act, 1992, which restricts certain relief in the case of companies not filing their returns on time. The objective of the measure was to grade the restrictions by reference to the length of the delay in filing and to place a cap on the level of each restriction. The amendment is necessary because the provision contained in the Bill fails to achieve the objective of grading restrictions by reference to the length of the delay in filing. It would have had the unintended effect, in some cases, of making the restrictions more severe than those filing within two months of the filing date than for those filing later. The amendment corrects this and makes sure that the proposals put forward by TALC in this area are given effect.

Amendment agreed to.
Amendment reported.

This involves the deletion of section 65 from the Bill.

We come to amendment No. 60. I observe that amendments Nos. 61 and 63 are related. I suggest that amendments Nos. 60, 61 and 63 be discussed together. Agreed.

I move amendment No. 60:

In page 111, line 27, after "disposal" to insert "or deemed disposal".

Amendment agreed to.

I move amendment No. 61:

In page 111, line 37, to delete "those rights." and substitute "those rights:

Provided that this subparagraph shall apply—

(A) as respects any reinsurance contract made before the 20th day of May, 1993, as if that contract were made on that day, and

(B) as respects any reinsurance contract made or modified on or after the 1st day of January, 1995, as if there were deleted from this subparagraph ‘being a policy issued on or after the 1st day of January, 1995,'.".

Amendment agreed to.

I move amendment No. 62:

In page 111, line 43, to delete "the".

This is a technical drafting amendment.

Amendment agreed to.

I move amendment No. 63:

In page 111, to delete line 46 and substitute the following:

"whom the reinsurance contract refers:

Provided that in computing any gain or loss in respect of a disposal or deemed disposal of, or any interest in, rights of the insured company under a reinsurance contract—

(i) there shall be excluded from the sums allowable under paragraph 3 of Schedule 1 to the Capital Gains Tax Act, 1975, so much of any payment made by the insured company under the reinsurance contract as is paid in respect of an entitlement to a payment on the death, disablement, or disease of a person, or one of a class of persons, and

(ii) there shall be added to the consideration taken into account under the said Schedule the market value of an entitlement for any period, commencing on or after the most recent acquisition or deemed acquisition by the insured company of the said rights, to a payment on the death, disablement or disease of a person, or one of a class of persons, to the extent that the insured company held the entitlement for that period in place of any return which would otherwise have accrued under the reinsurance contract and increased the said consideration.".

Amendment agreed to.

I move amendment No. 64:

In page 112, between lines 22 and 23, to insert the following:

"69.—For the year of assessment 1995-1996 and subsequent years the rate of capital gains tax shall be reduced to 20 per cent.".

Can the Minister indicate briefly what the cost would be?

I am not prepared, as the Deputy may be surprised to hear, to accept this amendment. The cost in a full year would be an additional £16 million.

Capital gains tax is one of the most distorting elements in business decisions. If it could be cut to 20 per cent it would do much to influence people not to become tax emigrants. The £16 million is not worth a candle and we should bring capital gains tax down to a rate of 20 per cent as soon as possible.

Amendment put and declared lost.

I move amendment No. 65:

In page 122, line 38, after "vehicle" to insert "and shall keep it stationary for such period as is reasonably necessary in order to enable the officer to discharge his duties".

This amendment is the result of a useful observation by Deputy McDowell on Committee Stage that on a technicality some people, with the help of eminent senior counsel no doubt, managed to evade prosecution. It is a belt and braces provision which I am happy to take on board on Report Stage.

Amendment agreed to.

I move amendment No. 66:

In page 139, to delete lines 7 to 11 and substitute the following:

"is an acceptable application, and where the tax clearance certificate has been issued, the licence continued in force or issued temporarily under this subsection shall expire upon the grant of a licence under this section and the duty deposited shall be set against the appropriate duty payable on the grant of the licence.".

Section 114 provides that, subject to the conditions set out in the section, existing or temporary excise licences will continue in force up to the date of issue of a tax clearance certificate in cases where the grant or renewal of an excise licence is held up because of tax clearance delays. The amendment now proposed is designed to meet a concern raised by the vintners trade.

I referred to this matter on Committee Stage and Deputies agreed that the amendment on the lines requested was a good one. In the normal course when a tax clearance certificate is issued the grant of an excise licence should follow almost immediately. However, to avoid any difficulties arising from a delay between the issuing of a tax clearance certificate and the granting of a licence the trade requested that the section be amended to allow continuation of existing and temporary licences up to the date of the grant of a normal licence. In this way the possibility, however unlikely, of a licensee being prosecuted for operating without a licence is removed in circumstances where there is compliance with the requirements of the section.

Amendment agreed to.

I move amendment No. 67:

In page 160, between lines 8 and 9, to insert the following:

"130.— As and from 1st July, 1995 the rate of VAT on newspapers and magazines shall be 5 per cent.".

This was dealt within extenso on Committee Stage. First, I am not happy that the State should pour money even into a new centralised printing press because, on reflection, it would be a prime example of the State pouring money into getting rid of many jobs and we would be far worse off when the VAT and the PRSI is added. Second, the 12.5 per cent rate of VAT on newspapers in Ireland is the highest in the European Union, and, with the sickest newspaper industry in the European Union, we should not have the highest rate of tax in the European Union on our newspapers.

The difficulties in the newspaper industry are far more deep seated than that and a reduction in VAT on newspapers to 5 per cent would have no overall beneficial effect on the industry.

This is a matter of cost. The comments made about the newspaper industry on Committee Stage attracted much interest. People should read the record before defining Government policy. The opinions offered were subject to a caveat in a very clear way. I readily accept that we need to do something for the newspaper industry. I am informed in part by my previous experience as Minister for Enterprise and Employment, and my colleague, the present Minister for Enterprise and Employment has attempted to respond to the problems. However, removing VAT from newspapers, even if magazines were excluded, would cost about £13 million, and it would be removed from all newspapers so the relative competitive difference, although it would not be equal across the board, would still have a knock-on effect on newspapers coming from the UK.

Reducing VAT is not part of the solution. It may well have to be examined in the context of proposals brought forward by the industry and I would like to see that happen soon. I accept Deputy McDowell's point that the newspaper industry is in trouble, and there are unique circumstances in Ireland, both commercial and cultural, that require a unique response. I was merely indicating my willingness in principle to contemplate a unique response, provided there is agreement on all sides. However, I am not prepared to recommend the loss of £13 million for little or no tangible benefit on the other side.

If I had £13 million to give away I would much prefer to see it used in the area of capital gains tax. The Minister would achieve much more for this country were he to do that.

Amendment, by leave, withdrawn.

I move amendment No. 68:

In page 162, between lines 39 and 40, to insert the following:

"139.—The rate of VAT on the golf facilities referred to in paragraph (a) of section 139 shall be 5 per cent.".

I made the arguments for this on Committee Stage and I will not go through them at length now. I accept the Minister cannot remove VAT from commercial golf courses. I emphasise that huge amounts of money, particularly European Union Structural Funds, have been poured into these developments. Very few are a big success. Many are at an embryonic stage and are struggling. In time they may be successful, but now is not the time to load on charges and level the playing pitch by imposing VAT on members' clubs, because many of them are struggling to compete. Given that there has to be VAT on commercial golf clubs, I suggest a rate of 5 per cent if the Minister wants to level the playing field. According to a survey carried out by the Revenue Commissioners, the return to the State is marginal. Certainly in four or five years time if these facilities are doing exceptionally well I would have no difficulty about charging higher rates of VAT. It is at this stage when they are only trying to get established that I would argue against it.

I am not a golfer but I have become very well educated on the extent to which golfing is a substantial industry here both from the point of view of the commercial courses and the people who play golf and are prepared to pay considerable amounts of money to enjoy the game. We have a large number of golf courses, some of which are very old and have long since discharged their capital development costs and others which are still in the process of trying to recoup their investment.

This measure is a response to a legitimate request from commercial investors who came together to provide an infrastructure for tourism of which this would be part. Yesterday Deputy McDowell said, accurately, that the traditional seaside bucket-and-spade resort activity would have to be complemented by something else in this day and age, and golf is one of the most obvious activities. This is to ensure that there would be no unfair competition between private members' clubs operating commercially by accepting green fees from visitors and not charging VAT on the fees in the way the commercial club down the road would have to charge it. This is not a revenue-gathering measureper se but an equalisation of competition. It must be seen in that context and it is fair.

There is no need to reduce VAT from 12.5 per cent to 5 per cent. It would simply open pressure on whoever happened to be Minister for Finance to transfer other categories in the 12.5 per cent bracket to the 5 per cent bracket. We could all make a convincing case as to why certain activities should be charged VAT at a lower rate. If we could lower the rates of taxation, we would do so, but there are competing demands for the provision of extra services. I am not prepared to reduce the rate to 5 per cent, not because the cost would be minuscule but because it would lead inexorably to demands for the transfer of other categories of activity from the 12.5 per cent bracket to 5 per cent.

Amendment, by leave, withdrawn.

We now come to amendment No. 69. Amendment No. 70 is an alternative. I suggest therefore that amendments Nos. 69 and 70 be taken together. Is that satisfactory? Agreed.

I move amendment No. 69:

In page 172, to delete lines 35 to 45, in page 173 to delete lines 1 to 24 and substitute the following:

"PART V

Repeal of Residential Property Tax

150.—Part VI of the Finance Act, 1983 is hereby repealed with effect from the 5th day of April, 1995.".

The arguments against the residential property tax have been rehearsed on many occasions and I do not intend to rehearse them yet again today but in summary this tax is ideological, wasteful, ineffectual, does not widen the tax base and wastes many people's time and money in collecting it, assessing houses and the like. In other words, it is not worth the candle. It is also unfair and does not take into account many factors which ought to be taken into account. It does not fund local government and makes no significant contribution to the Exchequer. If we were to measure it in terms of the Minister for Education, Deputy Bhreathnach's White Paper it would only keep her going in publications for a few weeks. Now is the time to get rid of it. After the next election it most certainly will be dropped. Those who support it are only building a scaffold and putting a noose around their necks in electoral terms if they persist with it.

I tabled an amendment to repeal the residential property tax which was put to a vote on Committee Stage. I was happy to be in a position on budget day to give a commitment that my party will repeal this tax when it returns to office. On the first day it was introduced in 1983 or 1984 I said it was a nonsense of a tax, that it was not a property tax and did not widen the tax base. It was a mickey mouse type arrangement; it was neither one thing or the other.

The Minister, Deputy Quinn, and I were members of the last Government and had to suffer political haranguing for making minimal changes last year. If one is to get involved in a big political row one should make sure to get a big slice of money. Let me give some free advice to the Minister: that is the basis on which he should operate. The little change made last year upset all those who were preaching about tax reform and the need to widen the tax base. We all knew the reason changes were made: a small group of people with a large voice in political life had been affected. This was reflected in editorial comment. It did however bring home to many people — I did not need to be convinced as I said on the first day it was introduced in 1983 that it was a nonsense of a tax — that introducing a residential property tax was not the way to deal with the matter. My party will repeal it when it returns to office after the next election.

The reason I tabled amendment No. 70 is to increase the threshold to ensure that only a few houses will be caught in the net. Having been defeated on Committee Stage I was told I would not be able to table it on Report Stage. The Minister would do himself and the rest of us a great service if he makes the changes I have outlined in next year's budget.

I agree with the Deputies that this tax measure which affects me and I suspect——

Virtually everybody in our constituency.

I hope it will not be seen that I am being politically opportunistic. People do not like paying tax, but some taxes are perceived to be more onerous or unjust than others. There is a lesson that we should learn from the disastrous 1977 election campaign. People on all sides of the House are now that bit wiser. Once one abolishes a tax base it becomes very difficult to reinstate it. With the benefit of hindsight, which is a wonderful commodity, we would all adopt a slightly different attitude to eliminating a tax base entirely.

On a number of occasions Deputy McDowell spoke about the need to reduce taxes on labour — employment taxes as they may be more accurately described — and I agree with him, but if one looks at the OECD countries and the countries with whom we are mostly in competition our tax as a percentage of GNP falls within the middle range. It is skewed because our tax base is distorted by our three traditional taxes — a sales tax, either excise duty or VAT, income and corporation taxes and a property related tax. Those who talk about the low rates of taxation in Britain and Northern Ireland never say that the workers on those rates have to pay substantial rates on the property in which they live. The rates are lower in Northern Ireland than in parts of the rest of the United Kingdom.

I am not prepared to accept this amendment because I cannot afford to lose any additional revenue from this reformed tax. What incensed the burghers of Dublin South East was not the changes in the property tax but the fact that the extra sum to be lifted approximated to the sum of £5 million which was to be given to a stadium on the north side of the city. The fact that the two measures were announced virtually in the same breath agitated more of Deputy McDowell's supporters than mine.

They do not play Gaelic.

It had a double effect. The Government comprising of Fine Gael, Labour and Democratic Left has indicated in its programme that it is considering this question in the context of how we can reform the taxation system to provide a better base from which to fund local government leading to responsible local democracy. The Minister for the Environment, Deputy Howlin, is currently working on this matter. In the meantime I do not propose to accept any changes other than the reasonable ones announced in the budget.

Has any research been conducted to see how much money would be lost to the Exchequer if the Minister increased the threshold to the figure outlined in Deputy McCreevy's amendment? As the Minister is aware, it was the policy of every party in 1977 to abolish rates. Prior to 1977 the Minister's party had helped to reduce the rate by 25 per cent.

We were all in favour of option politics until we realised we had to pay for them.

Has any research been conducted to see if the residential property tax is counter-productive? The total amount raised by this tax is not high in the context of overall tax revenue. People may well like to build larger houses. This would have a spin-off in terms of extra revenue in the building sector.

I have listened to the Minister and if he wants to reform the financing of local government and the Minister for the Environment, Deputy Howlin, is working on that, that is fine. If they want to set up an all-party committee to discuss the matter our party will be prepared to participate in it. We have always adopted that attitude because we believe that should be done.

There is a brutal tax on household property. A 6 per cent stamp duty is arbitrarily imposed on the value of houses every ten or 20 years, or whenever they are sold — I do not know the average time-span for selling a house but I presume it is every generation. Sometimes a property may be sold three or four times and in those circumstances one-quarter of its value is confiscated by the State. I am not impressed by the arguments that this is a tax widening measure or that it in any way assists in reducing tax on employment. I would be much more impressed by it if it were a general tax.

The arguments for repeal of the residential property tax are clear. It is a bad, ineffectual, ideological tax and it must go. If the Government has not the ideological unity and sense of purpose to get rid of this tax, the next Government will have to do so, and the sooner that happens the better.

Question put: "That the words proposed to be deleted stand."
The Dáil divided: Tá, 77; Níl, 58.

  • Ahearn, Theresa.
  • Barrett, Seán.
  • Barry, Peter.
  • Bell, Michael.
  • Bhamjee, Moosajee.
  • Boylan, Andrew.
  • Bradford, Paul.
  • Bhreathnach, Niamh.
  • Bree, Declan.
  • Broughan, Tommy.
  • Browne, John (Carlow-Kilkenny).
  • Bruton, John.
  • Bruton, Richard.
  • Burke, Liam.
  • Burton, Joan.
  • Byrne, Eric.
  • Carey, Donal.
  • Connaughton, Paul. Connor, John.
  • Costello, Joe.
  • Coveney, Hugh.
  • Crawford, Seymour.
  • Creed, Michael.
  • Crowley, Frank.
  • Currie, Austin.
  • Deasy, Austin.
  • Deenihan, Jimmy.
  • De Rossa, Proinsias.
  • Dukes, Alan M.
  • Durkan, Bernard J.
  • Ferris, Michael.
  • Fitzgerald, Brian.
  • Fitzgerald, Eithne.
  • Fitzgerald, Frances.
  • Flaherty, Mary.
  • Gallagher, Pat.
  • Gilmore, Eamon.
  • Higgins, Jim.
  • Higgins, Michael D.
  • Hogan, Philip.
  • Howlin, Brendan.
  • Kavanagh, Liam.
  • Kemmy, Jim.
  • Kenny, Seán.
  • Lowry, Michael.
  • Lynch, Kathleen.
  • McCormack, Pádraic.
  • McDowell, Derek.
  • McGahon, Brendan.
  • McGinley, Dinny.
  • McGrath, Paul.
  • McManus, Liz.
  • Mitchell, Gay.
  • Mitchell, Jim.
  • Mulvihill, John.
  • Nealon, Ted.
  • Noonan, Michael. (Limerick East).
  • O'Keeffe, Jim.
  • O'Shea, Brian.
  • O'Sullivan, Toddy.
  • Owen, Nora.
  • Pattison, Séamus.
  • Penrose, William.
  • Rabbitte, Pat.
  • Ring, Michael.
  • Ryan, John.
  • Ryan, Seán.
  • Shatter, Alan.
  • Sheehan, P.J.
  • Shortall, Róisín.
  • Spring, Dick.
  • Stagg, Emmet.
  • Taylor, Mervyn.
  • Timmins, Godfrey.
  • Upton, Pat.
  • Walsh, Eamon.
  • Yates, Ivan.

Níl

  • Ahern, Dermot.
  • Ahern, Michael.
  • Ahern, Noel.
  • Aylward, Liam.
  • Brennan, Matt.
  • Brennan, Séamus.
  • Briscoe, Ben.
  • Browne, John (Wexford).
  • Burke, Raphael P.
  • Byrne, Hugh.
  • Clohessy, Peadar.
  • Coughlan, Mary.
  • Cowen, Brian.
  • Cullen, Martin.
  • Davern, Noel.
  • Dempsey, Noel.
  • Martin, Micheál.
  • McCreevy, Charlie.
  • McDaid, James.
  • McDowell, Michael.
  • Moffatt, Tom.
  • Morley, P.J.
  • Moynihan, Donal.
  • Nolan, M.J.
  • Noonan, Michael. (Limerick West).
  • O'Dea, Willie.
  • O'Donnell, Liz.
  • O'Donoghue, John.
  • de Valera, Síle.
  • Doherty, Seán.
  • Ellis, John.
  • Fitzgerald, Liam.
  • Foley, Denis.
  • Geoghegan-Quinn, Máire.
  • Haughey, Seán.
  • Jacob, Joe.
  • Kenneally, Brendan.
  • Keogh, Helen.
  • Killeen, Tony.
  • Kirk, Séamus.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lenihan, Brian.
  • Leonard, Jimmy.
  • O'Hanlon, Rory.
  • O'Keeffe, Batt.
  • O'Leary, John.
  • O'Malley, Desmond J.
  • Power, Seán.
  • Quill, Máirín.
  • Ryan, Eoin.
  • Smith, Brendan.
  • Smith, Michael. Treacy, Noel.
  • Wallace, Dan.
  • Wallace, Mary.
  • Walsh, Joe.
  • Woods, Michael.
Tellers: Tá, Deputies Barrett and B. Fitzgerald; Níl, Deputies O'Donnell and Keogh.
Question declared carried.
Amendment declared lost.
Amendment No. 70 not moved.

I move amendment No. 71:

In page 177, line 31, to delete "that section." and substitute "that section:

Provided that the rate at which interest is payable upon any overdue instalment of that whole or part of the tax, or upon such part of the tax as would represent any such overdue instalment if that whole or part of the tax were being paid by instalments, shall continue to be at the rate specified in section 41 of the Principal Act.".

Section 163 gives a person accounting for CAT on business and agricultural assets the option to pay CAT by five yearly instalments subject to interest at 9 per cent. Interest on outstanding taxes is normally payable at 15 per cent per annum. The purpose of the amendment is to ensure that instalments not paid on time will lose the benefit of the 9 per cent interest rate. The amendment provides that interest on overdue instalments will be charged at 15 per cent and it would not be appropriate for those who indefinitely delay payment of taxes to be allowed the 9 per cent rate.

Deputies will recall that during the debate on the Finance Bill and the budget I introduced a change in the general operation of CAT to make it more favourable, but it will apply only to those who are tax compliant. We cannot allow people who now enjoy a more tax favourable regime to delay payment of moneys and not to attract the normal penalties associated with such delay. I am making a distinction in law that those who pay their CAT obligations on time will be entitled to a reduced rate of 9 per cent, effectively the commercial rate, but if they do not pay them on time for whatever reason they will be subject to a penalty of a 15 per cent interest rate. I consider that a reasonable proposal.

Amendment agreed to.

I move amendment No. 72:

In page 177, between lines 31 and 32, to insert the following:

"(3) For the purposes of this section the value of a business or of an interest in a business shall be taken to be its net value ascertained in accordance with section 132 of the Finance Act, 1994.".

Amendment agreed to.

I move amendment No. 73:

In page 179, between lines 40 and 41, to insert the following:

"166.—Section 146 of the Finance Act, 1994 is hereby amended by the insertion of the following subsections after subsection (4):

‘(4A) In the case of an application for registration, the provisions of this section shall only apply where the property was the subject of a gift on or after 28th February, 1974 or was the subject of an inheritance on or after 1st April, 1975 and in all other cases shall only apply to any application to be registered as owner of property where the person applying to be registered as owner was entitled in possession on or after 11th April, 1994:

Provided that this section shall not apply, in its entirety, to any application which is—

(a) property which is valued on the date of application pursuant to the provisions of the Act of 1964 at a sum not exceeding £11,880, and

(b) property which comprises less than one hectare.

(4B) Without prejudice to the foregoing provisions, in any case where the Revenue Commissioners are satisfied that the person applying to be registered as owner of the property acquired the title under the Act of 1964 otherwise than by gift or inheritance from a relative and in such circumstances that, had the spouse of the person applying to be registered been the person applying to be registered as owner, would have acquired title under the Act of 1964 otherwise than by gift or inheritance from a relative the Commissioners shall issue a certificate for the purposes of subsection (1) subject to such qualifications as the Commissioners think fit, and shall not be a certificate for any other purpose.'.".

This technical amendment was put forward by Deputy Ahern. It relates to the title of a property when squatters' rights are involved. The Minister said he would consider this amendment on Committee Stage.

I echo what Deputy McCreevy said. I would be interested to hear the Minister's views on this as he indicated on Committee Stage that he would bring forward his proposals.

The practice of proving wills and stamping deeds ensures that a majority of gifts and inheritances of land will be disclosed to the Revenue in the normal course of establishing title to land. An alternative method of proving title, however, involves entering into possession of land and eventually applying for a title by long possession — so-called "squatter's title". Section 146 of the Finance Act, 1994, was designed to ensure that establishing title by that alternative method would likewise entail the disclosure to the Revenue of relevant gifts and inheritances. The section achieved the desired result by requiring applications for registration of title based on long possession to be accompanied by a Revenue clearance certificate.

What part (A) of the amendment tabled by Deputies McCreevy and Ahern proposes is that the Land Registry should not require production of a Revenue clearance certificate where it is satisfied there was no relevant taxable gift or inheritance or where the value of lands of less than one hectare does not exceed £11,880 — the current Class III threshold.

Part (A) may also propose that the Land Registry should not require production of a Revenue clearance certificate where the applicant for registration based on possession is a bona fide purchaser who acquired the property for full consideration prior to 11 April 1994, the operative date mentioned in section 146.

The proposed amendment would place additional burdens and responsibilities on the Land Registry and therefore runs counter to one of the aims of section 146, which was to achieve the desired objective with as little additional strain as possible on the already over-stretched resources of the Land Registry. Apart from that, it is not considered that it would be appropriate, desirable or conducive to the efficient administration of section 146 to transfer from an area of tax expertise to an area without tax expertise such tax-related questions as the definition of a gift or inheritance, the value of land, and the question of whether a disposition of land was a bona fide sale for full consideration.

It is clear — even from the amendment itself — that the changes proposed would introduce a level of efficiency by requiring that values in small cases — less than £11,880 — should be substantiated where the area is less than one hectare. At present there is no automatic requirement of this kind, since processing by the Revenue tends to ensure the ready availability of a large number of other "exempting" criteria including, for example, a tax-free threshold, before agricultural relief, of £178,200 in Class I relationships

While the necessity to apply for a Revenue clearance certificate could not be introduced without imposing some additional burden on persons who, for one reason or another, seek to establish title by long possession, the Revenue believes it has been extremely successful in keeping that burden to a minimum in the close on 1,800 applications which it has received to date. This result has been achieved by the Revenue in three ways: by providing an application form which is short, simple and easy to complete; by issuing clear guidance notes to all practitioners; and by fulfulling an undertaking given after the passing of the Finance Act, 1994, to monitor closely the operation of the new section with a view to the achievement of its objectives in a manner that would keep both compliance costs and any element of delay to a minimum. That undertaking acknowledged that many applications for title based on possession are in respect of relatively small acreages of very limited value, and that the Revenue would deal pragmatically with such small cases.

One further point in relation to part (A) of this amendment, given that one of the objectives of section 146 is to elicit information about undeclared gifts and inheritances, it cannot be accepted that a clearance certificate should not be required where a person who purchased land prior to 11 April 1994 is applying for registration after that date. Such purchasers are expected to be in a position to provide relevant CAT information and there is no reason they should be treated any differently in this respect from a person whose purchase did not occur until after 11 April 1994. Admittedly, since they concluded their sales prior to the introduction of the clearance certificate requirement, they will not be in a position to make it a condition of sale that the vendor should discharge his CAT liabilities and obtain a certificate of clearance under section 146. They will be able to obtain such a certificate on their own application, provided they furnish the title information which they have at their disposal. Section 146 (3) already provides for this situation by enabling the Revenue to issue a qualified clearance certificate. Consequently, no new legislation is needed for purchases which occurred prior to 11 April 1994.

Part (B) of the amendment appears to propose that where an applicant for registration of title based on possession acquired his title — by purchase or by squatting — from a person to whom he or she is unrelated the applicant should be issued with a clearance certificate without having to satisfy the Revenue that the conditions of section 146 (1) with regard to payment of any outstanding CAT have been complied with.

What has already been stated with regard to the position of applicants who purchased land prior to 11 April 1994 applies equally to the applicants referred to in part (B) of the amendment. Being applicants for registration of title they are expected to be in possession of information which is relevant for CAT purposes and which should be furnished to the Revenue before registration takes place. If they also happen to be persons who purchased the property after 11 April 1994, they will, in addition, by an appropriate condition of sale or by requiring the vendor to register his or her title, be able to ensure that any outstanding CAT charges will be discharged by the vendor before the sale is completed.

The Revenue, while satisfied that compliance costs and any element of delay are being kept to a minimum, will continue to monitor the situation and to examine carefully each new proposal aimed at administrative or legislative improvement in this area. In addition, should there be residual areas of difficulty which are causing problems, the Revenue is prepared to enter into discussions with practitioners with a view to issuing any statement of practice which may be needed to supplement the guidance notes already issued.

I hope this clarifies the position for the Deputies as I cannot accept the amendment. I will submit to the movers of the amendment the technical information I have just read.

Amendment, by leave, withdrawn.

I move amendment No. 74:

In page 179, between lines 40 and 41, to insert the following:

"166.—The Capital Acquisitions Tax Act, 1976 is hereby amended by the inclusion of the spouses of beneficiaries for all transactions under this Act, who will have an equal threshold, and this provision hereby includes all applications currently and in the future before the Revenue Commissioners.".

A similar amendment was tabled on Committee Stage about which my colleague, Deputy Noel Treacy, put forward a strong argument. When a person bequeaths a gift to a son and daughter-in-law, as the daughter-in-law is not a blood relation of the disponer, difficulties may arise regarding the amount of tax to be paid. If the son dies and the property is given to the daughter-in-law, the threshold of £178,000 applies, but if, for particular reasons, a disponer wishes to bequeath a gift in joint names to a son and daughter-in-law, an anomaly exists regarding the threshold. The purpose of the amendment is to ensure that an equal threshold applies. On Committee Stage Deputy Treacy instanced a case where, for good reasons, a disponer bequeathed his property jointly to his son and daughter-in-law and this anomaly is causing a great deal of hardship in that case. I ask the Minister to accept the amendment.

Our position has not changed since we last spoke about this matter. I am aware that Deputy Treacy is relating his amendment to an agricultural experience but the law extends right across the CAT provisions. If Deputy Treacy has identified a particular category of hardship, I suggest he, with the assistance of the excellent accountancy and revenue skills which Deputy McCreevy clearly possesses, should make cases on hardship grounds to the Revenue Commissioners. For the following reasons I am not prepared to accept the amendment. First, it would facilitate avoidance of CAT by encouraging gift splitting and would further reduce an already narrow CAT base. The cost could be anything up to £5 million per annum but that is only an estimate. Second, a son-in-law or a daughter-in-law has no claim to greater equity than a brother, sister, nephew or niece. The existing differentials in the CAT thresholds follow a logical pattern and it is difficult to envisage a change for one relationship without corresponding changes for others. In this connection, it is worth noting that the Succession Act does not recognise any moral claim by a son-in-law or daughter-in-law against a deceased person's estate. That fundamental point should be borne in mind. If we were to interfere through this legislation with relationships of a familial nature, it would have consequences in other aspects of legislation — although I do not wish to anticipate what those relationships might be if the people decide to change the Constitution in respect of divorce. Finally, under the existing CAT code, where the spouse of a son-in-law or a daughter-in-law is deceased, that son-in-law or daughter-in-law is entitled to the higher threshold belonging to the deceased spouse.

I will ask Deputy Treacy to communicate with the Revenue Commissioners.

Amendment, by leave, withdrawn.

I move amendment No. 75:

In page 180, between lines 36 and 37, to insert the following:

"170.—Section 154 of the Finance Act, 1994 is hereby amended in so far as it has application to an employment situated in Northern Ireland:

(a) (i) by the substitution of “5 consecutive days” for “14 consecutive days” in paragraph (a) of subsection (2),

(ii) by the substitution of the following paragraph for paragraph (b) of subsection (2):

‘(b) one of which the individual concerned is absent from the State, and present in Northern Ireland for at least eight consecutive hours during the day.', and

(b) by the insertion of the following proviso after paragraph (c) of the proviso to subsection 3:

‘Provided that paragraph (b) (i) shall not apply to an employment which is subject to the provisions of part III of Schedule 6 to the Income Tax Act, 1967, solely by reason of the employment being situated or exercised solely in Northern Ireland.'.".

This amendment, in my name and that of Deputy McCreevy, was put down on the suggestion of a committee of my party whose members are Border Deputies. For the past number of weeks, we have examined this issue with a number of experts in the field of taxation to come up with a solution which will address the particular problem relevant to Deputies who represent Border constituencies. Approximately 12,000 people who live in the Republic work in Northern Ireland. This issue mainly concerns workers but a sizeable number of pensioners, who may have worked abroad, in the UK or in Northern Ireland are affected also. If we were to include them in the figures, it would bring the total number of people affected to approximately 50,000.

The ongoing peace process has changed the landscape of the Border in terms of the economy and from a taxation point of view. People can now travel back and forth across the Border more freely but that will cause its own particular difficulties. People to whom I have spoken in relation to this issue have said they are considering leaving the State to take up residence in the North.

The effect of this amendment would be to disregard for Irish tax purposes a portion of the employment income from the North. The amount disregarded is broadly proportionate to the number of days worked abroad in the year. For instance, if somebody was working in the North for 265 days out a total of 365 days, they would be taxed on a proportionate amount of the income they earned in the North.

When the Tánaiste visited Letterkenny recently, he met the cross-Border workers' group. I understand he agreed that this problem should be addressed and he gave an undertaking that it must be resolved. When the Taoiseach was in Opposition he also met a number of representatives from the group and he suggested that the existing measure was probably in breach of human law rights. He also gave a commitment that if Fine Gael was in Government, it would address this matter. I know the Minister for Finance met the group and has given its members certain commitments in this regard. I ask him to look favourably on this amendment because it has been well drafted with expert advice and meets the needs of many of the people involved.

I support this amendment which is of crucial importance in regard to the Border areas. Fortunately, we have considerable mobility in relation to employment opportunities within all the counties of Ulster. The present tax position, if left unamended, will discourage people from living on the southern side of the Border. Many of my constituents, particularly people from the west Cavan area, are employed in Fermanagh and I want those people to continue to live in County Cavan. The present tax regime imposes an unfair burden on people who are introducing purchasing power into our economy. This is the appropriate time to encourage more cross-Border movement of people.

I too support this amendment. This issue has become one of political significance in the Border counties. As Deputy Ahern outlined, many people are caught up in this double taxation measure as a result of the 1976 Act. There is a significant differential between the level of taxation north of the Border and here, and that is the core of this issue. Many people who work in the North but who live on this side of the Border are helping to boost our economy and there is a case to be made for special consideration of their individual circumstances. The amendment is framed to allow the Minister to introduce the necessary changes that will alleviate the problems experienced by these people. I urge the Minister to give the amendment due consideration.

I support the amendment and reiterate many of the points made by my colleagues. This is a unique predicament requiring a unique decision. I realise many people travel to England and Europe to work but, with the peace process now in place, more people will travel to Derry, Fermanagh and Armagh to find employment. We do not want that to happen because it would be a great loss to our economy.

It is a reflection on the quality of the public representation.

The public representatives will ensure that they keep their voters. One of the problems for these people is that they are regarded as self-employed and required to send in their self-assessment forms to the Revenue Commissioners. They must pay preliminary tax, if they do not pay the 90 per cent, they are fined and that is one of the main problems. These people must make a concerted effort to put aside £2,000 or £3,000 to pay the Revenue Commissioners at the end of the tax year whereas if they were paying tax every week or every month, it would be easier. A suggestion was made to the Revenue Commissioners that it should work with the PAYE system here but apparently that is not feasible. People are aggrieved, and think they should not be taxed on their full income on which they have already paid tax under the British system. We have done our utmost to introduce new legislation to deal with this. Will the Minister advise us on the cost implications of this amendment?

The double taxation arrangement with Britain is full of anomalies. Tax is based on domicile: people living in the North and working in the South pay tax in this State and do not get a rebate by virtue of living in the North; people domiciled in the South and working in the North pay the British rate of tax and subsequently have to pay the difference between the rate of tax in the North and the South to the Revenue Commissioners. A much more serious anomaly is that people domiciled in the South who work in the public service in the North only pay the British rate of tax. Let us take the example of a civil servant and a bank clerk in Monaghan town who travel together to work in Armagh. The civil servant pays the British rate of tax and nothing more, whereas the bank clerk pays the British rate of tax in the Six Counties and then has to pay the difference between the Northern and Southern rate on this side of the Border. This is a major anomaly. Will the Minister have it examined? We need to address the rate of tax people pay in the context of the European Union.

In the light of the peace process and the ease of movement of peoples North and South it is appropriate that this issue be addressed. I support my colleagues in asking the Minister to accept this amendment.

I support this amendment. I would like to see this controversial matter resolved. The previous speaker referred to the anomaly between those working in the private and public sector in the North and I have been making representations on such a case for years. Two people, practically the same age living in the same street of a Border town travel together to their public service jobs in the North, one, who was born in the North is clear but the other who was born in this State has to pay additional tax. He refused to pay, the arrears built up and he eventually had to pay up. It was a very controversial point between these men for many years. I hope this issue can be resolved. It would be a good day's work if the anomalies could be ironed out.

I support my colleague's amendment. This is an issue that has been ongoing since 1926 and we look forward to the Minister's reply on it.

Will you give me the same amount of time to come to a conclusion?

The Minister could have given us a bit more.

I appreciate the Minister has taken this issue on board as a result of this amendment. The Bill may affect people in general but there may be specific cases which cannot be covered by the Bill and I ask the Minister to look at them because there seems to be an infringement of rights. How much taxation accrues to the Revenue Commissioners annually from this measure?

About £12 million.

This has been a contentious issue for people in Border areas. The peace process will encourage people to move to Northern Ireland, something that none of us would desire.

This amendment gives us the opportunity to air this long running problem. Deputy McDaid said it goes back 60 years or more. The present campaign probably started in my constituency because many people throughout Donegal and in other Border counties are affected by this anomaly. The Minister said it would cost in the region of £12 million to give this concession which is a considerable amount but if we do not do something positive the danger is that people living in the Border counties will take up residence in Northern Ireland. I had a very interesting two-day visit to Northern Ireland last Monday and Tuesday. The situation has changed completely, peace is obvious everywhere; men, women and families are out and about their everyday business and the country between Derry and the coast as far as Belfast would be very pleasant to live in. I hope more people will go North to sample its beauty.

I have had correspondence from the Minister on this matter and I understand an internal departmental committee is looking at this issue. As far as I know this is the first positive response we have had since I came to this House. There may be a European dimension. I know people in France, Spain, Germany and Luxembourg travel from one country to the other and we must learn from them as they too have had as turbulent a history. The people affected by the Northern troubles have been waiting for a long time and what we have over-looked for 60 years cannot be put right in six months but I hope it will be addressed in a meaningful way.

In one sense I am more geographically remote from this problem than other speakers but it is not just confined to Border counties as people from counties Meath, Kildare and Dublin work in these circumstances and are dealt with in the way the law provides. Inevitably there will be problems as long as our taxation system and that in Northern Ireland is radically different. I do not want to repeat what I have said on many occasions but the peace process, as other speakers have said, has drawn the curtain on a situation which the threat of violence in some way kept obscure. Now in clear daylight we can see the consequences of the radically different taxation systems North and South. We have to deal with it. It will get worse because it appears that the British Conservative Party in its drive to be re-elected will reduce taxation on work even further from 25 per cent to 20 per cent.

——and increase their borrowings and their deficit.

They may do all those things and that is probably what will happen but the distortion along the Border in terms of taxation will get worse. It should be possible to deal with the matter and doubtless, as Deputy McGinley said, there are all sorts of precedents in Europe as to how to deal with Border region workers. As long as the two tax systems are radically different people will migrate to escape our taxation system.

Deputy Coughlan made an important point with which I agree. If they go across the Border the net loser will be the southern economy. We must be realistic about this. People will move to where there is a better tax system. I know professional people whose practices are south of the Border but who reside in the North to escape the Irish taxation system. This trend will increase and the peace process is the catalyst which will facilitate it. Apart from locating industry in Newry people will locate their homes there too.

I am delighted this discussion is taking place. The problem has existed for a number of years and it needs to be dealt with as soon as possible in light of the peace process.

I thank Deputies for tabling this amendment which was more for the purpose of debate than having such a radical change. I assure Deputy McDowell that the State, under different administrations, has learned the lesson of price distortion between different taxation regimes. We need only recall the mid-1980s when there was a wide price differential between the cost of white goods and VAT rates north and south of the Border. There has been some harmonisation and convergence of the rates driven as much by loss of trade across the Border as anything else.

We must address this, as Deputy McGinley said, in the context of the frontier workers regime which exists in other European countries within the EU. It is imperative that we take this on board now and the peace process will raise the curtain on it as Deputy McDowell stated. It is a fundamental principle of any tax treaty that one is not disadvantaged by working under one regime and living under another, that is, paying more tax than if you lived and worked under the same tax regime. People cannot have it both ways: live in the South and pay tax in the North while enjoying the benefits of our system. That is not on offer. What is on offer is fairness, equality and, hopefully in time, convergence of the rates in both jurisdictions to avoid the distortions in excise duty and VAT we experienced earlier regarding movement of goods. Anyone who thinks what is on offer is high salaries in the Republic and low UK tax rates in the North should forget it.

The position has been aggravated by the fact that there are agreements between Governments that Government employees do not get a circular transfer. Deputy O'Hanlon referred to this. The categorisation for many workers in Northern Ireland was changed from being Government employees to being employees of one body or another. This had a disastrous effect on their tax position and was an unforeseen consequence of the change in their categorisation.

Deputy McGinley referred to a working party I met with my colleague Senator Moloney. An estimated 12,000 people are affected and the estimated revenue loss would be £12 million. Pensioners are included in that number. Part of the problem is they thought they had signed off in 1926 in a document entitled: The Final Financial Settlement between His Majesty's Government and the Free State. Obviously they did not get it right.

I will try to resolve the matter on the clear understanding it will be based on fairness.

It is now 12.45 p.m. and, in accordance with an order of the Dáil of 17 May 1995, I am required to put the following question: "That the amendments set down by the Minister for Finance and not disposed of are hereby made to the Bill; that Fourth Stage is hereby completed and that the Bill is hereby passed."

Question put.
The Dáil divided: Tá, 79; Níl, 63.

  • Ahearn, Theresa.
  • Barrett, Seán.
  • Barry, Peter.
  • Bell, Michael.
  • Bhamjee, Moosajee.
  • Boylan, Andrew.
  • Bradford, Paul.
  • Bhreathnach, Niamh.
  • Bree, Declan.
  • Broughan, Tommy.
  • Browne, John (Carlow-Kilkenny).
  • Bruton, John.
  • Bruton, Richard.
  • Burke, Liam.
  • Burton, John.
  • Byrne, Eric.
  • Carey, Donal.
  • Connaughton, Paul.
  • Connor, John.
  • Costello, Joe.
  • Coveney, Hugh.
  • Crawford, Seymour.
  • Creed, Michael.
  • Crowley, Frank.
  • Currie, Austin.
  • Deasy, Austin.
  • Deenihan, Jimmy.
  • De Rossa, Proinsias.
  • Doyle, Avril.
  • Dukes, Alan M.
  • O'Shea, Brian.
  • O'Sullivan, Toddy.
  • Owen, Nora.
  • Pattison, Séamus.
  • Penrose, William.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Ring, Michael.
  • Ryan, John.
  • Ryan, Seán.
  • Ferris, Michael.
  • Fitzgerald, Brian.
  • Fitzgerald, Eithne.
  • Fitzgerald, Frances.
  • Flaherty, Mary.
  • Gallagher, Pat.
  • Gilmore, Eamon.
  • Higgins, Jim.
  • Higgins, Michael D.
  • Hogan, Philip.
  • Howlin, Brendan.
  • Kavanagh, Liam.
  • Kemmy, Jim.
  • Kenny, Enda.
  • Kenny, Seán.
  • Lowry, Michael.
  • Lynch, Kathleen.
  • McCormack, Pádraic.
  • McDowell, Derek.
  • McGahon, Brendan.
  • McGinley, Dinny.
  • McGrath, Paul.
  • McManus, Liz.
  • Mitchell, Gay.
  • Mitchell, Jim.
  • Mulvihill, John.
  • Nealon, Ted.
  • Noonan, Michael. (Limerick East).
  • O'Keeffe, Jim.
  • Shatter, Alan.
  • Sheehan, P.J.
  • Shortall, Róisín.
  • Spring, Dick.
  • Stagg, Emmet.
  • Taylor, Mervyn.
  • Timmins, Godfrey.
  • Upton, Pat.
  • Walsh, Eamon.
  • Yates, Ivan.

Níl

  • Ahern, Bertie.
  • Ahern, Dermot.
  • Ahern, Michael.
  • Ahern, Noel.
  • Andrews, David.
  • Aylward, Liam.
  • Brennan, Matt.
  • Brennan, Séamus.
  • Briscoe, Ben.
  • Browne, John (Wexford).
  • Burke, Raphael P.
  • Byrne, Hugh.
  • Callely, Ivor.
  • Clohessy, Peadar. Coughlan, Mary.
  • Cowen, Brian.
  • Cullen, Martin.
  • Davern, Noel.
  • Dempsey, Noel.
  • de Valera, Síle.
  • Doherty, Seán.
  • Ellis, John.
  • Fitzgerald, Liam.
  • Flood, Chris.
  • Foley, Denis.
  • Geoghegan-Quinn, Máire.
  • Haughey, Seán.
  • Jacob, Joe.
  • Kenneally, Brendan.
  • Keogh, Helen.
  • Killeen, Tony.
  • Kirk, Séamus.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lenihan, Brian.
  • Leonard, Jimmy.
  • Martin, Micheál.
  • McCreevy, Charlie.
  • McDaid, James.
  • McDowell, Michael.
  • Moffatt, Tom.
  • Morley, P.J.
  • Moynihan, Donal.
  • Nolan, M.J.
  • Noonan, Michael. (Limerick West).
  • O'Dea, Willie.
  • O'Donnell, Liz.
  • O'Donoghue, John.
  • O'Hanlon, Rory.
  • O'Keeffe, Batt.
  • O'Leary, John.
  • O'Malley, Desmond, J.
  • O'Rourke, Mary.
  • Power, Seán.
  • Quill, Máirín.
  • Ryan, Eoin.
  • Smith, Brendan.
  • Smith, Michael.
  • Treacy, Noel.
  • Wallace, Dan.
  • Wallace, Mary.
  • Walsh, Joe.
  • Woods, Michael.
Tellers: Tá, Deputies Barrett and B. Fitzgerald; Níl, Deputies D. Ahern and Callely.
Question declared carried.

I express my appreciation to my colleagues on the opposite benches and to my own colleagues for their co-operation and support during the course of the debate on this Bill.