May I share my time with Deputy Fitzgerald?
Adjournment Debate. - EU Funding.
Is that agreed? Agreed.
Government bungling has endangered the master plan for the development of Dublin's dockland area. It has also jeopardised the success of measures for which we legislated this year to promote both urban and rural renewal schemes. The Dublin docklands development plan was announced with great fanfare by the Minister for the Environment and Local Government, Deputy Dempsey, in December of last year.
It was not until the Committee Stage debate on the urban renewal Bill last June that the Government admitted it had not covered all the necessary angles either for the Dublin docklands plan or the urban and rural renewal schemes. The Government admitted that the EU Commission would not accept certain aspects of the schemes and it amended those aspects accordingly. It now appears the Government did not get it right even then, and that there are still some aspects of the schemes about which the EU Commission has reservations.
There are only two possible explanations for this — either the Government failed to understand what the Commission originally said or it has failed to persuade the Commission of the need for and value of these schemes. Whichever way the Government bungled it, the result is that a cloud of uncertainty hangs over the docklands plan and over the urban and rural renewal schemes which could deal with unemployment blackspots outside Objective One areas.
A measure of the problem can be found in the chairman's statement in the 1997 annual report and accounts of the Dublin Docklands Development Authority. He said one of the major challenges which has emerged since the formation of the authority arises from changes introduced in the last budget and that the authority would have to find creative ways of ensuring that the private investment required for sustainable regeneration of docklands meets the levels envisaged in the master plan. In other words, there were already problems with the plan and they have now been exacerbated by further Government bungling.
The private sector is being relied on to produce investments of £400 million in the docklands over the next 15 years. To the extent that it is not forthcoming, public investment of £1.2 billion over the same period will also be reduced. Last June, the Minister of State, Deputy Molloy, tabled an amendment to insert a new section into the urban renewal Bill. That section was inserted to get the approval of the Commission, but it was not obtained. It now appears the difficulties were more wide-ranging than was admitted at the time. Will the Minister tell us what action is being taken? When will the Government fully understand the problem and when will the matter be resolved so these schemes can come into operation?
The Dublin docklands development gives an unparalleled opportunity for the development of this area in Dublin. Credit must be given to everyone involved in the project. In my constituency, I was particularly struck by the work of the community liaison committee and the focus on creating local employment, training and education opportunities in an area which has seen more than 30 per cent unemployment and dropout rates of 60 per cent of children under 16 years from schools.
The master plan for the Dublin docklands development area is a strategy for the social, economic and physical rejuvenation of the docklands area and it has been developed in consultation and partnership with a wide range of interests, including local residents, community groups, business interests, environmental groups and statutory bodies. It would be a disaster for the Dublin area if funding for this development was under threat.
I would ask the Government and the Minister to spell out what exactly has happened which has led to this extraordinary situation. The uncertainty about current funding within the Commission could be very damaging to this ambitious project which means so much for Dublin, particularly for those living in the area. I gave the statistics on unemployment and school dropout in the local area. I support what my colleague, Deputy Dukes, said and ask the Government to outline what steps it is taking to secure funding for this scheme and to outline the sequence which has led to this impasse?
The Minister will agree that certain operating assumptions have been made in relation to the time extension, particularly for the Custom House docks development. Perhaps these assumptions may be questioned given what we are hearing from the Commission. Does this decision have implications for future generations of urban renewal schemes in the Dublin area? Is there a need for the Dublin Docklands Development Authority, as it is allowed under the legislation, to put in some new requests for urban renewal schemes which perhaps do not need funding at EU level?
I call on the Minister.
I understood my matter would be grouped with the previous one and the Minister would give a ten minute response.
I did not get notice of that.
That was my understanding also.
The Deputy has five minutes.
The matters are very similar, although mine was broader than the specific issue of funding for the docklands authority raised by Deputy Dukes and Deputy Fitzgerald.
The Minister will be aware of reports in some national newspapers today to the effect that the European Commission is blocking proposals made by his Department to implement the urban and rural renewal schemes approved by the House earlier this year. This report is the latest in series of reports from Brussels which suggest that the Commission is becoming increasingly unsympathetic to Irish efforts to direct aid to the poorest parts of our country.
The truth of the matter is that the reluctance of the Commission to give the green light to these proposals is just the thin end of the wedge. What is happening is little short of a sea change in our relations with the Commission and other member states of the European Union. For 25 years Ireland has been a net beneficiary of EU aid. We have benefited hugely from direct transfers financed by the taxpayers of Germany, the Netherlands and other countries, latterly Sweden and Austria. These transfers have come by way of the Structural and Cohesion Funds, the SF and the CAP. It is commonly accepted that these transfers have played an important part in the economic success we are now enjoying.
Having said that, it is important that we appreciate and accept that the circumstances have now changed quite dramatically. Our income per capita is now very close to Union average. The Union is looking to enlarge to the east and to include countries which are by any objective criteria a good deal poorer than Ireland. Even more important perhaps is the change in circumstances in some countries which have long since provided the bulk of the Union's budget. Germany now has 4 million people unemployed and there is still a great deal of work to be done in integrating the eastern part of Germany into the Federal Republic. In those circumstances, it is genuinely very difficult for German politicians to justify the special treatment Ireland has enjoyed for so long. We have been too slow to recognise these new realities. The day of the handout is effectively gone. It is time to put away the begging bowl and to start to pull our weight.
This requires a fundamental change in our approach to the European Union. If we continue with a strategy designed to extract every last ecu from the German taxpayer we will very quickly lose much of the sympathy and support which has sustained us for many years. We are in the EU for the long-term and it is time we started to think long-term. If we use up all our credits in the short-term, we may find we have few friends left when, and if, real problems arise. I suspect that is what is happening as things stand.
In relation to the subject matter of this debate, I ask the Minister to share some information with us. When was the extension to the Custom House docks scheme put to the Commission and what response has been received? The Minister told the House last June that the Commission was only concerned with ongoing aid, such as rent and rates relief. In fact, the House amended the Finance Act to cater for this apparent concern on the part of Commissioner Van Miert. Will he confirm that that is the concern of the Commission and that it is happy to approve the capital allowance incentives set out in each of the urban and rural renewal schemes?
As an aside, will the Minister also let us know how things stand in relation to the regional airport projects and other applications still pending? The message should go out from this House that we are all most unhappy at the delay in dealing with these applications. I know the docklands authority in Dublin is working on the presumption that approval will ultimately be given but time is rapidly running out. It is important to those concerned that they are told sooner rather than later that their projects can continue and on the basis foreseen heretofore. Any further delay could threaten projects which are vital to some of the poorest communities in the country.
It is remarkable that the Government is considering subregionalising the country with the stated aim of giving disproportionate benefits to the counties of the midlands, west and Border. It would be ironic if we were to be prevented from spending some of our money in seeking to develop those counties.
This item was mentioned on RTE yesterday morning and was the subject of a headline story and an editorial today in one of the main newspapers. However, I wish to point out that the difficulties in securing EU approval for various tax incentive schemes have been mentioned in several replies by me to parliamentary questions over the past month as well as in a press release last June.
The origin of our problems with the European Commission in this area goes back to May 1997 after a media report about the extension of the enterprise areas tax reliefs to Knock Airport in the Finance Act, 1997. It appears that the European Commission thought as a result of the media report that the Government was extending to Knock Airport the long-standing 10 per cent corporation tax regime available to the Shannon Airport Zone. This special tax regime for this zone is a State aid and needed European Commission approval. The Commission immediately sent a strong letter to the Irish authorities demanding full details of the proposals. This led to several months of negotiations with the Commission which culminated last December in approval for the tax reliefs for the nonairport enterprise zones.
These tax reliefs were accelerated capital allowances for the construction or refurbishment of commercial buildings, double rent relief for the lessees of these buildings for ten years and rates remission on a sliding scale also for ten years. Deputy McDowell, as a member of the committee which discussed the Finance Act, will recall me speaking at length about these matters at that time. Although they were never intended, I referred to the problems that the by-election in Mayo caused and which led us down this road in the first place. I gave a detailed reply to a question on Committee Stage in that regard.
That little finesse will not work. The Minister cannot shift the blame that way.
This is the unvarnished truth of the matter.
There is a much more interesting piece later in the Minister's speech.
The Minister should be allowed to continue without interruption.
Unfortunately, after the wonderful exposé in May 1997, the European Commission wrote to the Government and asked what it was doing. Arising from that, the enterprise zones which had been in existence for some time were brought under scrutiny. It took me until last December, after the budget, to secure approval for the existing enterprise zones.
Excellent.
It was an excellent idea. However, the European Commission only gave permission for the enterprise zones and the regional airports proposal on a project by project basis.
It is always somebody else's fault.
Members who took part in the discussions on Committee Stage of the Finance Bill understand this matter because I explained it in detail.
Following the December 1997 approval, the European Commission was formally notified last January of proposals to give the same tax reliefs to a 12 acre extension to the Custom House docks area with effect from 24 January next. A meeting took place with the Commission in Brussels on 6 February to discuss this proposal. The new rural and urban renewal schemes were also discussed at this meeting. Aside from delays, the first indication from the Commission that there might be a problem from its point of view was given at a meeting in Dublin in mid-April. This was confirmed at a follow up meeting in Brussels on 25 May last.
The Commission's view is that the double rent relief and the rates remission are operating aid, in other words, that they reduce the annual profits of the enterprise for ten years for tax purposes. The Commission contends that these two reliefs should in general no longer apply for new projects for ten years because Ireland has moved from a country coming under Article 92(3)(a) of the EU Treaties to one coming under Article 92(3)(c) as a result of the recent very significant improvement in the economy. Article 92(3) states:
The following may be considered to be compatible with the common market:
(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment; and
(b) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.
The State Aids Directorate of the European Commission interprets these provisions in accordance with their own guidelines and European Court decisions and in the context of recent relevant economic data for the areas involved. More favourable state aid rules apply to an Article 92(3)(a) area than an Article 92(3)(c) area.
As a result of these EU concerns, a number of amendments were made to both new urban and rural renewal schemes on Committee Stage of the Urban Renewal Bill on 23 and 24 June. They were inserted at my request because double rent and rates relief will be reduced. The Minister for the Environment and Local Government added a section to the Bill to ensure that when the schemes are put into operation, more attractive capital allowance measures will be available to make up for the almost certain shortfall following the removal of the double rent and rates reliefs.
The taxation provisions for these two schemes had been legislated for earlier in the Finance Act, 1998. The key June amendment was to increase the capital allowances from 50 per cent to 100 per cent under these schemes in situations where the double rent relief will not apply. I announced these changes in a press release on 24 June in which I specifically stated:
The EU Commission has indicated to Ireland that it is now opposed, on State Aids grounds, to granting the double rent relief except for smallscale activities or locally based services in areas where physical dereliction is associated with social disadvantage or high unemployment.
This was in addition to the detailed comments I gave on Committee and Report Stages of the Finance Bill on this matter. In light of the apparent general non-awareness of this announcement and of my recent replies to parliamentary questions, I must sadly come to the conclusion that elements of the media never read ministerial press releases or detailed replies to parliamentary questions.
Is the Minister surprised?
In that regard, Deputy Dukes and I are ad idem. I recall the late Brian Lenihan's advice to all Ministers. He said one could announce good news at least five times over a period of 12 months because most people did not follow it in the first place and one could keep repeating it.
The Minister is following that perception.
The corollary of the Lenihan argument is that one can announce facts as often as one likes in ministerial press releases and replies to parliamentary questions, but nobody picks them up. This matter has been in the public domain for some time. It has come as a considerable shock in recent days to some people in the media, although it was announced inside and outside the House.
What about the extension for the Custom House docks area?
After the passage of the Urban Renewal Bill, a further meeting was held with the Commission in Brussels on 28 July. A detailed reply was sent last week to the Commission in response to its most recent letter of mid-September to the Irish authorities. The position today is that we are awaiting the Commission's response to our last letter.
If the problem is solved, why is there no reply?
The Minister should be allowed continue without interruption.
Deputy Dukes probably knows more about this matter than other Members. I wish to point out that the residential tax incentives under the new rural renewal scheme commenced on 1 June last, as I announced in a press release. Commission approval is not needed for such residential incentives. I also point out that the relevant Commission officials have so far not objected to the accelerated capital allowances for the construction or refurbishment of commercial and industrial buildings because these are considered to be investment rather than operating aids.
I also emphasise that the various tax reliefs involved are the same as or similar to those approved by the Commission for the original urban renewal scheme in 1986. This included the Custom House docks area. Furthermore, I wish to emphasise that the double rent relief and the rates remission were approved by the Commission for the enterprise areas in Dublin as recently as last December and that the Irish authorities were consequently taken aback when the Commission changed its views so abruptly during the year.
Deputy McDowell raised the Custom House docks area. This extension was applied for last January. One would have thought, since it only involved an extension to an existing scheme, that there would have been no difficulty. However, the matter has dragged on and there is still no decision. Furthermore, all the other proposed tax incentives, including the new urban and rural renewal schemes, the section relating to wind energy in the Finance Act and another scheme, are being debated by the European Commission. Approval has not been received for any of them.
It is time the Minister got on his bike.
This matter relates to the double rent and rates reliefs which the Commission regards as operating aids. The Commission does not appear to have an objection to the accelerated capital allowances. Ireland's tax incentives are under continuing focus.
I do not recall the Minister opposing it.
It is almost certain that the double rent and rate relief will no longer apply, except in special circumstances. As of today, we have no indication from the Commission that accelerated capital allowances will be under threat.
Deputy Fitzgerald spoke of funding. This has nothing to do with funding the Dublin docklands area but with tax incentives. There is no EU funding for the Dublin docklands project.
The operating assumptions——
The Minister should conclude as he has exceeded his time.
There was a question on the regional airports scheme. The Commission has ruled out the double rent relief and rates remission. However, the capital allowances will be allowed on a case by case basis. No regional airport project has yet progressed sufficiently to be sent for approval by the Commission. The approval sought in December 1997 for the enterprise areas was given, but regional airports will be considered on a case by case basis. No airport case has yet come up for approval, with the exception of Cork regional airport.
That was the soft shoe shuffle — astonishing.